Revenue Management in Manufacturing

The first chapter starts summarizing why RM is a key concept for managing demand. It then provides the motivation and background that has inspired the writing of this book. Then the objectives of the book are summarized. Finally an outline of the remaining chapters of the book is given.

The second chapter of the book introduces the concept of revenue management (RM) and process industry (PI). It then sheds light on demand-management decision and on the innovative elements of RM. The origins of RM in the service industry are then presented, followed by a review of its application in the manufacturing industry. A review of nine application prerequisites is discussed, assessing both the validity for the service and manufacturing industry. Price and capacity management concepts are illustrated and the profit impact of RM is discussed. Finally the concept of fairness in RM is reviewed.

Previous research has extensively studied the application of RM in the service industry but has given little attention to its application in the manufacturing industry. This Chapter provides results of a quantitative study based on 479 firms of the PI in North America and Europe. The results show that the overall importance of RM within the process industry is regarded as high and that the importance is positively correlated with turnover, period of use and the extent of IT integration. The type of RM system employed depends on its period of use: with increasing period of use RM systems shift from capacity to price and capacity control. Barriers to the implementation of RM systems are seen in the absence of a clearly defined pricing strategy, lack of experience and lack of adequate approaches. Comparisons between North America and Europe indicate differences in the application of RM: In North America RM is considered as more important, has been introduced earlier and is more price-based.

The application of RM has been extensively studied in the service industry, where today it is wide-spread. However, thus far research has given little attention to its profit impact on the process industry. This Chapter presents findings of a quantitative study based on 603 respondents belonging to process industry companies in North America and Europe. RM is regarded as contributing to profit, but the results of this study show that the impact differs between North America and Europe both with respect to the period of time RM is used and to the perception of RM. Moreover, the greater the turnover and the level of internationalization, the more likely a company is to use RM. The impact of RM in terms of profit is increasing with firm revenue, period of use but varies between North America and Europe. Both the a priori estimation of profit improvement due to RM before its introduction and the a posteriori realized profit improvement are positive; they increase with the period of use and differ between Europe and North America, being higher in the latter region. The main barriers to RM implementation are the lack of awareness of this approach, the inability to identify suitable systems, an unclear price strategy definition and the lack of management attention, both linked to insufficient experience with RM. North America and Europe assess the importance of some barriers differently. If companies decide not to introduce RM, this is typically due to the fact that other projects or activities have higher priority rather than that the benefits or potential of RM are not recognized.

This chapter summarizes the results of the state of the art and profit impact of RM in the manufacturing industry and also provides directions for future research.