Revenue management optimization for make-to-order and engineering-to-order manufacturing context

Abstract

The order promising process for Make-To-Order (MTO) and Engineering-To-Order (ETO) companies usually implies not only verifying delivery quantity and due date feasibility but also negotiating prices with clients derived from product customization. The existence of variable operation costs due to process selection and volatile raw material prices, emphasizes the need for precise supplier choice and cost estimation for pricing. These decisions fall within the scope of Revenue Management (RM), which is addressed in this paper through a novel optimization model for companies with hybrid MTO/ETO manufacturing strategy and even extendable to Make-To-Stock (MTS) one. A Conceptual Framework is proposed to characterize the RM problem, systematically review existing literature, and justify the novelties of this research. The model is tested on a metal-mechanic company with characteristics not previously modelled, and evaluated under different scenarios, demonstrating its effectiveness providing a price acceptable for the customer as well as profitable for the company.