Revenue Optimization for a Make-to-Order Queue in an Uncertain Market Environment

Operations Research, Vol. 57, No. 6, pp. 1407-1450., November-December 2009

Columbia Business School Research Paper

13 Pages Posted: 19 Oct 2011

See all articles by Omar Besbes

Omar Besbes

Columbia Business School - Decision Risk and Operations

Costis Maglaras

Columbia Business School - Decision Risk and Operations

Date Written: November 2009

Abstract

We consider a revenue maximizing make-to-order manufacturer that serves a market of price and delay sensitive customers and operates in an environment in which the market size varies stochastically over time. A key feature of our analysis is that no model is assumed for the evolution of the market size. We analyze two main settings: i) the size of the market is observable at any point in time; and ii) the size of the market is not observable and hence cannot be used for decision-making. We focus on high-volume systems that are characterized by large processing capacities and market sizes, and where the latter fluctuate on a slower time scale than that of the underlying production system dynamics. We develop an approach to tackle such problems that is based on an asymptotic analysis and that yields near-optimal policy recommendations for the original system via the solution of a stochastic fluid model.

Suggested Citation

Besbes, Omar and Maglaras, Costis, Revenue Optimization for a Make-to-Order Queue in an Uncertain Market Environment (November 2009). Operations Research, Vol. 57, No. 6, pp. 1407-1450., November-December 2009; Columbia Business School Research Paper . Available at SSRN: https://ssrn.com/abstract=1946394

Omar Besbes (Contact Author)

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

Costis Maglaras

Columbia Business School - Decision Risk and Operations ( email )

New York, NY
United States

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