Coordinated price quotation and production scheduling for uncertain order inquiries

Abstract

This article studies the joint price quotation and production scheduling problem for a manufacturer. The novelty of the work includes modeling the uncertainty in the customer’s order placement, as well as considering the detailed sequencing decision for multiple distinct orders, in a unified framework. We derive closed-form expressions for the expected production cost, measured by the total weighted completion time, under a given set of price quotations and then design dynamic programming algorithms to find the optimal price quotations. The proposed model and algorithms are validated by computational experiments. Important managerial insights are provided. First, the manufacturer only needs to evaluate a few discrete prices to quote, rather than consider a full, continuous spectrum of prices. Second, knowing accurate information on order placement probabilities is important for the manufacturer to make profitable pricing and scheduling decisions. Third, the integrated decision on price quotation and production scheduling has a significant advantage in profit maximization compared with various alternative decision approaches. The quotation model also demonstrates efficiency in quoting dynamically arriving inquiries. [Supplementary materials are available for this article. Go to the publisher’s online edition of IIE Transactions for the proof of Theorem 3.]

Keywords:

• Pricing
• scheduling
• coordination