Rodrigo Cambiaghi Azevedo, Sophie D’Amours, Mikael Ronnqvist

There has been much discussion about revenue management in the last two decades. Dynamic pricing, overbooking, markdown, and auctions are among the concepts more explored in the literature. Also, substantial increases in profitability have been credited to the use of these concepts in service industries such as airlines, hotels and car rentals.

More recently, propositions have been found in the literature that try to adapt revenue management concepts to other industries outside service, especially manufacturing. This article follows this trend and discusses the potential use of revenue management concepts in the softwood lumber industry.

For almost a decade, For@c has been studying the challenges faced by the softwood lumber industry. Thus, when the prelude to the drastic turnaround in the market situation emerged years ago, the need for innovative business models for industry was strengthened even more. At that time, the benefits posted from revenue management programs by service firms stimulated our aspiration to allow lumber producers to repeat this same intensity of success. To accomplish this, four years ago we launched exploratory research aiming to address two main questions: How could revenue management be applied by softwood lumber manufacturers? And to what extent would this application be associated to the management of the softwood lumber value chain? This article presents the achievements and lessons learned from this research.

The article starts with an outline of the potential benefits softwood lumber producers might achieve by properly applying revenue management concepts in their management model. Next, it reveals that due to its wide scope, the revenue management topic must be addressed according to different value chain processes in order to guarantee the proper management of the company’s revenue and profitability. From this perspective we set revenue management as a competence that companies must develop to accomplish their projected objectives. This viewpoint opens a vast area for discussion about, for instance, the use of tangible and intangible assets when proposing and delivering value to customers, as well as the capabilities, skills and knowledge required by organizations adopting RM. In addition, the article ascertains that the understanding and segmentation of different customer behaviours is still an unexplored field in the lumber industry. When properly investigated, different customer segments will assist lumber manufacturers in better structuring their value chain activities around customer expectations, which will consequently allow them to financially benefit from each individual transaction.

Finally, the article provides examples of the potential use of quantity-based and price-based RM models in the lumber environment. It ends by opening a structured discussion on how this theme might evolve within the industry.