Supply Chain

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Supply Chain Management
Chapter 15 Pricing and Revenue Management in the Supply Chain Lecturer: Wilmer Jorge © 2007 Pearson Education 15-1

Outline
The Role of Revenue Management in the Supply Chain Revenue Management for Multiple Customer Segments Revenue Management for Perishable Assets Revenue Management for Seasonable Demand Revenue Management for Bulk and Spot Customers Using Revenue Management in Practice Summary of Learning Objectives © 2007 Pearson Education 15-2

The Role of Pricing and Revenue Management in a Supply Chain  We can increase supply chain profits by altering inventories and capacity to change available supply. Pricing is an important lever to increase supply chain profits by better matching supply and demand. Revenue management is the use of pricing to increase the profit generated from a limited supply of supply chain assets. SC assets: Capacity (production, transportation and storage) and inventory. © 2007 Pearson Education 15-3

The Role of Pricing and Revenue Management in a Supply Chain  Firms should first use pricing to achieve some balance between supply and demand and only then invest in or eliminate assets. A trucking company owns 10 trucks. One approach is to set a fixed price for its services. Using revenue management the firm could the following: - Charge a lower price to customers willing to commit their orders far in advance and a higher price to customers looking for transportation capacity at the last minute © 2007 Pearson Education 15-4

The Role of Pricing and Revenue Management in a Supply Chain - Another approach is to charge a lower price to customer with long-term contracts and a higher price to customers looking to purchase capacity at the last minute. - A third approach is to charge a higher price during periods of high demand and lower prices during periods of low demand.

A strategy that adjust prices based on product availability, customer demand, and remaining duration of the sales season will result in higher supply chain profits. © 2007 Pearson Education 15-5

The Role of Pricing and Revenue Management in a Supply Chain

 Rather than lower prices of all of its seats , American lowered the prices of a portion of the seats to price at or below PeopleExpress. Before the end of 1986, PeopleExpress collapsed. American Airlines used differential pricing to lower prices and attract passengers who would otherwise have flown PeopleExpress. © 2007 Pearson Education 15-6

The Role of Pricing and Revenue Management in a Supply Chain Revenue management adjusts the pricing and available supply of assets to maximize profits. One or more of the following conditions exist: - The value of the product varies in different market segments. - The product is highly perishable or product wastage occurs. - Demand has seasonal and other peaks. - The product is sold bulk and on the spot market.

© 2007 Pearson Education

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Conditions Under Which Revenue Management Has the Greatest Effect The value of the product varies in different market segments (Example: airline seats). The product is highly perishable or product waste occurs (Example: fashion and seasonal apparel). Demand has seasonal and other peaks (Example: products ordered at Amazon.com). The product is sold both in bulk and on the spot market (Example: owner of warehouse who can decide whether to lease the entire warehouse through long-term contracts or save a portion of the warehouse for use in the spot market). © 2007 Pearson Education 15-8

Revenue Management for Multiple Customer Segments
If a supplier serves multiple customer segments with a fixed asset, the supplier can improve revenues by setting different prices for each segment. Prices must be set with barriers such that the segment willing to pay more is not able to pay the lower price.

© 2007 Pearson Education

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Revenue Management for Multiple Customer Segments
For example: Business travelers on an...
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