Capacity price decisions, a manufacturing yield management perspective

This paper focuses on formulating capacity-price trade off problem in Yield Management for manufactur-ing industry by drawing motivation from the remarkable success of Yield Management (YM) implementation in airlines. In the current practice, there is no alternative and procedure for the manufacturer, as well as cus-tomers to take advantage of using the unfulfilled capacity in discounted offers. The authors present a frame-work for customer segmentation and lead-time demand management to change standard production and ca-pacity planning problem to Yield Management problem. For a planning period of T, the authors formulate the model with the objective of optimizing both price and capacity utilization factors, simultaneously. They de-velop an innovative two-stage dynamic programming model to help practitioners to using the benefit of a dy-namic model with reasonable computational effort. To formulate the problem in a general framework, the au-thors devise a demand model with an independent probability function structure. The authors also identify some important challenges and devise a set of rules to assist decision makers in manufacturing. The parame-ters of the model may be supported by sales and typical production planning data base.