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Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
Heizer om10 ch13-aggregate planning
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  • 1. 10/16/2010 Aggregate Planning Outline 13 Global Company Profile: Frito-Lay The Planning Process Planning Horizons PowerPoint presentation to accompany The Nature of Aggregate Planning Heizer and Render Operations Management, 10e Aggregate Planning Strategies Principles of Operations Management, 8e PowerPoint slides by Jeff Heyl Capacity Options Demand Options Mixing Options to Develop a Plan© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 1 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 2 Outline – Continued Outline – Continued Aggregate Planning in Services Methods for Aggregate Planning Restaurants Graphical Methods Hospitals Mathematical Approaches National Chains of Small Service Comparison of Aggregate Planning Firms Methods Miscellaneous Services Airline Industry Yield Management© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 3 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 4 Learning Objectives Learning Objectives When you complete this chapter you When you complete this chapter you should be able to: should be able to: 1. Define aggregate planning 4. Solve an aggregate plan via the transportation method of linear 2. Identify optional strategies for programming developing an aggregate plan 5. Understand and solve a yield 3. Prepare a graphical aggregate plan management problem© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 5 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 6 1
  • 2. 10/16/2010 Frito- Frito-Lay Frito- Frito-Lay More than three dozen brands, 15 Demand profile based on historical brands sell more than $100 million sales, forecasts, innovations, annually, 7 sell over $1 billion promotion, local demand data Planning processes covers 3 to 18 Match total demand to capacity, months expansion plans, and costs Unique processes and specially Quarterly aggregate plan goes to 38 designed equipment plants in 18 regions High fixed costs require high volumes Each plant develops 4-week plan for and high utilization product lines and production runs© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 7 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 8 Aggregate Planning The Planning Process Determine the quantity and timing of production for the intermediate future The objective of aggregate planning is to meet forecasted demand while Objective is to minimize cost over the minimizing cost over the planning g p g planning period by adjusting period Production rates Labor levels Inventory levels Overtime work Subcontracting rates Other controllable variables© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 9 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 10 Aggregate Planning Planning Horizons Long-range plans Required for aggregate planning (over one year) Research and Development New product plans Capital investments Facility location/expansion A logical overall unit for measuring sales Top and output executives Intermediate-range plans (3 to 18 months) A forecast of demand for an intermediate Sales planning Production planning and budgeting planning period in these aggregate terms Operations managers Setting employment, inventory, subcontracting levels Analyzing operating plans A method for determining costs Short-range plans (up to 3 months) A model that combines forecasts and Job assignments Ordering Operations costs so that scheduling decisions can managers, Job scheduling Dispatching supervisors, be made for the planning period foremen Overtime Part-time help Responsibility Planning tasks and horizon Figure 13.1© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 11 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 12 2
  • 3. 10/16/2010 Aggregate Planning Aggregate Planning Quarter 1 Jan Feb Mar 150,000 120,000 110,000 Quarter 2 Apr May Jun 100,000 130,000 150,000 Quarter 3 Jul Aug Sep 180,000 150,000 140,000 Figure 13.2© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 13 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 14 Aggregate Planning Aggregate Planning Strategies Combines appropriate resources 1. Use inventories to absorb changes in into general terms demand 2. Accommodate changes by varying Part of a larger production planning workforce size system t 3. Use part-timers, overtime, or idle time to Disaggregation breaks the plan absorb changes down into greater detail 4. Use subcontractors and maintain a stable workforce Disaggregation results in a master production schedule 5. Change prices or other factors to influence demand© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 15 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 16 Capacity Options Capacity Options Changing inventory levels Varying workforce size by hiring Increase inventory in low demand or layoffs periods to meet high demand in the future Match production rate to demand Increases costs associated with Training d T i i and separation costs for ti t f storage, insurance, handling, hiring and laying off workers obsolescence, and capital New workers may have lower investment productivity Shortages may mean lost sales Laying off workers may lower due to long lead times and poor morale and productivity customer service© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 17 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 18 3
  • 4. 10/16/2010 Capacity Options Capacity Options Varying production rate through Subcontracting overtime or idle time Temporary measure during Allows constant workforce periods of peak demand May be diffi lt t M b difficult to meet large tl May be costly increases in demand Assuring quality and timely Overtime can be costly and may delivery may be difficult drive down productivity Exposes your customers to a Absorbing idle time may be possible competitor difficult© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 19 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 20 Capacity Options Demand Options Influencing demand Using part-time workers Use advertising or promotion Useful for filling unskilled or low to increase demand in low skilled positions, especially in periods services Attempt to shift demand to slow periods May not be sufficient to balance demand and capacity© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 21 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 22 Demand Options Demand Options Back ordering during high- Counterseasonal product and demand periods service mixing Requires customers to wait for an Develop a product mix of order without loss of goodwill or counterseasonal items the order May lead to products or services Most effective when there are few outside the company’s areas of if any substitutes for the product expertise or service Often results in lost sales© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 23 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 24 4
  • 5. 10/16/2010 Aggregate Planning Options Aggregate Planning Options Option Advantages Disadvantages Some Comments Option Advantages Disadvantages Some Comments Changing Changes in Inventory Applies mainly to Varying Matches Overtime Allows flexibility inventory human holding cost production, not production seasonal premiums; tired within the levels resources are may increase. service, rates fluctuations workers; may aggregate plan. gradual or Shortages may operations. through without hiring/ not meet none; no abrupt result in lost overtime or training costs. g demand. production sales. idle time changes. Sub- Permits Loss of quality Applies mainly in Varying Avoids the costs Hiring, layoff, Used where size contracting flexibility and control; production workforce of other and training of labor pool is smoothing of reduced profits; settings. size by alternatives. costs may be large. the firm’s loss of future hiring or significant. output. business. layoffs Table 13.1 Table 13.1© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 25 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 26 Aggregate Planning Options Aggregate Planning Options Option Advantages Disadvantages Some Comments Option Advantages Disadvantages Some Comments Using part- Is less costly High turnover/ Good for Back May avoid Customer must Many companies time and more training costs; unskilled jobs in ordering overtime. be willing to back order. workers flexible than quality suffers; areas with large during Keeps capacity wait, but full-time scheduling temporary labor high- constant. goodwill is lost. workers. difficult. pools. demand periods Influencing Tries to use Uncertainty in Creates demand excess demand. Hard marketing Counter- Fully utilizes May require Risky finding capacity. to match ideas. seasonal resources; skills or products or Discounts draw demand to Overbooking product allows stable equipment services with new customers. supply exactly. used in some and service workforce. outside the opposite businesses. mixing firm’s areas of demand expertise. patterns. Table 13.1 Table 13.1© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 27 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 28 Methods for Aggregate Mixing Options to Planning Develop a Plan A mixed strategy may be the best Chase strategy way to achieve minimum costs Match output rates to demand forecast for eac pe od o ecast o each period There are many possible mixed Th ibl i d strategies Vary workforce levels or vary production rate Finding the optimal plan is not Favored by many service always possible organizations© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 29 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 30 5
  • 6. 10/16/2010 Mixing Options to Develop a Plan Graphical Methods Level strategy Popular techniques Daily production is uniform Easy to understand and use Use inventory or idle time as buffer Trial-and-error approaches that do Stable production leads to better not guarantee an optimal solution quality and productivity Require only limited computations Some combination of capacity options, a mixed strategy, might be the best solution© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 31 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 32 Graphical Methods Roofing Supplier Example 1 Production Demand Per Day 1. Determine the demand for each period Month Expected Demand Days (computed) Jan 900 22 41 2. Determine the capacity for regular time, Feb 700 18 39 overtime, and subcontracting each period Mar 800 21 38 3. 3 Find labor costs, hiring and layoff costs costs costs, Apr p 1,200 , 21 57 May 1,500 22 68 and inventory holding costs June 1,100 20 55 4. Consider company policy on workers and 6,200 124 stock levels Table 13.2 Average Total expected demand 5. Develop alternative plans and examine requirement = Number of production days their total costs 6,200 = = 50 units per day 124© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 33 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 34 Roofing Supplier Example 1 Roofing Supplier Example 2 Forecast demand Cost Information Production rate per working day 70 – Inventory carrying cost $ 5 per unit per month Level production using average monthly forecast demand Subcontracting cost per unit $20 per unit 60 – Average pay rate $10 per hour ($80 per day) 50 – $17 per hour p Overtime pay rate e (above 8 hours per day) 40 – 1.6 hours per unit Labor-hours to produce a unit 30 – Cost of increasing daily production rate $300 per unit (hiring and training) Cost of decreasing daily production rate $600 per unit 0 – (layoffs) Jan Feb Mar Apr May June = Month Table 13.3 22 18 21 21 22 20 = Number ofFigure 13.3 working days© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 35 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 36 6
  • 7. 10/16/2010 Roofing Supplier Example 2 Roofing Supplier Example 2 Production Monthly Production Monthly Cost Information Production at 50 Units Demand Inventory Ending Costs Production Cost Information at 50 Units Calculations Demand Inventory Ending Month Days cost per Day Inventory carrying $ 5 Change Forecast per unit per month Inventory Month Days cost per Day Inventory carrying Inventory carrying $9,250 (= 1,850Change Forecast per unit per month $5 $5 Inventory units carried x Subcontracting cost per unit 1,100 Jan 22 900 per +200 $20 unit 200 Subcontracting cost per unit 1,100 Jan 22 per unit) +200 900 per unit $20 200 Feb 18 900 700 per +200 ($80 per400 $10 hour day) Feb 18 Regular-time labor 900 700 per +200 ($80 per400 99,200 (= 10 workers x $80 per $10 hour day) Average pay rate Average pay rate Mar 21 1,050 800 +250 650 Mar 21 1,050 day x 124 days) 800 +250 650 $17 per hour p $17 per hour p Overtime pay rate Overtime pay rate Apr 21 1,050 1,200 (above-150 8 hours per 500 day) Other costs 21 Apr (overtime, 1,050 1,200 (above-150 8 hours per 500 day) Labor-hours to produce a unit May 22 1,100 1,500 hours per unit 1.6 -400 100 hiring, layoffs, Labor-hours to produce a unit May 22 1,100 1,500 hours per unit 1.6 -400 100 subcontracting) 0 Cost of increasing daily production rate1,100 June 20 1,000 $300 per-100 unit 0 Cost of increasing daily production rate1,100 June 20 1,000 $300 per-100 unit 0 (hiring and training) Total cost training) (hiring and $108,450 1,850 1,850 Cost of decreasing daily production rate $600 per unit Cost of decreasing daily production rate $600 per unit (layoffs) (layoffs) Total units of inventory carried over from one Total units of inventory carried over from one Table 13.3 month to the next = 1,850 units Table 13.3 month to the next = 1,850 units Workforce required to produce 50 units per day = 10 workers Workforce required to produce 50 units per day = 10 workers© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 37 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 38 Roofing Supplier Example 2 Roofing Supplier Example 3 7,000 – Production Demand Per Day Month Expected Demand Days (computed) 6,000 – Reduction Jan 900 22 41 emand units of inventory 5,000 – 6,200 units Feb 700 18 39 Cumulative level production using Mar 800 21 38 4,000 – average monthly forecast Apr p 1,200 , 21 57 Cumulative de requirements May 1,500 22 68 3,000 – June 1,100 20 55 2,000 – 6,200 124 Cumulative forecast requirements Table 13.2 1,000 – Excess inventory – Jan Feb Mar Apr May June Minimum requirement = 38 units per dayFigure 13.4© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 39 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 40 Roofing Supplier Example 3 Roofing Supplier Example 3 Forecast demand Cost Information Production rate per working day 70 – Inventory carrying cost $ 5 per unit per month Level production Subcontracting cost per unit $20 per unit 60 – using lowest Average pay rate $10 per hour ($80 per day) monthly forecast 50 – demand $17 per hour p Overtime pay rate e (above 8 hours per day) 40 – 1.6 hours per unit Labor-hours to produce a unit 30 – Cost of increasing daily production rate $300 per unit (hiring and training) Cost of decreasing daily production rate $600 per unit 0 – (layoffs) Jan Feb Mar Apr May June = Month Table 13.3 22 18 21 21 22 20 = Number of working days© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 41 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 42 7
  • 8. 10/16/2010 Roofing Supplier Example 3 Roofing Supplier Example 3 Cost Information Cost Information Inventory carry cost $ 5 per unit per month Inventory carry cost $ 5 per unit per month In-house production Subcontracting cost per unit = 38 units per day $10 per unit In-house production Subcontracting cost per unit = 38 units per day $10 per unit Average pay rate x $ 5 perdays per day) 124 hour ($40 Average pay rate x $ 5 perdays per day) 124 hour ($40 Overtime pay rate = 4,712 units ,$ 7 per hour p Overtime pay rate = 4,712 units ,$ 7 per hour p (above 8 hours per day) (above 8 hours per day) Subcontract units Labor-hours to produce a unit = 6,200 - 4,712 1.6 hours per unit Costs Subcontract units Labor-hours to produce a unit = Calculations unit 6,200 - 4,712 1.6 hours per Cost of increasing daily production rate 1,488per unit = $300 units Cost of increasing daily production rate (= $300 per unit x $80 per Regular-time labor $75,392 = 1,488 units 7.6 workers (hiring and training) (hiring and training) day x 124 days) Cost of decreasing daily production rate $600 per unit Cost of decreasing daily production rate (= $600 per unitx $20 per Subcontracting 29,760 1,488 units (layoffs) (layoffs) unit) Table 13.3 Table 13.3 Total cost $105,152© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 43 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 44 Roofing Supplier Example 4 Roofing Supplier Example 4 Production Demand Per Day Production rate per working day Month Expected Demand Days (computed) Forecast demand and monthly production Jan 900 22 41 70 – Feb 700 18 39 60 – Mar 800 21 38 Apr p 1,200 , 21 57 50 – e May 1,500 22 68 40 – June 1,100 20 55 6,200 124 30 – Table 13.2 0 – Jan Feb Mar Apr May June = Month Production = Expected Demand 22 18 21 21 22 20 = Number of working days© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 45 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 46 Roofing Supplier Example 4 Roofing Supplier Example 4 Basic Cost Information Cost Information Production Cost Extra Cost of Extra Cost of Inventory carrying cost $ 5 per unit per month Inventory carrying cost (demand x Daily Increasing 5 perDecreasing month $ unit per Forecast Prod 1.6 hrs/unit x Production Production Subcontracting cost per unit $20 per unit Subcontracting cost per unit Month (units) Rate $10/hr) $10 per unitcost) Total Cost (hiring cost) (layoff Average pay rate $10 per hour ($80 per day) Average pay rate Jan 900 41 $ 14,400 — $ 5 per hour ($40 per14,400 — $ day) $17 per hour p $1,200 $ 7 per hour p Overtime pay rate Overtime 700 rate39 Feb pay 11,200 11 200 — 12,400 12 400 (above 8 hours per day) (above28 hours per day) (= x $600) ( $600 Labor-hours to produce a unit 1.6 hours per unit Labor- 800 Labor-hours to produce a 12,800 Mar 38 unit — 1.6 hours x $600) (= 1 per unit 13,400 Cost of increasing daily production rate $300 per unit Cost of increasing daily production rate Apr 1,200 57 19,200 $5,700$300 per unit — 24,900 (hiring and training) (hiring and training) (= 19 x $300) $3,300 Cost of decreasing daily production rate $600 per unit Cost of decreasing daily production (= 11 x $300) per unit May 1,500 68 24,000 rate $600 — 24,300 (layoffs) (layoffs) $7,800 June 1,100 55 17,600 — 25,400 (= 13 x $600) Table 13.3 Table 13.3 $99,200 $9,000 $9,600 $117,800 Table 13.4© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 47 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 48 8
  • 9. 10/16/2010 Comparison of Three Plans Mathematical Approaches Useful for generating strategies Cost Plan 1 Plan 2 Plan 3 Transportation Method of Linear Inventory carrying $ 9,250 $ 0 $ 0 Programming Regular labor 99,200 75,392 99,200 Produces an optimal plan Overtime labor 0 0 0 Management Coefficients Model Hiring 0 0 9,000 Model built around manager’s Layoffs 0 0 9,600 experience and performance Subcontracting 0 29,760 0 Other Models Total cost $108,450 $105,152 $117,800 Linear Decision Rule Plan 2 is the lowest cost option Simulation Table 13.5© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 49 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 50 Transportation Method Transportation Example Sales Period Mar Apr May Important points Demand 800 1,000 750 1. Carrying costs are $2/tire/month. If Capacity: goods are made in one period and held Regular 700 700 700 over to the next, holding costs are Overtime 50 50 50 incurred Subcontracting 150 150 130 Beginning inventory 100 tires 2. Supply must equal demand, so a dummy Costs column called “unused capacity” is Regular time $40 per tire added Overtime $50 per tire 3. Because back ordering is not viable in Subcontracting $70 per tire this example, cells that might be used to Carrying $2 per tire per month satisfy earlier demand are not available Table 13.6© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 51 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 52 Transportation Example Transportation Important points Example 4. Quantities in each column designate the levels of inventory needed to meet demand requirements 5. In general, production should be allocated to the lowest cost cell available without exceeding unused capacity in the row or demand in the column Table 13.7© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 53 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 54 9
  • 10. 10/16/2010 Management Coefficients Other Models Model Linear Decision Rule Builds a model based on manager’s Minimizes costs using quadratic cost curves experience and performance Operates over a particular time period A regression model is constructed i d li t t d Simulation to define the relationships between decision variables Uses a search procedure to try different combinations of variables Objective is to remove Develops feasible but not necessarily optimal inconsistencies in decision making solutions© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 55 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 56 Summary of Aggregate Summary of Aggregate Planning Methods Planning Methods Solution Solution Techniques Approaches Important Aspects Techniques Approaches Important Aspects Graphical Trial and Simple to understand and Management Heuristic Simple, easy to implement; methods error easy to use. Many coefficients tries to mimic manager’s solutions; one chosen model decision process; uses may not be optimal. regression. Transportation Optimization LP software available; Simulation Change Complex; may be difficult method of linear permits sensitivity parameters to build and for managers programming analysis and new to understand. constraints; linear functions may not be realistic. Table 13.8 Table 13.8© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 57 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 58 Aggregate Planning in Services Five Service Scenarios Controlling the cost of labor is critical Restaurants 1. Accurate scheduling of labor-hours Smoothing the production to assure quick response to customer p process demand d d Determining the optimal 2. An on-call labor resource to cover workforce size unexpected demand 3. Flexibility of individual worker skills Hospitals 4. Flexibility in rate of output or hours of Responding to patient demand work© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 59 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 60 10
  • 11. 10/16/2010 Five Service Scenarios Law Firm Example Labor-Hours Required Capacity Constraints National Chains of Small Service (2) (3) (4) (5) (6) Firms (1) Category of Best Forecasts Likely Worst Maximum Demand in Number of Qualified Legal Business (hours) (hours) (hours) People Personnel Planning done at national level Trial work 1,800 1 800 1,500 1 500 1,200 1 200 3.6 36 4 and at local level Legal research 4,500 4,000 3,500 9.0 32 Corporate law 8,000 7,000 6,500 16.0 15 Miscellaneous Services Real estate law 1,700 1,500 1,300 3.4 6 Criminal law 3,500 3,000 2,500 7.0 12 Plan human resource Total hours 19,500 17,000 15,000 Lawyers needed 39 34 30 requirements Manage demand Table 13.9© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 61 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 62 Yield Management Five Service Scenarios Allocating resources to customers at Airline industry prices that will maximize yield or revenue Extremely complex planning problem 1. Service or product can be sold in advance of consumption Involves number of flights, number of passengers, air and 2. Demand fluctuates ground personnel, allocation of 3. Capacity is relatively fixed seats to fare classes 4. Demand can be segmented Resources spread through the entire system 5. Variable costs are low and fixed costs are high© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 63 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 64 Yield Management Example Yield Management Example Room sales Demand Room sales Demand Curve Curve Total $ contribution = Potential customers exist who (1st price) x 30 rooms + (2nd price) x 30 rooms = 100 are willing to pay more than the 100 ($100 - $15) x 30 + ($200 - $15) x 30 = $15 variable cost of the room, $2,550 + $5,550 = $8,100 but not $150 Passed-upp Some customers who paid 60 contribution $150 were actually willingTotal 50 to pay more for the room$ contribution = (Price) x (50 rooms) 30 = ($150 - $15) x (50) Money left = $6,750 on the table $15 $150 Price $15 $100 $200 Price Variable cost Price charged Variable cost Price 1 Price 2 of room for room Figure 13.5 of room for room for room Figure 13.6© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 65 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 66 11
  • 12. 10/16/2010 Yield Management Matrix Making Yield Management Price Work Tend to be fixed Tend to be variable Quadrant 1: Quadrant 2: 1. Multiple pricing structures must dictable Ten to be Movies Hotels be feasible and appear logical to Stadiums/arenas Airlines nd the customer pred Duration of use e Convention centers C ti t Rental R t l cars Hotel meeting space Cruise lines 2. Forecasts of the use and Quadrant 3: Quadrant 4: duration of use Tend to be Uncertain Restaurants Continuing care Golf courses Internet service hospitals 3. Changes in demand providers Figure 13.7© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 67 © 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 68 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, electronic, mechanical, photocopying, recording, or otherwise, without the prior written permission of the publisher. Printed in the United States of America.© 2011 Pearson Education, Inc. publishing as Prentice Hall 13 - 69 12

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