Exam 16: Pricing and Revenue Management in a Supply Chain

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 optimal price to charge for their barbecue sauce?

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(Multiple Choice)

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Question 1

Correct Answer:

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How do firms address the problems of spoilage and spill?

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Question 2

Correct Answer:

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In most instances of differential pricing, demand from the segment paying the lower price arises earlier in time than demand from the segment paying the higher price. The basic trade-off to be considered by the supplier with production capacity is between committing to an order from a lower price buyer and waiting for a high-price buyer to arrive later on. The two risks in such a situation are spoilage and spill. Spoilage occurs when the capacity reserved for higher price buyers is wasted because demand from the higher price segment does not materialize. Spill occurs if higher price buyers have to be turned away because the capacity has already been committed to lower price buyers.
The supplier should decide on the capacity to commit for the higher price buyers so as to minimize the expected cost of spoilage and spill. A current order from a lower price buyer should be compared with the expected revenue from waiting for a higher price buyer. The order from the lower price buyer should be accepted if the expected revenue from the higher price buyer is lower than the current revenue from the lower price buyer.

The tactic of overbooking or overselling the available asset is suitable in any situation where customers are able to cancel orders and the value of the asset drops significantly after a deadline.

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(True/False)

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Question 3

Correct Answer:

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True

Scenario 16.4 - Santorini Donkeys Sturdy little donkeys are used to carry corpulent tourists up the Santorini caldera to the town of Fira. One cruise line that routinely docks at the port is considering a plan to maintain their own donkey herd, which will cost them $15,000 per thousand tourists. The number of tourists needing this service is normally distributed, with a mean of Usually, this is enough donkey capacity, but occasionally the cruise line rotates a bigger ship through this route and the excursion director must purchase donkey capacity on the spot market, where is costs $20 per tourist. -The cruise line's insurance policy limits the number of donkeys in their herd to 5,000. What bulk price should the cruise line negotiate to make the 5,000 donkey herd size optimal?

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Question 4

In order to achieve the greatest value

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Question 5

Salespeople must understand the revenue management tactic in place so they can align their sales pitch accordingly.

(True/False)

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Question 6

Revenue management is the use of marketing to increase the profit generated from a limited supply of supply chain assets.

(True/False)

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Question 7

Faced with seasonal peaks, an effective revenue management tactic is to charge a higher price during the peak period and a higher price during off-peak periods.

(True/False)

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Question 8

The amount of the asset reserved for the higher price segment is such that

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Question 9

How can firms address the problem of perishable assets?

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Question 10

Hotels use differential pricing by day of week and time of year

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Question 11

An order from a lower price buyer

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Question 12

Scenario 16.4 - Santorini Donkeys Sturdy little donkeys are used to carry corpulent tourists up the Santorini caldera to the town of Fira. One cruise line that routinely docks at the port is considering a plan to maintain their own donkey herd, which will cost them $15,000 per thousand tourists. The number of tourists needing this service is normally distributed, with a mean of Usually, this is enough donkey capacity, but occasionally the cruise line rotates a bigger ship through this route and the excursion director must purchase donkey capacity on the spot market, where is costs $20 per tourist. -How many donkeys should the cruise line have in its herd?

(Multiple Choice)

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Question 13

The reserved quantity will be affected by the difference in margin between the spot market and the bulk sale, but not the distribution of demand from the spot market.

(True/False)

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Question 14

Effective differential pricing over time will generally increase the level of product availability for the consumer willing to pay full price, but will decrease total profits for the retailer.

(True/False)

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Question 15

Explain how revenue management is beneficial.

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Question 16

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 first month of the selling season?

(Multiple Choice)

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Question 17

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 is the expected profit if the AITP club sponsor produces the optimal number of clocks?

(Multiple Choice)

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Question 18

Describe the role of revenue management.

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Question 19

The tactic of varying price over time is suitable for assets such as fashion apparel that have a clear date beyond which they lose a lot of their value.

(True/False)

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Question 20

Showing 1 - 20 of 87

How do firms address the problems of spoilage and spill?

The tactic of overbooking or overselling the available asset is suitable in any situation where customers are able to cancel orders and the value of the asset drops significantly after a deadline.

In order to achieve the greatest value

Salespeople must understand the revenue management tactic in place so they can align their sales pitch accordingly.

Revenue management is the use of marketing to increase the profit generated from a limited supply of supply chain assets.

Faced with seasonal peaks, an effective revenue management tactic is to charge a higher price during the peak period and a higher price during off-peak periods.

The amount of the asset reserved for the higher price segment is such that

How can firms address the problem of perishable assets?

Hotels use differential pricing by day of week and time of year

An order from a lower price buyer

The reserved quantity will be affected by the difference in margin between the spot market and the bulk sale, but not the distribution of demand from the spot market.

Effective differential pricing over time will generally increase the level of product availability for the consumer willing to pay full price, but will decrease total profits for the retailer.

Explain how revenue management is beneficial.

Describe the role of revenue management.

The tactic of varying price over time is suitable for assets such as fashion apparel that have a clear date beyond which they lose a lot of their value.

Understanding the Supply Chain

Supply Chain Performance: Achieving Strategic Fit and Scope

Supply Chain Drivers and Metrics

Designing Distribution Networks and Applications to e-Business

Network Design in the Supply Chain

Designing Global Supply Chain Networks

Demand Forecasting in a Supply Chain

Aggregate Planning in a Supply Chain

Sales and Operations Planning: Planning Supply and Demand in a Supply Chain

Coordination in a Supply Chain

Managing Economies of Scale in the Supply Chain: Cycle Inventory

Managing Uncertainty in a Supply Chain: Safety Inventory

Determining the Optimal Level of Product Availability

Transportation in a Supply Chain

Sourcing Decisions in a Supply Chain

Sustainability and the Supply Chain

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