Fall 2000

ME/IE 8773-8774

PRODUCT LINE SELECTION AND PRICING DECISIONS WITH MAKE-TO-ORDER AND MAKE-TO-STOCK ALTERNATIVES

by

Candace Yano, Ph.D.
Professor & Chair
Industrial Engineering and Operations Research Department
University of California at Berkeley
Berkeley, CA 94720-1777

Wednesday, December 13, 2000
3:30-5:00 p.m.
Room 108 ME
Broadcast on UNITE Channel A

Coffee and cookies will be available in 152 ME following the seminar

In an era of mass customization, many firms continue to expand their product lines in order to remain competitive. These broader product lines may help to increase market share and may allow higher prices to be charged, but also cause challenges in manufacturing a larger variety of products. To investigate this tradeoff, we consider a manufacturer who faces demand curves, which, for each of its potential products, decline with both price and response time (time to deliver the product). The firm must decide which products to offer, how to price them, whether each should be make-to-stock (MTS) or make-to-order (MTO), and how often to produce them. The offered products share a single manufacturing facility. Setup times on the facility introduce diseconomies of scope and setup costs introduce economies of scale. We first present motivating examples from two different industries. We then develop an optimization model for this problem and provide a characterization of the optimal solution, which provides the basis for an efficient solution procedure. We present managerial insights regarding the optimal prices, the product selection decisions, and the MTS vs. MTO decisions. Some of these results are unexpected and counter to common wisdom. This is joint work with Greg Dobson of the University of Rochester.

Prof. Candace Yano received a Ph.D. in Industrial Engineering from Stanford University in 1981. The focus of her research involves the design, planning and control of manufacturing and distribution systems, and the interface between these decisions and those related to marketing, quality, and other areas. Prof. Yano is interested in modeling these problems, devising solution procedures using quantitative techniques, and deriving managerial insights from the analysis.

Informal Faculty Luncheon: Wednesday, December 13, 2000, 12:00 noon, McCormick's Restaurant, Radisson Hotel Metrodome. Prof. Yano will be able to attend.