Manufacturing lead times, system utilization rates and lead-time-related demand

This paper presents a model to study manufacturing lead time planning problems for make-to-order manufacturing systems facing two types of customer demand. One type of demand is manufacturing lead-time-sensitive, and higher prices prevail for short lead times; the other type of demand is lead-time-insensitive. The objective is to maximize the expected profit. The form of the optimal policies in terms of manufacturing lead times and customer order-acceptance rates is characterized for the general model developed. It is shown that the optimal policy has the effect of both providing short manufacturing lead times and increasing system utilization rates, while the expected profit is maximized. The specific optimal policies are developed for an application of the general model to a make-to-order manufacturing system modeled as a queueing system.