A revenue management approach to demand management and order booking in assemble‐to‐order manufacturing

Abstract Revenue management is an order acceptance and refusal process that employs differential pricing strategies and stop sales tactics to reallocate capacity, enhance delivery reliability and speed, and realize revenue from change order responsiveness in order to maximize the revenue from pre‐existing capacity. While previously considered primarily as a tool of service operations, revenue management has considerable potential for assemble to order (ATO) manufacturing environments. Increasing demand for customer responsiveness has created service‐oriented manufacturing environments suitable for the application of revenue management methods. This paper applies revenue management concepts and techniques to ATO manufacturing environments and presents models for optimal pricing and capacity decisions.