Supply Chain Management, 5e (Chopra/Meindl) Chapter 16 Pricing and Revenue Management in a Supply Chain
16.1 True/False Questions 1) Revenue management is the use of marketing to increase the profit generated from a limited supply of supply chain assets. Answer: FA!" #iff: $ Topic: 16.1 The %ole of &ricing &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design $) &ricing may influence demand if customers are price sensiti'e. Answer: T%+" #iff: $ Topic: 16.1 The %ole of &ricing &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design ,) %e'enue management may also -e defined as the use of differential pricing -ased on customer segment time of use and product or capacity a'aila-ility to increase supply chain surplus. Answer: T%+" #iff: $ Topic: 16.1 The %ole of &ricing &ricing and %e'enue (anagement in a !upply hain AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 0) %e'enue management adusts the pricing and a'aila-le supply of assets to ma2imi3e profits. Answer: T%+" #iff: 1 Topic: 16.1 The %ole of &ricing &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design 4) 5n theory the concept of differential pricing decreases total cost for a firm. Answer: FA!" #iff: $ Topic: 16.1 The %ole of &ricing &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design 6) To To differentiate -etween the 'arious market segments the firm must either eliminate -arriers that identify product or ser'ice attri-utes the segments 'alue differently. differently. Answer: FA!" #iff: 1 Topic: 16.1 The %ole of &ricing &ricing and %e'enue (anagement in a !upply hain AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design
161 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
) 5n most instances of differential pricing demand from the segment paying the lower price arises earlier in time than demand from the segment paying p aying the higher price. Answer: T%+" #iff: $ Topic: 16.1 The %ole of &ricing &ricing and %e'enue (anagement in a !upply hain AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design ;) !poilage occurs when the capacity reser'ed for higher price -uyers is wasted -ecause demand from the higher price segment does not materiali3e. Answer: T%+" #iff: 1 Topic: 16.$ &ricing and %e'enue (anagement for (ultiple (ultiple ustomer !egments earning *utcome: ompare common approaches to supply chain design <) =astage =astage occurs if higher price -uyers ha'e to -e turned away -ecause -ecau se the capacity has already -een committed to lower price -uyers. Answer: FA!" #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple (ultiple ustomer !egments earning *utcome: ompare common approaches to supply chain design 18) An order from a lower price -uyer should -e accepted if the e2pected re'enue from a higher price -uyer is lower than the current re'enue from the lower price -uyer. -uyer. Answer: T%+" #iff: 1 Topic: 16., &ricing and %e'enue (anagement for &erisha-le &erisha-le Assets Assets AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 11) The amount of the asset reser'ed for the higher price segment is such that the e2pected marginal re'enue from the higher priced segment is less than the price to the lower price segment. Answer: FA!" #iff: 1 Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 1$) Any asset that loses 'alue o'er time is perisha-le. Answer: T%+" #iff: , Topic: 16.4 &ricing and %e'enue (anagement for ulk and !pot !pot ontracts earning *utcome: ompare common approaches to supply chain design
16$ opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
1,) +nused capacity from the past is e2tremely 'alua-le. Answer: FA!" #iff: 1 Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design 10) The tactic of 'arying price o'er time is suita-le for assets such as fashion apparel that ha'e a clear date -eyond which they lose a lot of their 'alue. Answer: T%+" #iff: 1 Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 14) "ffecti'e differential pricing o'er time will generally increase the le'el of product a'aila-ility for the consumer willing to pay full price -ut will decrease total profits for the retailer. Answer: FA!" #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 16) The tactic of o'er-ooking or o'erselling the a'aila-le asset is suita-le in any situation where customers are a-le to cancel orders and the 'alue of the asset drops significantly after a deadline. Answer: T%+" #iff: 1 Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 1) The -asic tradeoff to consider during o'er-ooking is -etween ha'ing wasted capacity >or in'entory) -ecause of few cancellations or ha'ing a shortage of capacity >or in'entory) -ecause of e2cessi'e cancellations. Answer: FA!" #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 1;) The cost of wasted capacity is the margin that would ha'e -een generated if the capacity had -een used for production. Answer: T%+" #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design
16, opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
1<) The cost of a capacity shortage is the increase in producti'ity that results from ha'ing to go to a -ackup source. Answer: FA!" #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets $8) The goal when making the o'er-ooking decision is to ma2imi3e supply chain profits -y minimi3ing the cost of wasted capacity and the cost of capacity shortage. Answer: T%+" #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design $1) Faced with seasonal peaks an effecti'e re'enue management tactic is to charge a higher price during the peak period and a higher price during offpeak periods. Answer: FA!" #iff: , Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design $$) !hifting demand from peak to offpeak periods is -eneficial if the discount gi'en during the offpeak period is more than offset -y the decrease in cost -ecause of a smaller peak and the increase in re'enue during the offpeak period. Answer: T%+" #iff: 1 Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design $,) The amount reser'ed for the spot market should -e such that the e2pected marginal re'enue from the spot market e?uals the current re'enue from a -ulk sale. Answer: T%+" #iff: $ Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand earning *utcome: ompare common approaches to supply chain design $0) The reser'ed ?uantity will -e affected -y the difference in margin -etween the spot market and the -ulk sale -ut not the distri-ution of demand from the spot market. Answer: FA!" #iff: $ Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design
160 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
$4) +ltimately a proper understanding of customer preferences and a ?uantification of the impact of 'arious tactics on consumer -eha'ior are at the core of successful re'enue management. Answer: T%+" #iff: $ Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand earning *utcome: ompare common approaches to supply chain design $6) The forecasting function is not necessary for most re'enue management systems. Answer: FA!" #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: ompare common approaches to supply chain design $) The goal of optimi3ation is to use forecasts of customer -eha'ior to identify a re'enue management tactic that will -e most effecti'e. Answer: T%+" #iff: 1 Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: ompare common approaches to supply chain design $;) Too high a le'el of o'er-ooking will lead to unutili3ed assets and lost re'enue. Answer: FA!" #iff: 1 Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design $<) Too low a le'el of o'er-ooking will lead to unutili3ed assets and lost re'enue. Answer: T%+" #iff: 1 Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design ,8) !alespeople must understand the re'enue management tactic in place so they can align their sales pitch accordingly. Answer: T%+" #iff: 1 Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: ompare common approaches to supply chain design
164 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
,1) ustomers will ha'e a negati'e perception of re'enue management tactics if they are simply presented as a mechanism for e2tracting ma2imum re'enue. Answer: T%+" #iff: 1 Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: ompare common approaches to supply chain design ,$) Revenue management is the use of pricing to increase the supply chain surplus and profit generated from a limited a'aila-ility of supply chain assets. Answer: T%+" #iff: 1 Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design ,,) Airline seats are a good e2ample of a product whose 'alue 'aries -y market segment. Answer: T%+" #iff: 1 Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design ,0) Airline seats are a good e2ample of a product whose 'alue is the same across different market segments. Answer: FA!" #iff: $ Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design
166 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
16.$ (ultiple hoice Questions 1) &ricing can -e used to A) change a'aila-le supply. ) reduce supply chain costs. ) influence demand if customers are price sensiti'e. #) all of the a-o'e Answer: #iff: $ Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design $) %e'enue management is A) the use of marketing tools to increase re'enue. ) the use of pricing to increase the profit generated from a limited supply of supply chain assets. ) a process designed to determine the -est use of funds generated through sales. #) the use of accounting tools to monitor cash flow. Answer: #iff: , Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design ,) The two forms of supply chain assets are A) capacity and in'entory. ) capacity and re'enue. ) in'entory and re'enue. #) in'entory and warehouse space. Answer: A #iff: 1 Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design 0) %e'enue management may -e defined as A) the use of differential costing -ased on product or capacity a'aila-ility to decrease supply chain cost. ) the use of differential costing -ased on customer segment time of u se and product or capacity a'aila-ility to increase profita-ility. ) the use of differential pricing -ased on customer segment time of use and product or capacity a'aila-ility to decrease supply chain surplus. #) the use of differential pricing -ased on customer segment time of use and product or capacity a'aila-ility to increase supply chain surplus. Answer: # #iff: $ Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design
16 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
4) The use of differential pricing should A) decrease total profits for a firm. ) increase total profits for a firm. ) increase capacity for a firm. #) decrease capacity utili3ation for a firm. Answer: #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 6) =hich of the following are issues that must -e dealt with in order for differential pricing to -e effecti'e@ A) The firm must differentiate -etween the market segments and structure its pricing to make one segment pay more than the other. ) The firm must control demand such that the lower paying segment does not utili3e the entire a'aila-ility of the asset. ) The firm must secure enough capacity to meet demand from each segment. #) A and only Answer: # #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design ) To differentiate -etween the 'arious market segments the firm must A) create -arriers -y identifying product or ser'ice attri-utes that the segments 'alue differently. ) eliminate -arriers that identify product or ser'ice attri-utes that the segments 'alue differently. ) negotiate separately with different market segments that 'alue product or ser'ice attri-utes differently. #) de'elop pricing structures -ased on the 'olume of 'arious product or ser'ice attri-utes. Answer: A #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
16; opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
;) 5n most instances of differential pricing demand from the segment paying the lower price A) arises earlier in time than demand from the segment paying the higher price. ) arises later in time than demand from the segment paying the higher price. ) arises a-out the same time as demand from the segment paying the higher price. #) arises -oth earlier and later in time than demand from the segment paying the higher price. Answer: A #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design <) The -asic tradeoff to -e considered -y the supplier with production capacity is -etween A) committing to an order from a highprice -uyer or waiting for a lower price -uyer to arri'e later on. ) committing to an order from a lower price -uyer or waiting for a highprice -uyer to arri'e later on. ) allowing the market to -e controlled -y price or capacity. #) ha'ing marketing or operations esta-lish the constraints within which orders are accep ted. Answer: #iff: 1 Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments earning *utcome: ompare common approaches to supply chain design 18) =hen the capacity reser'ed for higher price -uyers is wasted -ecause demand from the higher price segment does not materiali3e this is A) spill. ) spoilage. ) wastage. #) e2cess. Answer: #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments earning *utcome: ompare common approaches to supply chain design 11) 5f higher price -uyers ha'e to -e turned away -ecause the capacity has already -een committed to lower price -uyers this is A) spill. ) spoilage. ) wastage. #) e2cess. Answer: A #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments earning *utcome: ompare common approaches to supply chain design
16< opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
1$) An order from a lower price -uyer A) should always -e accepted rather than waiting for potential re'enue from a higher price -uyer. ) should only -e accepted if the e2pected re'enue from a higher price -uyer is higher than the current re'enue from the lower price -uyer. ) should -e accepted if the e2pected re'enue from a higher price -uyer is lower than the current re'enue from the lower price -uyer. #) should not -e accepted if the e2pected re'enue from a higher price -uyer is lower than the current re'enue from the lower price -uyer. Answer: #iff: 1 Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 1,) To successfully use re'enue management when ser'ing multiple customer segments a firm must use which of the following tactics effecti'ely@ A) &rice -ased on the 'alue assigned -y each segment ) +se different prices for each segment ) Forecast at the segment le'el #) all of the a-o'e Answer: # #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 10) The amount of the asset reser'ed for the higher price segment is such that A) all orders from the lower priced segment will -e accepted and filled. ) the e2pected marginal re'enue from the higher priced segment is more than the price to the lower price segment. ) the e2pected marginal re'enue from the higher priced segment is less than the price to the lower price segment. #) the e2pected marginal re'enue from the higher priced segment e?uals the price to the lower price segment. Answer: # #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
1618 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
14) A perisha-le asset is A) something that decays or deteriorates. ) an item that has a short life span. ) any asset that loses 'alue o'er time. #) all of the a-o'e Answer: #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design 16) =hich of the following is >are) re'enue management tactics appropriate for perisha-le assets@ A) ary price o'er time to ma2imi3e e2pected re'enue ) +nder -ook sales of the asset to account for une2pected demand ) *'er-ook sales of the asset to account for cancellations #) all of the a-o'e Answer: # #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 1) The tactic of 'arying price o'er time is suita-le for assets A) that do not ha'e a clear date -eyond which they lose a lot of their 'alue. ) that ha'e a clear date -eyond which they lose a lot of their 'alue. ) where customers are a-le to cancel orders and the 'alue of the asset drops significantly after a deadline. #) where customers are una-le to cancel orders and the 'alue of the asset drops significantly after a deadline. Answer: #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
1611 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
1;) "ffecti'e differential pricing o'er time will gene rally A) decrease the le'el of product a'aila-ility for the consumer willing to pay full price and also decrease total profits for the retailer. ) decrease the le'el of product a'aila-ility for the consumer willing to pay full price -ut will increase total profits for the retailer. ) increase the le'el of product a'aila-ility for the consumer willing to pay full price and also increase total profits for the retailer. #) increase the le'el of product a'aila-ility for the consumer willing to pay full price -ut will decrease total profits for the retailer. Answer: #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 1<) The tactic of o'er-ooking or o'erselling the a'aila-le asset is suita-le where A) there is a clear date -eyond which the asset loses a lot of its 'alue. ) there is no clear date -eyond which the asset loses a lot of its 'alue. ) customers are a-le to cancel orders and the 'alue of the asset drops significantly after a deadline. #) customers are una-le to cancel orders and the 'alue of the asset drops significantly after a deadline. Answer: #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design $8) The -asic tradeoff to consider during o'er-ooking is -etween A) ha'ing wasted capacity >or in'entory) or a shortage of capacity >or in'entory). ) ha'ing lost sales or a shortage of capacity >or in'entory). ) ha'ing wasted capacity >or in'entory) or e2cess capacity >or in'entory). #) ha'ing high sales or a shortage of capacity >or in'entory). Answer: A #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design $1) =asted capacity >or in'entory) occurs when A) there are e2cessi'e cancellations. ) there are few cancellations. ) an e2pensi'e -ackup needs to -e arranged. #) all of the a-o'e Answer: A #iff: 1 Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design 161$ opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
$$) A shortage of capacity >or in'entory) occurs when A) there are e2cessi'e cancellations. ) there are few cancellations. ) an e2pensi'e -ackup needs to -e arranged. #) and only Answer: #iff: 1 Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design $,) The cost of wasted capacity is A) the reduction in margin that results from ha'ing to go to a -ackup source. ) the margin that would ha'e -een generated if the capacity had -een used for production. ) the producti'ity increase generated when the capacity is used for production. #) the sales potential of e2cess capacity kept in reser'e for emergency production. Answer: #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design $0) The cost of a capacity shortage is A) the reduction in margin that results from ha'ing to go to a -ackup source. ) the margin that would ha'e -een generated if the capacity had -een used for production. ) the producti'ity increase generated when the capacity is used for production. #) the sales potential of e2cess capacity kept in reser'e for emergency production. Answer: A #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design $4) The goal when making the o'er-ooking decision is to ma2imi3e supply chain profits -y A) ma2imi3ing the 'alue of wasted capacity and the cost of capacity shortage. ) ma2imi3ing supply chain profits. ) minimi3ing the cost of wasted capacity and the cost of capacity shortage. #) minimi3ing the cost of wasted capacity and minimi3ing capacity shortages. Answer: #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design
161, opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
$6) An effecti'e re'enue management tactic when faced with seasonal peaks is to charge a A) high price during the peak period and a higher price during offpeak periods. ) higher price during the peak period and a lower price during offpeak periods. ) lower price during the peak period and a higher price during offpeak periods. #) low price during the peak period and a lower price during offpeak periods. Answer: #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design $) !hifting demand from peak to offpeak periods is -eneficial if the discount gi'en A) during the offpeak period is more than offset -y the decrease in cost -ecause of a larger peak. ) during the offpeak period is more than offset -y the decrease in cost -ecause of a smaller peak. ) during the peak period is more than offset -y the decrease in cost -ecause of a smaller peak. #) during the peak period is more than offset -y the decrease in cost -ecause of a larger peak. Answer: A #iff: $ Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design $;) (ost firms must decide what fraction of an asset to A) sell in -ulk and what fraction of the asset to discard. ) sa'e for the spot market and what fraction of the asset to discard. ) sa'e for emergencies and what fraction of the asset to rework. #) sell in -ulk and what fraction of the asset to sa'e for the spot market. Answer: # #iff: $ Topic: 16.0 &ricing and %e'enue (anagement for !easonal #emand AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design $<) The fundamental tradeoff -etween selling in -ulk or on the spot market is A) different from the situation where a firm ser'es two market segments. ) similar to the case when a firm ser'es two market segments. ) similar to the case where a firm must deal with seasonal demand. #) similar to the case where a firm has a perisha-le asset. Answer: #iff: , Topic: 16.4 &ricing and %e'enue (anagement for ulk and !pot ontracts AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
1610 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
,8) The amount reser'ed for the spot market should -e A) such that the e2pected marginal re'enue from the spot market e?uals the current re'enue from a -ulk sale. ) such that the e2pected marginal re'enue from the spot market e2ceeds the current re'enue from a -ulk sale. ) such that the e2pected marginal re'enue from the spot market is less than the current re'enue from a -ulk sale. #) e?ual to the ma2imum re'enue a'aila-le from the spot. Answer: A #iff: , Topic: 16.4 &ricing and %e'enue (anagement for ulk and !pot ontracts earning *utcome: ompare common approaches to supply chain design ,1) The reser'ed ?uantity for the spot market will -e affected -y A) the difference in margin -etween the spot market and the -ulk sale. ) the distri-ution of demand from the -ulk sale. ) the distri-ution of demand from the spot market. #) A and only Answer: # #iff: $ Topic: 16.4 &ricing and %e'enue (anagement for ulk and !pot ontracts earning *utcome: ompare common approaches to supply chain design ,$) !uccessful re'enue management re?uires A) a proper understanding of customer preferences. ) a ?uantification of the impact of 'arious tactics on consumer -eha'ior. ) a clear focus on profita-ility. #) A and only Answer: # #iff: $ Topic: 16.4 &ricing and %e'enue (anagement for ulk and !pot ontracts earning *utcome: ompare common approaches to supply chain design ,,) The forecasting function is A) the foundation of any re'enue management system. ) unnecessary for a re'enue management system. ) an added plus for any re'enue management system. #) likely to create pro-lems for any re'enue management system. Answer: A #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: #escri-e maor approaches to forecasting
1614 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
,0) The goal of optimi3ation in re'enue management is to identify a tactic A) using forecasts of customer -eha'ior that will -e most effecti'e. ) using linear regression that will ma2imi3e re'enue. ) using linear regression that will minimi3e cost. #) that will not ha'e to -e altered. Answer: A #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: #escri-e maor approaches to forecasting ,4) The decision to use o'er-ooking will A) lead to upset customers and a high cost of pro'iding them space. ) lead to unutili3ed assets and lost re'enue. ) lead to reduced profits. #) depend upon optimi3ation to -e successful. Answer: # #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design ,6) The sales force must understand the re'enue management tactic in place A) in order to align their sales pitch accordingly. ) in order to identify those customers who truly need the supply chain asset during the peak period. ) in order to identify those customers that will -enefit from mo'ing their order to the offpeak period. #) all of the a-o'e Answer: # #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: ompare common approaches to supply chain design ,) 5t is important for the firm to structure its re'enue management program in a way that A) it is presented simply as a mechanism for e2tracting ma2imum re'enue. ) re'enue increases while impro'ing ser'ice along some dimension that is important to customers that pay the highest price. ) profit is ma2imi3ed. #) all of the a-o'e Answer: #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
1616 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
,;) 5n order to achie'e the greatest 'alue A) supply planning and re'enue management should -e performed separately. ) supply planning should -e completed first. ) supply planning and re'enue management should -e com-ined. #) re'enue management should -e completed first. Answer: #iff: , Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: ompare common approaches to supply chain design ,<) apacity assets in the supply chain do not e2ist for A) transportation. ) production. ) in'entory. #) storage. Answer: #iff: 1 Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain earning *utcome: ompare common approaches to supply chain design 08) %e'enue management adusts the pricing and a'aila-le supply of assets and has a significant impact on supply chain profita-ility when one of four conditions e2ist. =hich is not one of the four conditions listed in the te2t-ook@ A) The product is highly perisha-le or product wastage occurs. ) #emand has seasonal and other peaks. ) The product is sold -oth in -ulk and on the spot market. #) The 'alue of the product is the same across different market segments. Answer: # #iff: , Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain AA!: Analytic !kills earning *utcome: ompare common approaches to supply chain design 01) "2ample industries of a product whose 'alue 'aries -y market segment would not include A) airlines. ) grocery stores. ) hotels. #) car rental companies. Answer: #iff: $ Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
161 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
0$) "2amples of perisha-le assets would not include A) highfashion apparel. ) fruits. ) computers. #) ink et printers. Answer: # #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 0,) The tactic of o'er-ooking or o'erselling of the a'aila-le asset is suita-le in any situation in which customers are a-le to cancel orders and the 'alue of the asset drops significantly after a deadline. =hich of the following would not -e an e2ample of this@ A) omputers ) Airlines seats ) &roduction capacity #) 5tems designed for a specific holiday Answer: A #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 00) *'er-ooking as a tactic has -een used in many industries. 9owe'er it has not -een used as much as possi-le in the following industry: A) hotels. ) passenger rail. ) airline. #) transportation capacity. Answer: # #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets earning *utcome: ompare common approaches to supply chain design 04) =hich of the following is not listed as a step in re'enue management@ A) Quantify the -enefits of re'enue management. ) 5mplement a forecasting process. ) 5n'ol'e sales and not operations #) +nderstand and inform the customer. Answer: #iff: 1 Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice earning *utcome: ompare common approaches to supply chain design
161; opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
16., "ssay Questions 1) #escri-e the role of re'enue management. Answer: &ricing is an important le'er to increase supply chain profits -y -etter matching supply and demand. &ricing may influence demand if customers are price sensiti'e. Revenue management is the use of pricing to increase the profit generated from a limited supply of supply chain assets. !upply chain assets e2ist in two formsBcapacity and in'entory. apacity assets in the supply chain e2ist for production transportation and storage. 5n'entory assets e2ist throughout the supply chain and are carried to impro'e product a'aila-ility. (anagement decisions should try to ma2imi3e the total margin earned from these assets. To increase the total margin managers must use all a'aila-le le'ers including price. This is the primary role of re'enue management. Traditionally firms ha'e often in'ested in or eliminated assets to reduce the im-alance -etween supply and demand. Firms -uild additional capacity during the growth part of a -usiness cycle and shut some of the capacity down during a downturn. 5deas from re'enue management suggest that a firm should first use pricing to achie'e some -alance -etween supply and demand and only then in'est in or eliminate assets. %e'enue management may also -e defined as the use of differential pricing -ased on customer segment time of use and product or capacity a'aila-ility to increase supply chain surplus. #iff: $ Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design $) "2plain how re'enue management is -eneficial. Answer: %e'enue management adusts the pricing and a'aila-le supply of assets to ma2imi3e profits. %e'enue management has a significant impact on supply chain profita-ility when one or more of the following four conditions e2ist: 1. The 'alue of the product 'aries in different market segments. $. The product is highly perisha-le or product wastage occurs. ,. #emand has seasonal and other peaks. 0. The product is sold -oth in -ulk and the spot market. %e'enue management can -e a powerful tool for e'ery owner of assets in a supply chain. *wners of any form of capacity >production transportation or storage) can use re'enue management if there is seasonal demand or if there are segments that are willing to pay different prices for different lead times to use the capacity. %e'enue management can -e effecti'e if there is a segment that wants to use capacity at the last minute and is willing to pay for it and there is another segment that wants a lower price and is willing to commit far in ad'ance. %e'enue management is essential for owners of any perisha-le in'entory. (ost successful e2amples of the use of re'enue management are from the tra'el and hospitality industry and include airlines car rentals and hotels. %e'enue management can ha'e a similar impact on all stages of a supply chain that satisfy one or more of these four conditions. #iff: $ Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 161< opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
,) "2plain how differential pricing can -enefit a firm. Answer: 5f a supplier ser'es multiple customer segments with a fi2ed asset he or she can impro'e re'enues -y setting different prices for each segment. 5n theory the concept of differential pricing increases total profits for a firm. There are two fundamental issues howe'er that must -e handled in practice. First the firm must differentiate -etween the two segments and structure its pricing to make one segment pay more than the other. To differentiate -etween the 'arious segments the firm must create -arriers -y identifying product or ser'ice attri-utes that the segments 'alue differently. !econd the firm must control demand such that the lower paying segment does not utili3e the entire a'aila-ility of the asset. The amount of the asset reser'ed for the higher price segment is such that the e2pected marginal re'enue from the higher priced segment e?uals the price to the lower price segment. &rices must -e set with -arriers such that the segment willing to pay more is not a-le to pay the lower price. To successfully use re'enue management when ser'ing multiple customer segments a firm must use the following tactics effecti'ely: C &rice -ased on the 'alue assigned -y each segment. C +se different prices for each segment. C Forecast at the segment le'el. #iff: $ Topic: 16.1 The %ole of &ricing and %e'enue (anagement in a !upply hain AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 0) 9ow do firms address the pro-lems of spoilage and spill@ Answer: 5n 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 -asic tradeoff to -e considered -y the supplier with production capacity is -etween committing to an order from a lower price -uyer and waiting for a highprice -uyer to arri'e later on. The two risks in such a situation are spoilage and spill. !poilage occurs when the capacity reser'ed for higher price -uyers is wasted -ecause demand from the higher price segment does not materiali3e. !pill occurs if higher price -uyers ha'e to -e turned away -ecause the capacity has already -een committed to lower price -uyers. The supplier should decide on the capacity to commit for the higher price -uyers so as to minimi3e the e2pected cost of spoilage and spill. A current order from a lower price -uyer should -e compared with the e2pected re'enue from waiting for a higher price -uyer. The order from the lower price -uyer should -e accepted if the e2pected re'enue from the higher price -uyer is lower than the current re'enue from the lower price -uyer. #iff: $ Topic: 16.$ &ricing and %e'enue (anagement for (ultiple ustomer !egments AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
16$8 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
4) 9ow can firms address the pro-lem of perisha-le assets@ Answer: Any asset that loses 'alue o'er time is perisha-le. The two re'enue management tactics used for perisha-le assets are 1. ary price o'er time to ma2imi3e e2pected re'enue. $. *'er-ook sales of the asset to account for cancellations. The tactic of 'arying price o'er time is suita-le for assets such as fashion apparel that ha'e a clear date -eyond which they lose a lot of their 'alue. To effecti'ely 'ary price o'er time for a perisha-le asset the asset owner must -e a-le to estimate the 'alue of the asset o'er time and effecti'ely forecast the impact of price on customer demand. "ffecti'e differential pricing o'er time will generally increase the le'el of product a'aila-ility for the consumer willing to pay full price and also increase total profits for the retailer. The tactic of o'er-ooking or o'erselling the a'aila-le asset is suita-le in any situation where customers are a-le to cancel orders and the 'alue of the asset drops significantly after a deadline. 5f the cancellation or the return rate can -e predicted accurately the o'er-ooking le'el is easy to determine. 5n practice howe'er the cancellation or return rate is uncertain. The -asic tradeoff to consider during o'er-ooking is -etween ha'ing wasted capacity >or in'entory) -ecause of e2cessi'e cancellations and ha'ing a shortage of capacity >or in'entory) -ecause of few cancellations in which case an e2pensi'e -ackup needs to -e arranged. The cost of wasted capacity is the margin that would ha'e -een generated if the capacity had -een used for production. The cost of a capacity shortage is the reduction in margin that results from ha'ing to go to a -ackup source. The goal when making the o'er-ooking decision is to ma2imi3e supply chain profits -y minimi3ing the cost of wasted capacity and the cost of capacity shortage. #iff: $ Topic: 16., &ricing and %e'enue (anagement for &erisha-le Assets AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design 6) "2plain why forecasting is important to re'enue management. Answer: The foundation of any re'enue management system is the forecasting function. To use o'er-ooking with any degree of success a firm must -e a-le to forecast cancellation patterns. Forecasting does not mean o-taining an estimate that is always accurate. Forecasting in'ol'es estimating demand and also attri-uting an e2pected error to the forecast itself. oth the estimated 'alue and the e2pected error are important inputs into any re'enue management model. Finally as new information -ecomes a'aila-le reforecast to see if the re'enue management tactics currently in place are still appropriate. The fre?uency of forecasting will depe nd on the amount of market acti'ity. 5deally the forecast and the re'enue management decision should -e e'aluated after e'ery transaction. #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice AA!: %eflecti'e Thinking !kills earning *utcome: ompare common approaches to supply chain design
16$1 opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
) A manufacturer of industrial sales has production capacity of 1888 units per day. urrently the firm sells production capacity for D18 per unit. At this price all production capacity gets -ooked a-out one week in ad'ance. A group of customers ha'e said that they would -e willing to pay D14 per unit if capacity was a'aila-le on the last day. A-out ten days in ad'ance demand for the highprice segment is normally distri-uted with a mean of $48 and a standard de'iation of 188. 9ow much production capacity should the manufacturer reser'e for the last day@ Answer: %e'enue from segment A pA E D14 per unit %e'enue from segment p E D18 per unit (ean demand for segment A DA E $48 units !tandard de'iation of demand for segment A A E 188 units A E G*%(5G>1 p/ pA DA A) E G*%(5G>1 18/14 $48 188) E $86.<$$ H $8 units of capacity #iff: $ Topic: 16.6 +sing &ricing and %e'enue (anagement in &ractice AA!: +se of 5nformation Technology earning *utcome: ompare common approaches to supply chain design
16$$ opyright 7 $81, &earson "ducation 5nc. pu-lishing as &rentice 9all
