Minimal lead time quotation under service level constraint

Abstract

In today's competitive market, companies that offer a high quality service at a reasonable cost, survive the competition. A major factor contributing to high service quality is the ability to meet customers’ demand with a short lead time. Short lead time and on time delivery are two conflicting objectives. A reasonable balance between these objectives is necessary. The published research works on due date quotation make restrictive assumptions regarding the production process, considering only the production lead time, ignoring suppliers lead times, and/or rejecting some orders. No model can be found in the literature that considers all of these characteristics simultaneously. The proposed research considers a system to which orders arrive over time. Every order has a desired range of delivery date as defined by the customer. We consider order cost of delay that represents the cost of quoting due dates greater than requested. A two phase model is considered that assumes that production is constrained by a supply process. At arrival, each order is to be assigned a due date based on the status of the system. The system status is affected by internal factors including the level of WIP as well as external factors such as the supplier process. The due dates are to be assigned so that company’s objectives, defined by customer satisfaction and retention are achieved. It is desired to accept all orders, and to maximize on-time delivery of orders without placing any restriction on the behavior of the production process. The comparative results indicate that the proposed procedure is effective in quoting minimum lead times to achieve a given level of customer satisfaction.