Transcript Managing Supply and Demand

Managing Capacity and
Demand
McGraw-Hill/Irwin
Copyright © 2006 by The McGraw-Hill Companies, Inc. All rights reserved.
Strategies for Matching Supply and
Demand for Services
SUPPLY
STRATEGIES
DEMAND
STRATEGIES
Developing
complementary
services
Developing
reservation
systems
Partitioning
demand
Sharing
capacity
Establishing
price
incentives
Crosstraining
employees
Promoting
off-peak
demand
Using
part-time
employees
Yield
management
Increasing
customer
participation
Scheduling
work shifts
Creating
adjustable
capacity
Segmenting Demand at a Health Clinic
Percentage of average daily
physician visits
140
130
120
Smoothing Demand by Appointment
Scheduling
110
Day
Appointments
100
Monday
Tuesday
Wednesday
Thursday
Friday
90
80
70
60
1
2
3
4
Day of week
5
84
89
124
129
114
Discriminatory Pricing for Camping
Experience
type
1
2
3
4
Days and weeks of camping season
Saturdays and Sundays of weeks 10 to 15, plus
Dominion Day and civic holidays
Saturdays and Sundays of weeks 3 to 9 and 15 to 19,
plus Victoria Day
Fridays of weeks 3 to 15, plus all other days of weeks
9 to 15 that are not in experience type 1 or 2
Rest of camping season
No. of
Daily
days
fee
14
$6.00
23
2.50
43
0.50
78
free
EXISTING REVENUE VS PROJECTED REVENUE FROM DISCRIMINATORY PRICING
Experience
Existing flat fee of $2.50
Campsites
Discriminatory fee
Campsites
type
occupied
Revenue
occupied (est.)
1
5.891
$14,727
5,000
$30,000
2
3
4
Total
8,978
6,129
4,979
25,977
22,445
15,322
12,447
$ 64,941
8,500
15,500
….
29,000
21,250
7.750
….
$59,000
Revenue
Hotel Overbooking Loss Table
Number of Reservations Overbooked
No-
Prob-
shows
ability
0
1
2
0
.07
0
100
200
300
1
2
3
4
5
6
7
8
.19
.22
.16
.12
.10
.07
.04
.02
40
80
120
160
200
240
280
320
0
40
80
120
160
200
240
280
100
0
40
80
120
160
200
240
9
.01
360
320
121.60
91.40
Expected loss, $
3
4
5
6
7
8
9
400
500
600
700
800
900
200
100
0
40
80
120
160
200
300
200
100
0
40
80
120
160
400
300
200
100
0
40
80
120
500
400
300
200
100
0
40
80
600
500
400
300
200
100
0
40
700
600
500
400
300
200
100
0
800
700
600
500
400
300
200
100
280
240
200
160
120
80
40
0
87.80
115.00
164.60 231.00 311.40 401.60 497.40 560.00
Ideal Characteristics for Yield Management
 Relatively
Fixed Capacity
 Ability to Segment Markets
 Perishable Inventory
 Product Sold in Advance
 Fluctuating Demand
 Low Marginal Sales Cost and High Capacity Change Cost
Percentage of capacity allocated
to different service classes
Seasonal Allocation of Rooms by
Service Class for Resort Hotel
First class
30%
20%
50%
Standard
20%
30%
20%
50%
60%
Budget
10%
Peak
(30%)
Summer
30%
Shoulder
(20%)
Fall
50%
30%
Off-peak
(40%)
Winter
Shoulder
(10%)
Spring
Percentage of capacity allocated to different seasons
Demand Control Chart for a Hotel
350
Expected Reservation Accumulation
300
Reservations
2 standard deviation control limits
250
200
150
100
50
0
1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89
Days before arrival
Yield Management Using the Critical
Fractile Model
Cu
( F  D)
P(d  x) 

Cu  C o
pF
Where x = seats reserved for full-fare passengers
d = demand for full-fare tickets
p = proportion of economizing (discount) passengers
Cu = lost revenue associated with reserving one too few seats
at full fare (underestimating demand). The lost opportunity is the
difference between the fares (F-D) assuming a passenger, willing
to pay full-fare (F), purchased a seat at the discount (D) price.
Co = cost of reserving one too many seats for sale at full-fare
(overestimating demand). Assume the empty full-fare seat would
have been sold at the discount price. However, Co takes on two
values, depending on the buying behavior of the passenger who
would have purchased the seat if not reserved for full-fare.
if an economizing passenger
D
Co  
 ( F  D )
if a full fare passenger (marginal gain)
Expected value of Co = pD-(1-p)(F-D) = pF - (F-D)