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					Chapter 12 Managing Capacity and Demand

Learning Objectives
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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.
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Strategies for Matching Supply and Demand for Services
DEMAND STRATEGIES

SUPPLY STRATEGIES

Developing complementary services Developing reservation systems

Partitioning demand Sharing capacity Establishing price incentives Promoting off-peak demand Crosstraining employees Using part-time employees Yield management

Increasing customer participation

Scheduling work shifts Creating adjustable capacity

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Bar at a restaurant Video games at movie Gift shop

DEMAND STRATEGIES

Appts vs. wak-ins

Partitioning demand Developing complementary services

Weekend and night rates
Establishing price incentives

Matinee rates

Pre-sell services Hotel

Developing reservation systems

Off-season rates
Early-bird pricing

Airlines
Professional retainers Down payments

Promoting off-peak demand

“Shop early avoid Holiday rush”
Resort offering business retreats
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Segmenting Demand at a Health Clinic
140 Percentage of average daily physician visits 130 120 110 100 90 80 70 60 1 2 3 4 5 Day of week

Smoothing Demand by Appointment Scheduling Day Monday Tuesday Wednesday Thursday Friday Appointments 84 89 124 129 114

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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 days 14 23 43 78 Daily fee $6.00 2.50 0.50 free

EXISTING REVENUE VS PROJECTED REVENUE FROM DISCRIMINATORY PRICING Existing flat fee of $2.50 Campsites occupied 1 2 3 4 Total 5.891 8,978 6,129 4,979 25,977 Revenue $14,727 22,445 15,322 12,447 $ 64,941 Discriminatory fee Campsites occupied (est.) 5,000 8,500 15,500 …. 29,000 Revenue $30,000 21,250 7.750 …. $59,000
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Experience type

Hotel Overbooking Loss Table
Number of Reservations Overbooked Noshows 0 1 2 3 4 5 6 7 8 9 Probability .07 .19 .22 .16 .12 .10 .07 .04 .02 .01 0 0 40 80 120 160 200 240 280 320 360 121.60 1 100 0 40 80 120 160 200 240 280 320 91.40 2 200 100 0 40 80 120 160 200 240 280 87.80 3 300 200 100 0 40 80 120 160 200 240 115.00 4 400 300 200 100 0 40 80 120 160 200 5 500 400 300 200 100 0 40 80 120 160 6 600 500 400 300 200 100 0 40 80 120 7 700 600 500 400 300 200 100 0 40 80 8 800 700 600 500 400 300 200 100 0 40 9 900 800 700 600 500 400 300 200 100 0

Expected loss, $

164.60 231.00 311.40 401.60 497.40 560.00

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Strategies for Matching Supply and Demand for Services
DEMAND STRATEGIES

SUPPLY STRATEGIES

Developing complementary services Developing reservation systems

Partitioning demand Sharing capacity Establishing price incentives Promoting off-peak demand Crosstraining employees Using part-time employees Yield management

Increasing customer participation

Scheduling work shifts Creating adjustable capacity

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Airlines sharing gates, ramps, baggage-handling equipment, ground personnel

SUPPLY STRATEGIES

Buffets, Clearing tables, Pump Gas, Bulk items Caution: Legal, waste, unawareness
Increasing customer participation

Sharing capacity

Supermarkets, fast food restaurants, sports teams

Crosstraining employees

Scheduling work shifts

Using part-time employees

Creating adjustable capacity

Tellers, Off-duty but on standby, Doctors on-call, Students

Reconfiguring aircraft, rearrange restaurant, preparing for rush period
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Daily Scheduling of Telephone Operator Workshifts
Scheduler program assigns tours so that the number of operators present each half hour adds up to the number

required
2500

Topline profile

Number of operators

30 25 20 15 10 5 0
12 2 4 6 8 10 12 2 4 6 8 10 12

2000

Calls

1500

1000

500

Tour

0 12 2 4 6 8 10 12 2 4 6 8 10 12

Time

Time

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Integer Linear Programming (ILP) Model for Weekly Nurse Staffing Requirements
Tour Requirement: 5 days on and 2 consecutive days off

Objective function : Minimize x 1+ x 2+ x 3+ x 4+ x 5+ x 6+ x 7 Constraints Sunday Monday Tuesday Wednesday Thursday Friday Saturday : x 2+ x 3+ x 4+ x + x 6 5 x +x + x +x 3 4 5 6 + x + x +x x1 4 5 6 + x +x x 1+ x 2 5 6 +x x1 + x 2 + x 3 6 x1 + x 2 + x 3 + x 4 x1 + x 2 + x 3 + x 4 + x 5 +x 7 +x 7 +x 7 +x 7 + x7  3  6  5  6  5  5 5

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Weekly Nurse Staffing Schedule
Schedule matrix, x = day off

Nurse
1 2 3 4 5 6 7 8 Total Required Excess

Su
x … … … … … … x 6 3 3

M
x x ... ... … … … … 6 6 0

Tu
… x x x … … … … 5 5 0

W
… … x x … … … … 6 6 0

Th
… … … … x x x … 5 5 0

F
… … … … x x x … 5 5 0

Sa
... … … … … … … x 7 5 2

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Scheduling Part-time Bank Tellers
Decreasing part-time teller demand histogram Tellers required 5 6 7 3 4
Tellers required 0 1 2 3 4 5

5 4 3 2 1
Fri.

4 3 2 1
Mon.

1 5
Wed.

2
Thurs Tues.

Two Full-time Tellers
Mon. Tues. Wed. Thurs. Fri.

0

1

2

DAILY PART-TIME WORK SCHEDULE, X=workday Teller 1 2 3,4 5 Mon. x x x …. Tues. …. …. …. …. Wed. x …. …. x Thurs. …. x …. …. Fri. x x x x 13

Yield Management
Most appropriate for services with the following characteristics:
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Fixed Capacity hotels, airlines Ability to Segment Markets Saturday-night stay, Seasonal resort example Perishable Inventory standby passengers Product Sold in Advance Demand control for a hotel example Fluctuating Demand Low Marginal Sales Cost and High Capacity Change Cost selling airline snack vs. cost on bigger aircraft
Increase utilization (slow demand) Increase revenue (high demand) 14

Seasonal Allocation of Rooms by Service Class for Resort Hotel
Percentage of capacity allocated to different service classes First class 30%

20%

20%
30%

20%

Standard 60% Budget 10% Peak (30%) Summer

50%

50%

30% Shoulder (20%) Fall

50%

30%
Shoulder (10%) Spring

Off-peak (40%) Winter

Percentage of capacity allocated to different seasons
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Demand Control Chart for a Hotel
350
Expected Reservation Accumulation

300
2 standard deviation control limits
Reservations

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
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What possible dangers are associated with developing complementary services?

DEMAND STRATEGIES

What organizational problems can arise from the use of SUPPLY part-time STRATEGIES employees?
Sharing capacity Crosstraining employees Using part-time employees Yield management Increasing customer participation Scheduling work shifts Creating adjustable capacity

Developing complementary services Developing reservation systems

Partitioning demand Establishing price incentives Promoting off-peak demand

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? 17


				
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