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

Authors: Tiaojun Xiao; Jing Shi

Addresses: School of Management Science and Engineering, Nanjing University, Hankou Road 22, Nanjing Jiangsu 210093, China. ' School of Management Science and Engineering, Nanjing University, Hankou Road 22, Nanjing Jiangsu 210093, China

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: 1) the higher market power for the retailer expands demand rate differentiation as well as capacity differentiation between the two products; 2) the manufacturer has a lower incentive to differentiate its products under RS than under MS.

Keywords: capacity; game theory; lead times; product differentiation; supply chain management; SCM; management science; make-to-order; MTO; price difference; Stackelberg; modelling.

DOI: 10.1504/IJAMS.2012.046229

International Journal of Applied Management Science, 2012 Vol.4 No.2, pp.107 - 129

Published online: 06 Aug 2014 *

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