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Managing Capacity and Demand

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Presentation on theme: "Managing Capacity and Demand"— Presentation transcript:

1 Managing Capacity and Demand

2 Learning Objectives Describe the strategies for matching capacity and demand for services. Recommend an overbooking strategy. Use Linear Programming to prepare a weekly workshift schedule. Prepare a work schedule for part-time employees. Use yield management.

3 Strategies for Matching Supply and Demand for Services
Partitioning demand Increasing customer participation Developing complementary services Sharing capacity Establishing price incentives Scheduling work shifts Cross- training employees Developing reservation systems Creating adjustable capacity Promoting off-peak demand Using part-time employees Yield management

4 Segmenting Demand at a Health Clinic
Smoothing Demand by Appointment Scheduling Day Appointments Monday Tuesday Wednesday Thursday Friday

5 Discriminatory Pricing for Camping
Experience No. of Daily type Days and weeks of camping season days fee Saturdays and Sundays of weeks 10 to 15, plus $6.00 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 free EXISTING REVENUE VS PROJECTED REVENUE FROM DISCRIMINATORY PRICING Existing flat fee of $ Discriminatory fee Experience Campsites Campsites type occupied Revenue occupied (est.) Revenue $14, , $30,000 , , , ,250 , , , , , … …. Total , $ 64, , $59,000

6 Hotel Overbooking Loss Table
Number of Reservations Overbooked No Prob- shows ability Expected loss, $

7 Daily Scheduling of Telephone Operator Workshifts
Topline profile Scheduler program assigns tours so that the number of operators present each half hour adds up to the number required Tour

8 LP Model for Weekly Workshift Schedule with Two Days-off Constraint
Schedule matrix, x = day off Operator Su M Tu W Th F Sa x x … … … … … x x … … … … … x x … … … … x x … … … … … … … x x … … … … … x x … … … … … x x … x … … … … … x Total Required Excess

9 Scheduling Part-time Bank Tellers
Decreasing part-time teller demand histogram Tellers required 5 4 4 Tellers required 3 3 2 2 1 Two Full-time Tellers 1 1 5 2 Fri Mon Wed Thurs Tues. Mon. Tues Wed. Thurs. Fri. DAILY PART-TIME WORK SCHEDULE, X=workday Teller Mon Tues Wed Thurs Fri. x … x … x x … … x x 3, x … … … x … … x … x

10 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

11 Seasonal Allocation of Rooms by Service Class for Resort Hotel
First class Standard Budget 20% 20% 20% 30% 50% 30% 50% 60% Percentage of capacity allocated to different service classes 50% 30% 30% 10% Peak Shoulder Off-peak Shoulder (30%) (20%) (40%) (10%) Summer Fall Winter Spring Percentage of capacity allocated to different seasons

12 Demand Control Chart for a Hotel
Expected Reservation Accumulation 2 standard deviation control limits

13 Yield Management Using the Critical Fractile Model
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 to 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 if a full fare passenger (marginal gain) Expected value of Co = pD-(1-p)(F-D) = pF - (F-D)

14 Topics for Discussion What organizational problems can arise from the use of part-time employees? How can computer-based reservation systems increase service capacity utilization? What possible dangers are associated with developing complementary services? Will the widespread use of yield management eventually erode the concept of fixed prices? What possible negative effects can yield management have on customer relations?

15 Interactive Exercise Watch the PowerPoint presentation concerning the overbooking experience at the Doubletree Hotel in Houston, Texas. How could this situation been handled differently?

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