Application of revenue management principles in warehousing of a third party logistics firm

Abstract

As global business landscape becomes more competitive, new and innovative methods to stay ahead of the competition are imperative. Profits being the bottom line of every business, margins are shrinking in the face of extreme competition. Overbooking is a revenue management concept that is used by the airlines to increase operating revenues. This study focuses on the application of this technique to the warehousing operation of a third party logistics firm with the objective of maximizing profit. It proposes a mathematical model to identify the overbooking limit to maximize profit. It shows the additional revenue generation potential of overbooking concept, in the warehousing operation of a third party logistics business. A discussion of the competition between different third party logistics businesses is also initiated.