DELIVERY TIME QUOTATION AND ORDER PROCESSING WITH FORBIDDEN EARLY SHIPMENTS

We examine the problem of quoting a delivery time to a customer and subsequently processing the customer order, which a manager of a make-to-order firm faces quite often. For reasons of competitiveness, it is desirable to promise a short delivery time. However, because of capacity limitations, such a promise also induces the possibility of tardy deliveries for some items in the order. When acceptable, this is usually expensive; other-wise, to prevent the loss of sales, acquisition of additional processing capacity at a premium becomes necessary. The decision problem is further compounded when early shipments are forbidden, i.e. when the processed items in the order are to be held at their greatest value-added state until the promised delivery time. In this paper, we combine the various tradeoffs involved in the problem to first formulate a basic aggregate cost model. We derive the properties essential for the solution of this model, establish its complexity, and present effective solution procedures (both exact and approximate). Finally, we discuss many practical extensions of the basic model, and indicate how these might be solved.