Coping with production time variability via dynamic lead-time quotation

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Official URL: http://dx.doi.org/10.1007/s00291-015-0425-8

In this paper, we propose two dynamic lead-time quotation policies in an M/GI/1 type make-to-stock queueing system serving lead-time sensitive customers with a single type of product. Incorporating non-exponential service times in an exact method for make-to-stock queues is usually deemed difficult. Our analysis of the proposed policies is exact and requires the numerical inversion of the Laplace transform of the sojourn time of an order to be placed. The first policy assures that the long-run probability of delivering the product within the quoted lead-time is the same for all backlogged customers. The second policy is a refinement of the first which improves the profitability if customers are oversensitive to even short delays in delivery. Numerical results show that both policies perform close to the optimal policy that was characterized only for exponential service times. The new insight gained is that the worsening impact of the production time variability, which is felt significantly in systems accepting all customers by quoting zero lead times, decreases when dynamic lead-time quotation policies are employed.