Article ID: | iaor20061632 |
Country: | Netherlands |
Volume: | 164 |
Issue: | 1 |
Start Page Number: | 173 |
End Page Number: | 184 |
Publication Date: | Jul 2005 |
Journal: | European Journal of Operational Research |
Authors: | Liu John J., Ghose Sanjoy, Bhatnagar Amit, Kurata Hisashi |
Keywords: | marketing |
To study the determinants of choice between make-to-order (MTO) and make-to-stock (MTS), production scientists have traditionally focused on production-specific factors. However, the choice can be also influenced by marketing-specific factors such as the pricing strategy of retailers. This paper, therefore, develops a modeling framework to link the determination of the optimal production strategy of MTS–MTO to the retailing strategy of EDLP-HiLo. We characterize an optimal production strategy as one that maximizes total system wide profits in a centralized system. We show that the optimum production strategy would depend on whether the manufacturer is delivering to an every day low pricing (EDLP) store or to a high low pricing store (Hi–Lo). Additionally, the production plan is demonstrated to be a function of the nature and type of competition in the market. In particular, we study the duopoly model of competition, under both Bertrand and Stackelberg conjectures.