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Booking limits vs. bid-prices : a comparison of revenue management strategies for make-to-order production
Publikationstyp
Conference Presentation
Date Issued
2022-09
Sprache
English
Author(s)
Lohnert, Nina
Citation
International Conference on Operations Research (OR 2022)
Contribution to Conference
Publisher
KIT
Due to strong competition, there is a trend towards individualized products, leading to large numbers of product variants. To handle this situation, many companies apply the make-to-order principle where production only starts after an order has been accepted. However, due to limited capacity not every order can be fulfilled and hence, decisions regarding order acceptance have to be made. The objectives pursued by a manufacturing company in this situation are usually twofold: On the one hand, companies aim to maximize (short-term) profits. On the other hand, the goal of providing good service in particular to valuable, returning customers is crucial with respect to long-term business success. These two objectives are usually in conflict as valuable customers often get price discounts to tie them to the company.
In this talk, booking limit and bid-price based revenue management strategies for order acceptance are presented and compared. Both strategy types use a two-stage acceptance process that combines two mixed-integer linear programming models. In the first stage, a preliminary acceptance decision is made by booking limits/bid-prices. In the second stage, subsequent production scheduling is considered to ensure that only orders are accepted which can be completed no later than their deadline. Moreover, aspired service levels for different customer groups are included in both models, to take not only the profit, but also the customer value into account.
The performance of the different strategies is compared in various case studies, with the well-known first-come-first-served policy serving as a benchmark. It can be shown that the suggested revenue management strategies work successfully and are able to establish a good trade-off between the conflicting objectives.
In this talk, booking limit and bid-price based revenue management strategies for order acceptance are presented and compared. Both strategy types use a two-stage acceptance process that combines two mixed-integer linear programming models. In the first stage, a preliminary acceptance decision is made by booking limits/bid-prices. In the second stage, subsequent production scheduling is considered to ensure that only orders are accepted which can be completed no later than their deadline. Moreover, aspired service levels for different customer groups are included in both models, to take not only the profit, but also the customer value into account.
The performance of the different strategies is compared in various case studies, with the well-known first-come-first-served policy serving as a benchmark. It can be shown that the suggested revenue management strategies work successfully and are able to establish a good trade-off between the conflicting objectives.
DDC Class
330: Wirtschaft
380: Handel, Kommunikation, Verkehr