Exam 16: Pricing and Revenue Management in a Supply Chain

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 10,000 and a standard deviation of 3,000.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?

The goal of optimization is to use forecasts of customer behavior to identify a revenue management tactic that will be most effective.

The cost of a capacity shortage is the increase in productivity that results from having to go to a backup source.

In order for a freight railroad to take advantage of revenue management opportunities,

It is important for the firm to structure its revenue management program in a way that

The basic trade-off to consider during overbooking is between having wasted capacity (or inventory)because of few cancellations or having a shortage of capacity (or inventory)because of excessive cancellations.

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

Explain why forecasting is important to revenue management.

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

The forecasting function is

A manufacturer of industrial sales has production capacity of 1,000 units per day.Currently,the firm sells production capacity for $10 per unit.At this price,all production capacity gets booked about one week in advance.A group of customers have said that they would be willing to pay $15 per unit if capacity was available on the last day.About ten days in advance,demand for the high-price segment is normally distributed with a mean of 250 and a standard deviation of 100.How much production capacity should the manufacturer reserve for the last day?

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 16.5 - Sanitary Landfill The sanitary landfill charges companies $150 per load and individuals $40 per load.On average,80 companies tip their trucks each day at the landfill with a standard deviation of 15.There is time only for 110 deliveries in any combination of companies and individuals throughout the course of an eight-hour day.Company dump trucks enter through Gate A and individuals enter through Gate B.Individual demand is plentiful - often there are individuals turned away due to lack of capacity. -Refer to Scenario 16.5.How many company dump trucks should be admitted each day?

Revenue management has a significant impact on supply chain profitability if

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

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

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 10,000 and a standard deviation of 3,000.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?

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

In most instances of differential pricing,demand from the segment paying the lower price

Scenario 16.7 - Commencement Every year at commencement,the president hands out diploma covers to joyous students that cross the front of the auditorium to accept the cover and a hearty handshake.Commencement exercises have averaged 850 students with a standard deviation of 70 the last several years.The bookstore can provide a box of 144 diploma covers for $2,000 but is unwilling to break bulk.Any additional diploma covers must be purchased on the black market at $15 each. -Use Scenario 16.7 to answer the following.How many gross of diploma covers should be ordered from the bookstore?