Integrating Pricing and Inventory Control: Is it Worth the Effort?

In this paper we first show that the gains achievable by integrating pricing and inventory control are usually small for classical demand functions. We then introduce reference price models and demonstrate that for this class of demand functions the benefits of integration with inventory control are substantially increased due to the price dynamics. We also provide some analytical results for this more complex model. We thus conclude that integrated pricing/inventory models could repeat the success of revenue management in practice if reference price effects are included in the demand model and the properties of this new model are better understood.

Revenue Management in Make-To-Order Manufacturing: Case Study of Capacity Control at ThyssenKrupp VDM

While revenue management (RM) is traditionally considered a tool of service operations, RM shows considerable potential for application in manufacturing operations. The typical challenges in make-to-order manufacturing are fixed manufacturing capacities and a great variety in offered products, going along with pronounced fluctuations in demand and profitability. Since Harris and Pinder in the mid-90s, numerous papers have furthered the understanding of RM theory in this environment. Nevertheless, results to be expected from applying the developed methods to a practical industry setting have yet to be reported. To this end, this paper investigates a possible application of RM at ThyssenKrupp VDM, leading to considerable improvements in several areas.