Pricing And Capacity Allocation Under Service Booking

The basis of revenue management is an order acceptance and refusal process that integrates the marketing, financial, and operations functions to maximize revenue from pre-existing capacity. It combines a differential pricing strategy with proactive capacity planning and a sophisticated order booking process to manage demand, enhance delivery reliability, and realize additional revenue from change orders. Revenue management techniques have been successfully applied to the airline, railway, cruise ship hotel and resort health care,electric utility, car rental, broadcasting advertising, entertainment, printing and publishing, and telecommunications industries. While previously considered primarily as a tool of service operations, revenue management has considerable potential for manufacturing operations. Increased demand for shorter and more reliable delivery times and for change order responsiveness in manufacturing create the need for, and profit potential from revenue management methods. Revenue management helps firms reallocate undifferentiated units of capacity to alternative market. segments of varying profitability as booked orders diverge from the forecast. Direct benefits of revenue management in manufacturing are increased profits from differential pricing and dynamic capacity reallocation policies. revenue management achieves this result by limiting bookings in specific, identifiably low-margin, segments in order to reserve capacity for higher margin later-arriving change order customers.In this paper, we use the method of revenue management to make the profit optimization.