Correspondence: Christina R. Scherrer, Department of Industrial Engineering Technology, Southern Polytechnic State University, 1100 S. Marietta Pkwy, Marietta, GA 30060, USA. E-mail: cscherre@spsu.edu

¹Christina Scherrer is an Assistant Professor in the Industrial Engineering Technology department at Southern Polytechnic State University. She received her PhD in Industrial Engineering from the Georgia Institute of Technology. Her research interests are in the application of economic decision analysis and operations research to public health and non-profit sectors.

²Paul Griffin is a Professor in the Stewart School of Industrial and Systems Engineering at the Georgia Institute of Technology. His research and teaching interests are in the application of economic decision analysis to supply chain and public health settings.

Received 7 July 2008; Revised 7 July 2008; Published online 12 December 2008.

Abstract

Previous research on dynamic pricing has concentrated primarily on small projects using inflexible capacity. In this paper, we discuss the differences between this work and dynamic pricing for project-oriented production (POP). POP is formally defined and limitations of current dynamic pricing and revenue management techniques for this industry are demonstrated through empirical results. A new heuristic that exploits the flexible capacity of POP industries is developed for such industries and computational results are presented for its performance over a range of dynamic pricing environments. We test the heuristic on a variety of job sizes and rates, and our numerical results indicate that the heuristic significantly outperforms other heuristics in the literature for jobs that fall into the POP category.