Price, capacity, and lead-time decisions for a make-to-order supply chain with two production modes

Abstract

This paper considers a supply chain consisting of one make-to-order (MTO) manufacturer and one retailer in a price and lead-time sensitive market. We develop a manufacturer-Stackelberg (MS) model with exogenous lead-time standard and a MS model with endogenous lead-time standard. We find that the endogenisation of the lead-time standard for the faster product may change the monotonicity of the equilibrium capacity for the faster product in the lead-time sensitivity and the cross effect of lead-time; and change the monotonicity of the price difference between the two products in the cross effect. We also consider a retailer-Stackelberg (RS) model to examine the effect of market power on equilibrium outcome. We find that: 1the higher market power for the retailer expands demand rate differentiation as well as capacity differentiation between the two products 2the manufacturer has a lower incentive to differentiate its products under RS than under MS.