Exam 16: Pricing and Revenue Management in a Supply Chain

Shifting demand from peak to off-peak periods is beneficial if the discount given during the off-peak period is more than offset by the decrease in cost because of a smaller peak and the increase in revenue during the off-peak period.

Scenario 16.2 - Card Table Vendor The traditional fundraiser for the student chapter of APICS is pint mason jars filled with a tangy barbecue sauce that the club sponsor whips up in his kitchen. Club officers set up a card table in the atrium of the business building and take turns staffing it for the duration of the barbecue season, which is four months. Eighteen sad years of experience have revealed that demand varies depending on the month of the season. Customer demand in the first month can be described as 400-p?, in the second month as 400-1.4p?, in the third month 400-1.8p?, and in the fourth month 400-2.2p?. -What should the price be in period 3?

Scenario 16.2 - Card Table Vendor The traditional fundraiser for the student chapter of APICS is pint mason jars filled with a tangy barbecue sauce that the club sponsor whips up in his kitchen. Club officers set up a card table in the atrium of the business building and take turns staffing it for the duration of the barbecue season, which is four months. Eighteen sad years of experience have revealed that demand varies depending on the month of the season. Customer demand in the first month can be described as 400-p?, in the second month as 400-1.4p?, in the third month 400-1.8p?, and in the fourth month 400-2.2p?. -What is the expected revenue if the student APICS chapter uses dynamic pricing?

An effective revenue management tactic when faced with seasonal peaks is to charge a

The amount reserved for the spot market should be such that the expected marginal revenue from the spot market equals the current revenue from a bulk sale.

Spoilage occurs when the capacity reserved for higher price buyers is wasted because demand from the higher price segment does not materialize.

The goal of optimization in revenue management is to identify a tactic

An order from a lower price buyer should be accepted if the expected revenue from a higher price buyer is lower than the current revenue from the lower price buyer.

Scenario 16.2 - Card Table Vendor The traditional fundraiser for the student chapter of APICS is pint mason jars filled with a tangy barbecue sauce that the club sponsor whips up in his kitchen. Club officers set up a card table in the atrium of the business building and take turns staffing it for the duration of the barbecue season, which is four months. Eighteen sad years of experience have revealed that demand varies depending on the month of the season. Customer demand in the first month can be described as 400-p?, in the second month as 400-1.4p?, in the third month 400-1.8p?, and in the fourth month 400-2.2p?. -Responding to customer complaints (primarily from period 1 purchasers) the student APICS chapter decides to use static pricing over the four month season. What is the total revenue for the season's sales at the optimal price?

Scenario 16.2 - Card Table Vendor The traditional fundraiser for the student chapter of APICS is pint mason jars filled with a tangy barbecue sauce that the club sponsor whips up in his kitchen. Club officers set up a card table in the atrium of the business building and take turns staffing it for the duration of the barbecue season, which is four months. Eighteen sad years of experience have revealed that demand varies depending on the month of the season. Customer demand in the first month can be described as 400-p?, in the second month as 400-1.4p?, in the third month 400-1.8p?, and in the fourth month 400-2.2p?. -What should the price be in period 1?

The goal when making the overbooking decision is to maximize supply chain profits by minimizing the cost of wasted capacity and the cost of capacity shortage.

To differentiate between the various market segments, the firm must

Wasted capacity (or inventory) occurs when

Too low a level of overbooking will lead to unutilized assets and lost revenue.

When the capacity reserved for higher price buyers is wasted because demand from the higher price segment does not materialize, this is

Scenario 16.3 - AITP's Revenge The student chapter of the Association of Information technology Professionals (AITP) notices the success that the APICS student chapter has with their traditional barbecue sauce fundraiser. Blinded by their jealousy, the club officers decide to sell a competing product, clocks made out of junk computer parts that the club sponsor whips up in his garage. Club officers set up a card table in the atrium of the business building and take turns staffing it for the duration of the computer clock season, which is four months. Twenty-five years of experience have revealed that demand varies depending on the month of the season. Customer demand in the first month can be described as 20-p?, in the second month as 20-1.4p?, in the third month 20-1.8p?, and in the fourth month 20-2.2p?. -The components needed to produce a computer clock cost twenty-five cents. What should the price of the computer clocks be in the third month of the selling season?

Revenue management adjusts the pricing and available supply of assets to maximize profits.

The cost of wasted capacity is the margin that would have been generated if the capacity had been used for production.

The tactic of varying price over time is suitable for assets

The goal when making the overbooking decision is to maximize supply chain profits by