Simultaneous price and due date settings for multiple customer classes

Abstract

Extending the model of [Eur. J. Oper. Res. 116 (2) (1999) 305] that, under contingent capacity, simultaneously optimizes the bidding price and due date for each incoming order, we propose a bidding model with multiple customer segments classified based on parameters of willingness to pay, sensitivity to short delivery time, quality level requirement, and intensity of competition. The winning probability function was also modified to be of more practical and robust model in reflecting stochastic nature of customer’s decision. Two sequencing rules, namely the early-due-date (EDD) for time-critical orders and first-come-first-serve (FCFS) for regular orders, were applied to determine the sequencing position of each incoming order, and a simplified pattern search algorithm was used to improve the efficiency in searching for optimal price and due date. The simulation results show that, in general, our proposed model and method can significantly increase the marginal revenue to the firm. 2004 Elsevier B.V. All rights reserved.

DOI: 10.1016/j.ejor.2004.02.011

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