Lot Sizing, Pricing and Lead Time Decisions with Time and Price Sensitive Demand

Speed has emerged, in addition to price, as the dominant factor in determining competitive advantage. Therefore, innovation-oriented firms have been competing along dimensions other than price, lead time being one such dimension. In this paper, we take a more complicated system: multiple operation system as research object to study how to make lot sizing, pricing and lead time decisions with time and price sensitive demand. This is different from many previous studies which take simple systems such as M/M/1, G/G/s as their object. In this paper, we develop an analytic model integrating both activity-based costing and mixed-integer programming to analyze the impact of demand and lot size on work-in-process and lead time, then studies the operating decisions of optimal lot size, lead time and price under given conditions and the effects of market capacity and raw material cost on these optimal decisions. The results provide useful managerial insights for making the best competing operating decisions for make-to-order (MTO) firms not only in service sectors but also manufacturing sectors