Department of Business Administration2024-11-0920092472-585410.1080/074081708019750402-s2.0-74849132554https://hdl.handle.net/20.500.14288/2282A manufacturing firm that builds a product to stock to meet a random demand is studied. Production time is deterministic, so that if there is a backlog, customers are quoted a lead time that is proportional to the backlog. In order to represent the customers' response to waiting, a defection functionthe fraction of customers who choose not to order as a function of the quoted lead timeis introduced. Unlike models with backorder costs, the defection function is related to customer behavior. Using a continuous flow control model with linear holding cost and Markov modulated demand, it is shown that the optimal production policy has a hedging point form. The performance of the system under this policy is evaluated, allowing the optimal hedging point to be found.pdfEngineeringOperations research and management scienceJournal Article2472-5862https://doi.org/10.1080/07408170801975040264641400003Q1NOIR01092