Online Lead Time Quotation under Contingency

The success of make-to-order (MTO) firms relies on providing competitive quotations to customers and ensuring quoted lead times align with the ability to fulfill customized orders as promised. While customers can take some time to accept or reject a quotation, the firm is liable to meet quoted lead times or otherwise face tardiness penalties. The firm must continuously provide quotations under contingent demand information, pending decisions of previous customers. Since the probability of order acceptance decreases as the quoted lead time increases, the firm benefits from optimistic quotations and hedges against losing orders by overbooking resources. We model the online lead time quotation and production scheduling problem under contingent demand and propose a primal-dual algorithm to maximize the total profit from arriving orders in a single-machine environment. Profit is defined as the net revenue penalized by the cost of tardiness. We evaluate the performance of our proposed algorithm against conventional rules and an all-knowing offline oracle. Simulation experiments show significant savings associated with the primal-dual approach, highlighting the need for future research on online lead time quotation under contingent demand.