Coordination of marketing and production for price and leadtime decisions

Pelin Pekgün · Paul M. Griffin · Pınar Keskinocak

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Supply Chain and Inventory Management Merger and Competition Analysis Operations Management Techniques

Abstract

We study a firm which serves customers that are sensitive to quoted price and leadtime, with pricing and leadtime decisions being made by the marketing and production departments, respectively. We analyze the inefficiencies created by the decentralization of the price and leadtime decisions. In the decentralized setting, the total demand generated is larger, leadtimes are longer, quoted prices are lower, and the firm's profits are lower as compared to the centralized setting. We show that coordination can be achieved using a transfer price contract with bonus payments. We also provide insights on the sensitivity of the optimal decisions with respect to market characteristics, sequence of decisions and the firm's capacity level.

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References

2003Supply Chain Coordination with Contracts 1990Optimal Incentive-Compatible Priority Pricing for the M/M/1 Queue 2021SUPPLY CHAIN MANAGEMENT: A REVIEW 1998Price, delivery time guarantees and capacity selection 1990User Delay Costs and Internal Pricing for a Service Facility 2003Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets 2003Customer lead time management when both demand and price are lead time sensitive 2002Why should marketing and manufacturing work together?

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