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?