SUPPLY CHAIN MANAGEMENT

SECTION A Read the case study below and answer ALL the questions that follow. Why so many Pricing and Revenue Management (PRM) approaches fail? Effective pricing and revenue management (PRM) practices are supported by three separate but equally important pillars: people and process, technology, and strategy. And while nearly all airlines maintain some sort of PRM effort, most focus too much on one pillar or another instead of considering how all three need to work in concert. As a typical example, often an airline will become convinced that it requires the latest and greatest RM technology with the latest forecasting and optimization techniques (for example, one with full O&D controls), but fail to provide sufficient training and support to their staff. The team might be able to use the most basic features of that expensive system, but not the customization options and more detailed levers that warranted the system's high price in the first place. On the flip side, an airline may invest in a well-qualified and continually trained workforce, but underinvest in the technology and select a cheaper alternative that does not provide all of the features needed by the airline. In other cases, the airline is willing to make the technological and personnel investments, but lacks the historical data necessary to configure and calibrate these systems, the IT infrastructure to collect such data moving forward, or the business model requiring O&D. At best, this cutting edge technology will go unused; at worst, it will be applied in a faulty (and likely costly) manner. Even in departments with appropriate technology and well-trained, skilled staff, hurdles like insufficient process controls, inadequate feedback loops, and inconsistent reporting and execution standards can short-circuit comprehensive PRM approaches. Different analysts may work the same market situation in different ways, with different goals in mind, thus achieve significantly different results. Senior level management may even be setting goals that are in direct opposition to effective PRM; for example, focusing solely on improving load factors or increasing passenger revenue per available seat mile/kilometer rather than the broader PRM strategy of maximizing total passenger revenue by successfully balancing these two key factors. Obtaining the Full Benefits of PRM: Revenue management software systems are specifically designed to manage the high volume of forecasting and optimization required to maximize unit revenues in a near real time environment People & Process While today's PRM environment highly leverages technology, people remain a key component of the entire system, both to monitor and direct these complex IT systems. And while most individuals naturally want to succeed at what they do, it is critical to make sure that PRM staff have the right knowledge, experience, and guidance to best accomplish the goals of PRM. From the departmental organizational structure and training curricula to processes for testing and experimenting with new strategies, it is important to examine the people and process factor. Technology While all revenue management systems work off of the same principles, they vary widely in capabilities, complexity, and algorithmic breadth. Importantly, however, not every airline requires every bell and whistleindeed, there are likely only a few dozen airlines worldwide that gain benefit from the most complex and expensive systems available. Of course, choosing an appropriate RM system is only one piece of the puzzle. The system must be fed accurate data, and forecasts and optimization algorithms must be tuned appropriately, to generate optimal resultsuncalibrated or poorly calibrated systems can actually result in a revenue drag for an airline. These are just a few of the elements that need to be verified when examining an airline's PRM technology. Strategy Most importantly, but perhaps most often forgotten about, is ensuring that an airline's PRM strategy is both aligned with the management and fiscal philosophies of the airline while developed enough to achieve positive results. From establishing basic KPIs to monitor performance to having playbooks on how to handle new developments internally and from competitors, whether it involves a change in frequencies, launch of a brand new market, or even an entire change in strategy (such as the launch of basic economy fares). Further, as the airline industry becomes ever-intertwined around the globe, the passenger and financial impact of codeshare, alliance, and joint ventures must be evaluated to ensure continued positive contribution for each participant. Source: https://www.icf.com/insights/transportation/airline-revenue- management-strategies QUESTION 1 1.2 Critically discuss the two fundamental approaches which can be applied in airline revenue management. (20 marks) 1.3 Critically discuss why airlines need to use pricing to shape demand pattern and examine the key challenge when considering dynamic pricing strategies (10 marks)