DELIVERY GUARANTEES AND THE INTERDEPENDENCE OF MARKETING AND OPERATIONS

Delivery guarantees are an important element in a customer satisfaction program. When setting delivery guarantees, a firm must consider customer expectations as well as operational constraints. We develop a profit-maximization model in which a firm's sales organization, with incomplete information on operations' status, solicits orders and quotes delivery dates. If obtained, orders are processed in a make-to-order facility, after which revenue is received, minus tardiness penalty if the delivery was later than quoted. We specify conditions for an optimal log-linear decision rule and provide exact expressions for its effect on arrival rate, mean processing time, and mean cycle time.

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