Dynamic Price Quotation in a Responsive Supply Chain for One-of-a-Kind Production

Abstract

This paper studies the setting in which a one-of-a-kind production (OKP) firm offers two types of orders (due-date guaranteed and due-date unguaranteed) at different prices to the sequentially arriving customers, who are also OKP production firms. The prices for two types of orders are quoted to each customer on its arrival. We study two problems in this setting. First, we model a dynamic pricing strategy (DPS) and compare our DPS with a constant pricing strategy (CPS). Through a numerical test, we show that both the firm and its customers are better off when our DPS is employed, so that the DPS improves overall performance of the supply chain. Through an industry case, a custom window production firm, we show how to apply the proposed DPS when products are complex. We also develop a method to adaptively estimate the firm's available capacity, the number of future arrivals and the distributions of the customers' willingness to pay and impatience factor. The simulation result shows that, when multiple distribution parameters are unknown, the proposed parameter estimating method results in estimates close to the true values.