The impact of estimation error on the dynamic order admission policy in B2B MTO environments

Authors:
Andy Wei-Di Wu;David Ming-Huang Chiang
Affiliations:
National Taiwan University, College of Management, Graduate Institute of Business Administration, Floor 9, No. 1, Section 4, Roosevelt Road, Taipei, Taiwan;National Taiwan University, College of Management, Graduate Institute of Business Administration, Floor 9, No. 1, Section 4, Roosevelt Road, Taipei, Taiwan
Venue:
Expert Systems with Applications: An International Journal
Year:
2009

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Abstract

When swarming demands cause stringent capacity situations, order promising becomes a challenging job. However, a dynamic order admission policy by utilizing the concept of revenue management may find a good way to solve the problem. Unfortunately, the expected profit under different dynamic order admission policies is sensitive to the estimation error of order forecasts. In this paper, the impact of estimation error is investigated under various order structures. The post analysis is performed and shows significant statistical difference among the optimal unbiased DSKP policy, biased DSKP policy, and FCFS policy. The results reveal the robustness and superiority of DSKP policy in most scenarios.