Age-old wisdom meets Internet age
Kevin Parker, Editorial Director -- Manufacturing Business Technology, 8/1/2001 12:00:00 AM
The new collaboration technologies present many opportunities to more closely coordinate supply and demand, but Rockville, Md.-based Manugistics, with what it calls its solutions for pricing and revenue optimization (PRO), has hit upon that which has always tied the two together—price. Raise the price, demand goes down. Lower the price, and voilá, demand increases.
What joins age-old wisdom to the age of the Internet, however, is use of advanced statistical methods and optimization technology to determine best pricing strategies, given a defined market, production, and distribution environment. "The technology might be applied to a quotation for custom-built equipment, to an entire price list, or to gauge the real impact of a product promotion," says Lori Mitchell-Keller, senior vice president of technology strategy.
Commercial use of advanced statistical and optimization methods began in the airlines industry, and is used today not only to schedule flights, but to determine who will pay how much for a seat. The hospitality industry increasingly uses the technology to determine hotel room prices.
To now, in manufacturing, optimization has been used for scheduling but not pricing. Manufacturers use what are called supply chain planning systems to generate capacity-constrained, optimized production plans and schedules, which allow for plans optimized based on relative weights assigned for customer service, cost, or other parameters.
What it's doing is different, says Manugistics, in allowing manufacturers to systematically use price to coordinate supply and demand and thereby maximize profit. It's so new, that as of yet, Manugistics can only say it is in the advanced stages of the sales cycle with three of its manufacturing customers. Its revenue optimization product, however, is being used by American Trains Air and Delta Air Lines, and it's also working with customers in the financial services and other industries.
According to Manugistics, PRO solutions take into consideration variables that include product availability, shifting demand, competitor price actions, production costs, inventory, market share objectives, and customer buying habits.
At its enVISION users' conference held the week of July 16 in Orlando, Fla., Manugistics "launched" two PRO solutions: Profitable Order Management and Profitable Promotions Management. A third element, Profitable Demand Management, is slated for commercial release in coming months.
According to Chris Caren, a company vice president, Profitable Order Management could be used by an industrial goods maker to price equipment based on historical information drawn from enterprise or customer relationship management systems. Profitable Demand Management could be seen as more suitable for mass-produced goods in its ability to project how a pricing strategy will impact demand across entire product lines. Finally, Profitable Promotions would be useful for a consumer packaged goods maker trying to minimize inventory across multiple sales channels.
