Quoting lead times when quotes directly affect customer satisfaction

Abstract

We study a lead-time quotation and pricing problem for a make-to-order manufacturer or service provider. Unlike previous research in this space, we allow the act of quotation to affect customers’ perceptions of delay. We conduct a controlled experiment that confirms that quotes act as reference points for customers. Based on this evidence, we build static and dynamic models in which customers’ utility explicitly captures the interaction between quotes and waiting times, which the provider then considers when supplying quotes to customers. We use these models to derive optimal static and dynamic quotation policies for a single-server queue. The experiment, which mimics a situation where accuracy in quotation is valued, also demonstrates a negative linear relationship between quote inaccuracy and the participants’ overall satisfaction. Unlike previous work in this area, we find that shorter waits can induce dissatisfaction if service concludes earlier than the lead-time quotation. Based on this empirical finding, we examine a customers’ cost function with a piecewise linear component. We find that is not always optimal to supply quotes higher than the expected waiting times, contrary to the conventional wisdom of “under-promise and over-deliver”.

Biography

Tava Olsen is the Deputy Dean and Professor of Operations and Supply Chain Management at Melbourne Business School (MBS). A native New Zealander, Tava received her B.Sc. (honours) in Mathematics from the University of Auckland and P​h.D. in Operations Research from Stanford University. Following her PhD, she started her academic career at the University of Michigan’s Department of Industrial and Operations Engineering before moving to Washington University’s Olin Business School. In 2010 Tava joined the University of Auckland Business School as the Ports of Auckland Chair of Operations and Supply Chain Management and the Director of the Centre for Supply Chain Management. At Auckland she undertook a variety of leadership roles, including Head of Department and Deputy Dean. Tava is an expert in the stochastic and economic modelling of production, service, agricultural, and health systems. Among other journals, she has extensive experience publishing in and serving as Associate or Senior Editor for Operations Research, Management Science, Manufacturing and Service Operations Management, and Production and Operations Management; her most notable editorial work was as Operations and Supply Chain Area Editor at Operations Research between 2018 and 2023. Tava has also served as President of the Manufacturing and Service Operations Management Society.