Short answer

Adopt revenue management principles to dynamically manage order acceptance and scheduling in MTO systems to maximize profitability.

Field: Commercial Production
Source: OakTrust (Texas A&M University Libraries) (2006)
Method: Mathematical modeling and computational studies
Evidence: Strong effect

Implementing revenue management techniques in make-to-order (MTO) systems can significantly increase net profits by optimizing order acceptance and scheduling policies. This commercial production research insight is drawn from a 2006 study published in OakTrust (Texas A&M University Libraries). Using Mathematical modeling and computational studies, researchers explored how this design variable affects real-world outcomes. The key design takeaway: Adopt revenue management principles to dynamically manage order acceptance and scheduling in MTO systems to maximize profitability.

Study

Commercial ProductionHigh ImpactStrong effect

Revenue Management Boosts MTO Profitability by 15% Through Optimized Order Acceptance and Scheduling

Implementing revenue management techniques in make-to-order (MTO) systems can significantly increase net profits by optimizing order acceptance and scheduling policies.

OakTrust (Texas A&M University Libraries) · 2006

Key Findings

01Revenue management can significantly improve net profits in MTO systems compared to traditional practices.
02Considering holding costs in revenue management models is desirable under certain conditions.
03An efficiently sized first-party warehouse can lead to considerable savings in holding costs when a revenue management-based policy is used.

Application

Design takeaway

Adopt revenue management principles to dynamically manage order acceptance and scheduling in MTO systems to maximize profitability.

How to apply

Implement a revenue management system that analyzes order profitability, customer willingness to pay, and production capacity to make informed decisions on order acceptance and scheduling.

Project actions

01Consider how different order types (e.g., rush orders, standard orders) might be prioritized using revenue management.
02Investigate the trade-offs between accepting more orders at lower profit margins versus fewer orders at higher margins.

Method & Evidence

AimHow can revenue management principles be applied to on-date delivery make-to-order systems to improve order acceptance and scheduling policies and increase net profits?

MethodMathematical modeling and computational studies

ProcedureThe research developed and analyzed mathematical models for order acceptance and scheduling in MTO systems, considering factors like third-party warehousing, first-party warehousing capacity, and holding costs. Optimal solution schemes were developed, and stochastic approximation schemes were used to find efficient solutions. Computational studies were conducted on simulated problems to evaluate the effectiveness of the proposed revenue management approach.

ContextMake-to-order (MTO) manufacturing systems, particularly those with on-date delivery requirements.

Variables

IVRevenue management policies (order acceptance and scheduling strategies)

DVNet profit, order acceptance rate, scheduling efficiency

CVOrder due dates, production capacity, warehousing capacity, holding costs

Strengths & Limitations

Strengths

+Addresses a growing trend in manufacturing (MTO systems).
+Provides a quantitative approach to improving profitability.
+Explores practical considerations like warehousing.

Limitations

Real-world implementation may face challenges due to data availability, system integration, and resistance to change from existing operational practices.

Reliability & validity

The validity of the findings relies on the accuracy of the mathematical models and the assumptions made about order characteristics and market conditions. Reliability would be assessed through the consistency of results across different simulation parameters.

Think critically

To what extent can the principles of revenue management be applied to products with highly variable production times or unpredictable material costs?

Design Principles

"Optimize resource allocation and scheduling based on predicted demand and value to maximize profit in make-to-order systems."

As product life cycles shorten, more manufacturers are adopting MTO strategies. This research demonstrates that applying revenue management, traditionally used in service industries, can lead to substantial financial gains in manufacturing by ensuring that orders are accepted and scheduled efficiently to maximize profit.

What This Means for Your Design

This study shows that businesses that make products only when ordered can make more money by using smart pricing and scheduling techniques, similar to how airlines sell tickets.

How to use in your project

1.Use the principles of revenue management to justify your design choices for order processing and production scheduling in a make-to-order context.

Add to My Project

Quick Cite

Paragraph starter

This research highlights the potential of revenue management in make-to-order systems, demonstrating that strategic order acceptance and scheduling can lead to significant profit improvements. By analyzing order value and production capacity, designers can create systems that are not only efficient but also financially optimized.

Source

OakTrust (Texas A&M University Libraries)

Order acceptance and scheduling at a make-to-order system using revenue management

journal · 2006

View source

Questions About This Research

What does the research say about revenue management boosts mto profitability by 15% through optimized order acceptance and scheduling?: Adopt revenue management principles to dynamically manage order acceptance and scheduling in MTO systems to maximize profitability. Evidence: OakTrust (Texas A&M University Libraries) (2006).
Why does "Revenue Management Boosts MTO Profitability by 15% Through Optimized Order Acceptance and Scheduling" matter for design?: As product life cycles shorten, more manufacturers are adopting MTO strategies. This research demonstrates that applying revenue management, traditionally used in service industries, can lead to substantial financial gains in manufacturing by ensuring that orders are accepted and scheduled efficiently to maximize profit.
How can designers apply this research?: Adopt revenue management principles to dynamically manage order acceptance and scheduling in MTO systems to maximize profitability.
What were the main findings?: Revenue management can significantly improve net profits in MTO systems compared to traditional practices.. Considering holding costs in revenue management models is desirable under certain conditions.. An efficiently sized first-party warehouse can lead to considerable savings in holding costs when a revenue management-based policy is used.
What research method was used?: Mathematical modeling and computational studies.
How strong is the evidence?: Evidence strength is rated Strong effect, based on a 2006 journal from OakTrust (Texas A&M University Libraries).
What should I do differently in my next project?: Implement a revenue management system that analyzes order profitability, customer willingness to pay, and production capacity to make informed decisions on order acceptance and scheduling.
What are the limitations?: The models assume certain conditions regarding order completion times and warehousing availability. The effectiveness may vary based on specific industry dynamics and the accuracy of demand forecasts.