Article ID: | iaor200424 |
Country: | United States |
Volume: | 11 |
Issue: | 3 |
Start Page Number: | 393 |
End Page Number: | 410 |
Publication Date: | Sep 2002 |
Journal: | Production and Operations Management |
Authors: | Sobel Matthew J., Slotnick Susan A., Chatterjee Subimal |
Keywords: | production, marketing |
Delivery guarantees are an important element in a customer satisfaction program. When setting delivery guarantees, a firm must consider customer expectations as well as operational constraints. We develop a profit-maximization model in which a firm's sales organization, with incomplete information on operations' status, solicits orders and quotes delivery dates. If obtained, orders are processed in a make-to-order facility, after which revenue is received, minus tardiness penalty if the delivery was later than quoted. We specify conditions or an optimal log-linear decision rule and provide exact expressions for its effect on arrival rate, mean processing time, and mean cycle time.