Title

Demand management: A demonstration of the comparison of price and due date negotiation strategies using simulation

Date of Award

1996

Degree Type

Dissertation

Degree Name

Doctor of Philosophy (PhD)

Department

Business Administration

Advisor(s)

Paul M. Bobrowski

Keywords

demand management, Management, Business community

Subject Categories

Business Administration, Management, and Operations

Abstract

This dissertation considers the problem of demand management in a firm where a firm's historical delivery service level reputation influences the number of quotation requests from its potential customers. There is also a trade-off between net price and due date for each job for both the customer and the firm. The demand manager can bargain with the customer over price and a promised due date. Bargaining finishes with the customer either agreeing to a price and delivery date, or refusing the firm's bid and placing the order elsewhere. The firm's objective is to maximize its long term net revenue.

The firm's demand management negotiation strategy guides this bidding process. This research demonstrates the use of simulation to test different negotiation strategies for different market and company conditions. A demand management negotiation strategy consists of several parts: the due date estimation method, the bargaining approach, the minimum target price rates, and the uncertainty allowance used in generating the firm's proposed due dates. This simulation models a job shop model of five workstations with random routing and operation processing times.

This demonstration first develops sixteen scenarios to test different demand management negotiation strategies. This investigation compares finite scheduling based due date estimation methods, as well as the more traditional parameter based methods. The results illustrate that such a comparison can give useful guidelines. The preferred due date estimation methods for this evaluation are the classical methods which use parameters. The results show that the most common method, using the customer's first due date, is inferior to other methods. Full negotiation over both price and due date is the preferred bargaining approach.

The research concludes that firms should carefully evaluate their negotiation strategies, as using the wrong due date estimation method, bargaining approach, target price rates, or uncertainty allowance will affect revenue. The dissertation shows that simulation can be used to evaluate negotiation strategies easily.

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