EURO 2025 Leeds
Abstract Submission

2359. Dynamic Control of Multiclass Omnichannel Production Systems: Applications to Dynamic Pricing in Restaurants

Invited abstract in session WD-54: Stochastic Models and Optimal Control , stream Stochastic modelling.

Wednesday, 14:30-16:00
Room: Liberty 1.08

Authors (first author is the speaker)

1. Nasser Barjesteh
Rotman School of Management, University of Toronto
2. Amir Alwan
Lubar College of Business, University of Wisconsin-Milwaukee

Abstract

The rise of omnichannel production systems has transformed various industries, introducing new challenges in demand and operations management. One notable development is the adoption of dynamic pricing in omnichannel restaurants. Motivated by these trends, we develop a stochastic processing network model for an omnichannel production system serving price- and delay-sensitive customers. The firm offers a mix of make-to-order (MTO) and make-to-stock (MTS) goods, available through both walk-in and online channels, at multiple quote times. The objective is to maximize the long-run average expected profit through dynamic pricing, production scheduling, and order rejection decisions. MTO orders incur both earliness and tardiness costs, while MTS orders face tardiness and inventory holding costs. Walk-in customers have finite patience and may abandon the system if their wait time is excessive.

Since this problem appears analytically intractable, we consider an approximating Brownian control problem in the heavy-traffic regime. We prove that the optimal policy is a two-sided barrier policy with a state-dependent drift rate, for which we derive a closed-form solution. We then propose a joint dynamic pricing, scheduling, and rejection policy by interpreting this solution in the context of the original production system. Finally, we demonstrate the effectiveness of our proposed policy through a comprehensive simulation study and offer managerial insights.

Keywords

Status: accepted

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