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Pricing and Revenue Management in the Supply Chain 【本著作除另有註明外，採取創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版授權釋出】創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版 第十二單元 (2) ： Pricing.

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Presentation on theme: "Pricing and Revenue Management in the Supply Chain 【本著作除另有註明外，採取創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版授權釋出】創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版 第十二單元 (2) ： Pricing."— Presentation transcript:

1 Pricing and Revenue Management in the Supply Chain 【本著作除另有註明外，採取創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版授權釋出】創用 CC 「姓名標示 －非商業性－相同方式分享」台灣 3.0 版 第十二單元 (2) ： Pricing and Revenue Management in the Supply Chain 1 蔣明晃教授

2 Outline ►The Role of Revenue Management in the Supply Chain ►Revenue Management for Multiple Customer Segments ►Revenue Management for Perishable Assets ►Revenue Management for Seasonable Demand ►Revenue Management for Bulk and Spot Customers ►Using Revenue Management in Practice 2

3 The Role of Revenue Management in the Supply Chain ►Revenue management is the use of pricing to increase the profit generated from a limited supply of supply chain assets ►Supply assets exist in two forms: capacity and inventory ►Revenue management may also be defined as the use of differential pricing based on customer segment, time of use, and product or capacity availability to increase supply chain profits ►Most common example is probably in airline pricing Example : AA use revenue management to defeat PeopleExpress VECTORLOGO 3

4 ►The value of the product varies in different market segments (Example: airline seats) ►The product is highly perishable or product waste occurs (Example: fashion and seasonal apparel) ►Demand has seasonal and other peaks (Example: products ordered at Amazon.com) ►The product is sold both in bulk and on the spot market (Example: owner of warehouse who can decide whether to lease the entire warehouse through long-term contracts or save a portion of the warehouse for use in the spot market) Conditions Under Which Revenue Management Has the Greatest Effect Microsoft 。 Amazon.com 。 GSM Arena.com Microsoft 。 China airlines 。 Imageshack.us 。 4

5 Revenue Management for Multiple Customer Segments ►If a supplier serves multiple customer segments with a fixed asset, the supplier can improve revenues by setting different prices for each segment ►Prices must be set with barriers such that the segment willing to pay more is not able to pay the lower price ►The amount of the asset reserved for the higher price segment is such that the expected marginal revenue from the higher priced segment equals the price of the lower price segment 5

6 Revenue Management for Multiple Customer Segments p L = the price charged to the lower price segment p H = the price charged to the higher price segment D H = mean demand for the higher price segment  H = standard deviation of demand for the higher price segment C H = capacity reserved for the higher price segment R H (C H ) = expected marginal revenue from reserving more capacity = Probability (demand from higher price segment > C H ) x p H R H (C H ) = p L Probability (demand from higher price segment > C H ) = p L / p H C H = F -1 (1- p L /p H, D H,s H ) = NORMINV(1- p L /p H, D H,  H ) 6

7 Example 15.1: ToFrom Trucking ◈ Revenue from segment A = p A = $3.50 per cubic ft ◈ Revenue from segment B = p B = $3.50 per cubic ft ◈ Mean demand for segment A = D A = 3,000 cubic ft ◈ Std dev of segment A demand =  A = 1,000 cubic ft ◈ If p A increases to $5.00 per cubic foot, then C A = NORMINV(1- p B /p A, D A,  A ) = NORMINV(1- (2.00/5.00), 3000, 1000) = 3,253 cubic ft C A = NORMINV(1- p B /p A, D A,  A ) = NORMINV(1- (2.00/3.50), 3000, 1000) = 2,820 cubic ft 7

8 ►D►Demand forecast should be revised after a period of time ►U►Use different versions of a product: 》N》N ew books (hardcover and paperback) 》A》A utomobile manufacturers create high-end, mid-level, and low-end version for the most popular models 》C》C ontact lens manufactures sell the same lens with different periods of warranty Microsoft 。 Revenue Management for Multiple Customer Segments flickr.com M93 VECTORLOGO Wikimedia commons 8

9 Revenue Management for Multiple Customer Segments ►E►Effective tactics: 》P》P rice based on the value assigned by each segment 》U》U se different prices for each segment 》F》F orecast at segment level 》P》P rices must be set with barriers such that the segment willing to pay more is not able to pay the lower price 9

10 Revenue Management for Perishable Assets ►Any asset that loses value over time is perishable ►Examples: high-tech products such as computers and cell phones, high fashion apparel, underutilized capacity, fruits and vegetables. Can be extended to production, warehousing and transportation. ►Two basic approaches: 》 Vary price over time to maximize expected revenue 》 Overbook sales of the asset to account for cancellations 10

11 Revenue Management for Perishable Assets ►Overbooking or overselling of a supply chain asset is valuable if order cancellations occur and the asset is perishable ►The level of overbooking is based on the trade-off between the cost of wasting the asset if too many cancellations lead to unused assets and the cost of arranging a backup if too few cancellations lead to committed orders being larger than the available capacity 11

12 Revenue Management for Perishable Assets ◈ p = price at which each unit of the asset is sold ◈ c = cost of using or producing each unit of the asset ◈ b = cost per unit at which a backup can be used in the case of asset shortage ◈ C w = p – c = marginal cost of wasted capacity ◈ C s = b – c = marginal cost of a capacity shortage ◈ O* = optimal overbooking level ◈ s* = Probability (cancellations < O*) = C w / (C w + C s ) 12

13 Revenue Management for Perishable Assets ◈ If the distribution of cancellations is known to be normal with mean  c and standard deviation  c then O* = F -1 (s*,  c,  c ) = NORMINV(s*,  c,  c ) ◈ If the distribution of cancellations is known only as a function of the booking level (capacity L + overbooking O) to have a mean of  (L+O) and std deviation of  (L+O), the optimal overbooking level is the solution to the following equation: O= F -1 (s*,  (L+O),  (L+O)) = NORMINV(s*,  (L+O),  (L+O)) 13

14 Example 15.2 ◈C◈Cost of wasted capacity = C w = $10 per dress ◈C◈Cost of capacity shortage = C s = $5 per dress ◈s◈s* = C w / (C w + C s ) = 10/(10+5) = 0.667 ◈◈ c = 800;  c = 400 ◈O◈O*= NORMINV(s*,  c,  c ) = NORMINV(0.667,800,400) = 973 ◈I◈If the mean is 15% of the booking level and the coefficient of variation is 0.5, then the optimal overbooking level is the solution of the following equation: O = NORMINV(0.667,0.15(5000+O),0.075(5000+O)) Using Excel Solver, O* = 1,115 14

15 Revenue Management for Seasonal Demand ►S►Seasonal peaks of demand are common in many supply chains ►E►Examples: Most retailers achieve a large portion of total annual demand in December (Amazon.com); Hotel and entertainment industry ►O►Off-peak discounting can shift demand from peak to non-peak periods ►C►Charge higher price during peak periods and a lower price during off-peak periods 15

16 Revenue Management for Bulk and Spot Customers ►Most consumers of production, warehousing, and transportation assets in a supply chain face the problem of constructing a portfolio of long-term bulk contracts and short-term spot market contracts ►The basic decision is the size of the bulk contract ►The fundamental trade-off is between wasting a portion of the low-cost bulk contract and paying more for the asset on the spot market ►Given that both the spot market price and the purchaser’s need for the asset are uncertain, a decision tree approach should be used to evaluate the amount of long-term bulk contract to sign 16

17 Revenue Management for Bulk and Spot Customers ◈ For the simple case where the spot market price is known but demand is uncertain, a formula can be used ◈ c B = bulk rate ◈ c S = spot market price ◈ Q* = optimal amount of the asset to be purchased in bulk ◈ p* = probability that the demand for the asset does not exceed Q* ◈ Marginal cost of purchasing another unit in bulk is c B. The expected marginal cost of not purchasing another unit in bulk and then purchasing it in the spot market is (1-p*)c S. 17

18 Revenue Management for Bulk and Spot Customers ◈ If the optimal amount of the asset is purchased in bulk, the marginal cost of the bulk purchase should equal the expected marginal cost of the spot market purchase, or c B = (1-p*)c S Solving for p* yields p* = (c S – c B ) / c S ◈ If demand is normal with mean  and std deviation , the optimal amount Q* to be purchased in bulk is Q* = F -1 (p*, ,  ) = NORMINV(p*, ,  ) 18

19 Example 15.3 ◙Bulk contract cost = c B = $10,000 per million units ◙Spot market cost = c S = $12,500 per million units ◙  = 10 million units ◙  = 4 million units ◙p* = (c S – c B ) / c S = (12,500 – 10,000) / 12,500 = 0.2 ◙Q* = NORMINV(p*, ,  ) = NORMINV(0.2,10,4) = 6.63 ◙The manufacturer should sign a long-term bulk contract for 6.63 million units per month and purchase any transportation capacity beyond that on the spot market 19

20 Using Revenue Management in Practice ►E►Evaluate your market carefully ►Q►Quantify the benefits of revenue management ►I►Implement a forecasting process ►A►Apply optimization to obtain the revenue management decision ►I►Involve both sales and operations ►U►Understand and inform the customer ►I►Integrate supply planning with revenue management 20

21 版權聲明 頁碼作品授權條件作者 / 來源 3 VECTORLOGO(http://www.brandsoftheworld.com/logo/peoplexpress-airlines)http://www.brandsoftheworld.com/logo/peoplexpress-airlines 本作品轉載自 VECTORLOGO 網站 ，依據其版權聲明 (http://www.allfreelogo.com/privacy-policy/) 與著作權法第 46 、 52 、 65 條合理使用。http://www.allfreelogo.com/privacy-policy/) 3 VECTORLOGO(http://www.brandsoftheworld.com/logo/aacom-american-airlines)http://www.brandsoftheworld.com/logo/aacom-american-airlines 本作品轉載自 VECTORLOGO 網站，依據其版權聲明 ( http://www.webmediabrands.com/corporate/legal.html?nav=ftc ) 與著作權法第 46 、 52 、 65 條合理 使用。http://www.webmediabrands.com/corporate/legal.html?nav=ftc 4 Imageshack.us(http://imageshack.us/photo/my-images/715/0102012329300.jpg/)http://imageshack.us/photo/my-images/715/0102012329300.jpg/ 本作品轉載自 Imageshack.us 。依據其版權聲明 (http://imageshack.us/p/aboutus/) 與著作權法第 46 、 52 、 65 條合理使用。http://imageshack.us/p/aboutus/) 4 本作品轉載自 China airlines 網站 (http://www.china-airlines.com/ch/newsch/newsch000155.htm) 。依據著作權法第 46 、 52 、 65 條合理 使用。http://www.china-airlines.com/ch/newsch/newsch000155.htm 4 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合約及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合約 4 Amazon.com 。 本作品轉載自亞馬遜網站 (http://www.amazon.com) ，瀏覽日期 2011/12/22 。依據著作權法第 46 、 52 、 65 條合理使用。 ( 因網站商品隨時更新，故此頁面無永久性網址。 )http://www.amazon.com) ，瀏覽日期 2011/12/22 4 Amazon.com 。 本作品轉載自亞馬遜網站 (http://www.amazon.com) ，瀏覽日期 2011/12/22 。依據著作權法第 46 、 52 、 65 條合理使用。 ( 因網站商品隨時更新，故此頁面無永久性網址。 )http://www.amazon.com) ，瀏覽日期 2011/12/22 21

22 版權聲明 頁碼作品授權條件作者 / 來源 4 Amazon.com 。 本作品轉載自亞馬遜網站 (http://www.amazon.com) ，瀏覽日期 2011/12/22 。依據著作權法第 46 、 52 、 65 條合理使用。 ( 因網站商品隨時 更新，故此頁面無永久性網址。 )http://www.amazon.com) ，瀏覽日期 2011/12/22 4 GSM Arena.com(http://www.gsmarena.com/nokia_7370-pictures-1331.php)http://www.gsmarena.com/nokia_7370-pictures-1331.php 本作品轉載自 GSM Arena.com 網站。依據其版權聲明 (http://www.gsmarena.com/terms.php3) 與著作權法第 46 、 52 、 65 條合理 使用。http://www.gsmarena.com/terms.php3) 4 GSM Arena.com(http://www.gsmarena.com/nokia_7380-pictures-1332.php)http://www.gsmarena.com/nokia_7380-pictures-1332.php 本作品轉載自 GSM Arena.com 網站。依據其版權聲明 (http://www.gsmarena.com/terms.php3) 與著作權法第 46 、 52 、 65 條合理 使用。http://www.gsmarena.com/terms.php3 4 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合 約及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合 約 4 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合 約及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合 約 4 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合 約及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合 約 8 Flickr.com ，作者： M93 。 (http://www.flickr.com/photos/55391407@N03/5210799355/sizes/n/in/phot ostream/) ，本作品採取創用 CC 「姓名標示」 2.0 版授權釋出 。 M93http://www.flickr.com/photos/55391407@N03/5210799355/sizes/n/in/phot ostream/創用 CC 「姓名標示」 2.0 版授權釋出 22

23 版權聲明 頁碼作品授權條件作者 / 來源 8 Wikimedia Commons 本作品轉載自 http://zh.wikipedia.org/wiki/File:Best_Buy_Logo.svg, 瀏覽日 期 2011/12/6 。 http://zh.wikipedia.org/wiki/File:Best_Buy_Logo.svg 8 VECTORLOGO(http://www.brandsoftheworld.com/logo/synnex- corporation)http://www.brandsoftheworld.com/logo/synnex- corporation 本作品轉載自 VECTORLOGO 網站 ，依據其版權聲明 (http://www.allfreelogo.com/privacy-policy/) 與著作權法第 46 、 52 、 65 條 合理使用。http://www.allfreelogo.com/privacy-policy/ 8 本作品轉載自 Microsoft Office 2007 多媒體藝廊，依據 Microsoft 服務合 約及著作權法第 46 、 52 、 65 條合理使用。 Microsoft 服務合 約 23

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