Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue

This paper considers a profit maximizing make-to-order manufacturer that offers multiple products to a market of price and delay sensitive users, using a model that captures three aspects of particular interest: first, the joint use of dynamic pricing and leadtime quotation controls to manage demand; second, the presence of a dual sourcing mode that can expedite orders at a cost; and third, the interaction of the aforementioned demand controls with the operational decisions of sequencing and expediting that the firm must employ to optimize revenues and satisfy the quoted leadtimes. Using an approximating diffusion control problem we derive near-optimal dynamic pricing, leadtime quotation, sequencing, and expediting policies that provide structural insights and lead to practically implementable recommendations. A set of numerical results illustrates the value of joint pricing and leadtime control policies.