Market-Based Joint Decisions on Price, Delivery Time, Service Level, and Investment or Supplier Selection

Abstract

Product demand is modeled as a linear function of attributes including price, guaranteed delivery time, service level and/or quality. For different market segments, market characteristics, namely customer sensitivity on those attributes, are different. A firm or a supplier could be characterized by operation performances in cost, delivery time, service level and/or quality. Actual delivery time is deterministic or stochastic. Service level and guaranteed delivery time are independent decision variables under deterministic delivery time while service level is dependent on the guaranteed delivery time under stochastic delivery time. With stochastic delivery time, the service level is not always binding at the minimal value reserved by the manager or the market, as assumed in most literature. Results reveals that there may exist limits on performance reduce with cost increase or cost increase with performance enhancement. Specifically, the option with less cost must be chosen if the cost difference is more than one value while the option with better performance must be chosen if the performance difference is more than some specific value. Those specific values are dependent on current performance and market characteristics. Moreover, results denote that operation characteristics should be matched with market characteristics. Consequently, a market-based approach for supplier selection or investment is proposed in consideration of operation performances in cost, delivery time, service level, and/or quality in an integrated manner.