Entering the Next Dimension:Cargo Revenue Management                   Anand Medepalli          VP, Freight Transportation
The Market is Poised for Growth                   “The air cargo freighter fleet alone will           double in the next 2...
But IATA Says 2012 Looks Tough…   Capacity Growth + Yield Pressures =  Perfect Case for Revenue Management!      Source: h...
Yet Cargo RMS Adoption is Low... Only 21 out of 70 carriers listed in Air Cargo World’s “Top      50 Carriers in 2010” lis...
Origins of Cargo RM   Passenger RM provided a guideline…     A sophisticated shiny solution           was the answer…   Er...
Question: “Can the RMS Cope withThese Issues?”                                             Cargo businesses: B2B is      ...
Cargo RM Set About Answering thatQuestion by Enabling These Processes...      Capacity Forecasting      Overbooking     ...
It Made Sense...              DEMAND                                                                               SUPPLY ...
What has Worked Thus Far?Capacity Forecasting & Allotment Planning =Have Worked Reliably and There Has BeenAcceptance!Dema...
Let us Break this Down... As long as RM supported natural business processes,  there were no arguments But when RM force...
The Next Dimension of Cargo    Revenue Management      Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL   11
Natural Business Processes  The attitude that “Forecasting is a Means to an End” must                         change      ...
Natural Business Processes                                                              Rate Optimisation                 ...
Natural Business Processes                                                     Allotment Planning                         ...
Natural Business Processes                                                                    Overbooking                 ...
And, Trust the System                                                  Automated Booking Control                          ...
Don’t let Perfect be the Enemyof Good                                            Focus on natural business processes      ...
For the Benefits are Tremendous“Companies using revenue and profit optimization modules for revenue management reportednet...
Finally, Shift to a RM Principles-Centric Organisation Carriers have a done a good job of focusing on business processes;...
Entering the Next Dimension:Cargo Revenue Management                   Anand Medepalli          VP, Freight Transportation
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Entering the Next Dimension of Cargo Revenue Management

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Facing a persistent, long-term excess of capacity, airlines are always under pressure to fill their planes with any freight that will fly. But is this the best strategy for a sector where margins are thin even during the best of times? Many industries rely on revenue management to limit cannibalization and help them avoid a race to the bottom. Leading carriers have shown that these techniques work in air cargo as well — yet the adoption rate for this technology remains surprisingly low. In this presentation by Anand Medepalli, Vice President of Industry Strategy for Freight Transportation at JDA Software, you will learn about the latest innovations in revenue management and how air carriers can overcome technical as well as organizational obstacles to successfully deploy automated decision support for their cargo business.

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  • Don’t use the past to justify your lack of interest or faith in Revenue ManagementDon’t use data quality as an excuse. Don’t use your booking system as an excuseFinally, focus on your natural processes, and incremental benefits from incremental functionalityUse 80/20 rule to get going
  • Entering the Next Dimension of Cargo Revenue Management

    1. 1. Entering the Next Dimension:Cargo Revenue Management Anand Medepalli VP, Freight Transportation
    2. 2. The Market is Poised for Growth “The air cargo freighter fleet alone will double in the next 20 years. Meanwhile shippers moving freight on passenger aircraft will drive even more growth. Our global market forecast foresees investment in freight-bearing aircraft exceeding $3.5 trillion in that time frame.” John Leahy, COO for Airbus Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    3. 3. But IATA Says 2012 Looks Tough… Capacity Growth + Yield Pressures = Perfect Case for Revenue Management! Source: http://www.iata.org/pressroom/pr/pages/2011-09-20-01.aspx Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    4. 4. Yet Cargo RMS Adoption is Low... Only 21 out of 70 carriers listed in Air Cargo World’s “Top 50 Carriers in 2010” list* have invested in RMS 2 3 7 Capacity Management Only Using Short-term RMS Using Allotment Planning Using Both 2 Abandoned RMS Unhappy with RMS 4 3 Only 16 of them use their RMS in some form! * http://www.aircargoworld.com/Air-Cargo-News/wp-content/uploads/2011/09/Top-50.jpg Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    5. 5. Origins of Cargo RM Passenger RM provided a guideline… A sophisticated shiny solution was the answer… Errr... what was the question again? Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    6. 6. Question: “Can the RMS Cope withThese Issues?”  Cargo businesses: B2B is relationship-driven and decentralised  Multi-dimensional capacity & Multiple timeframes  Few customers have negotiated rates & allocations  Multiple decision making points  Decision making times are really short Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    7. 7. Cargo RM Set About Answering thatQuestion by Enabling These Processes... Capacity Forecasting Overbooking Demand Forecasting Customer “Tendering” Behaviour Allotment Planning Routing & Costs Hurdle Rates Booking Control Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    8. 8. It Made Sense... DEMAND SUPPLY Target Network & Markets Equipment Product & STRATEGIC Strategic Targeting Network Marketing Relationships Development Products Value of Network Changes Contracts & Supply Sales Targets Calendar Customer TACTICAL Relationship Allotment Capacity Management Planning Planning Contract Value of Performance Capacity Changes Bookings & Available Forecasts Capacity Routing &OPERATIONAL Sales & Booking Capacity Promotions Acceptance Forecasting Contribution Value of Guidelines Ad Hoc Capacity Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    9. 9. What has Worked Thus Far?Capacity Forecasting & Allotment Planning =Have Worked Reliably and There Has BeenAcceptance!Demand Forecasting & Optimal Hurdle Rates =Proved Hard to Get it Right. But Math wasGreat! Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    10. 10. Let us Break this Down... As long as RM supported natural business processes, there were no arguments But when RM forced some business processes, the fighting started And not enough attention was paid to demand forecasting – it was seen more as a means to an end; not as a fundamental business process Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    11. 11. The Next Dimension of Cargo Revenue Management Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL 11
    12. 12. Natural Business Processes The attitude that “Forecasting is a Means to an End” must change Collaboration within stakeholders and customers is key Forecasts are what they are; Adopt forecasting as a coreas long as Hurdle Rates are good competency Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    13. 13. Natural Business Processes Rate Optimisation The natural thing to do is to set prices rather than control availability Advent of 3rd party data sources & recent advances in price optimisation technology will allow you to: • relate changes in price position to changes in demand • increase awareness of how pricing affects forwarder behaviour • recover some of the advantage that a well informed forwarder has over you! “lift the profits, or someone else will” Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    14. 14. Natural Business Processes Allotment Planning Use demand forecasts! If your optimisation solution doesn’t know all the alternatives, it cannot optimise future allotments • Just re-evaluating your old allotments is not enough No cherry picking! Customer allotments can be all-or-nothing, no partial acceptance. Model linked traffic flows. Remember risk! We offer allotments to make our revenues more predictable – unreliable traffic flows belong in the spot market. Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    15. 15. Natural Business Processes Overbooking Move away from the traditional capacity-orientated focus on overbooking to what it really is: a function of customer tendering behaviour Unlike passenger RM, there is no reliable metrics associated with “denied boarding” Use acceptable offload risk models to estimate service level failure “costs” Explicitly model under-booking as well Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    16. 16. And, Trust the System Automated Booking Control Ensure the routes you sell are reflected accurately in the optimisation engine Capture costs accurately Ensure unbiased forecasts and incorporate all available information • If demand forecasts are “accurate” or acceptable, hurdle rates will be “correct” and “acceptable” While setting the right rates is the natural thing to do, controlling availability on a given day is a significant lever to improve profitability Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    17. 17. Don’t let Perfect be the Enemyof Good Focus on natural business processes “Race” through the implementation of basic end-to-end solution: Use the 80/20 rule; Stop spending “years” perfecting one module Focus on low hanging fruit; avoid the complicated bits (as a first step) Measure benefits, spot opportunities, and improve the most promising areas Automate prioritisation of the request queue; Get to automated booking control “fast” Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    18. 18. For the Benefits are Tremendous“Companies using revenue and profit optimization modules for revenue management reportednet revenue increases of 2.5 to 7.5 percent” - Nucleus Research; http://www.nucleusresearch.com“The Capacity Forecasting module has improved our accuracy by over 15% resulting in Millionsof dollars in benefits – and this is just Phase 1 of the project!.” - Vice President, Revenue Management“Our demand forecasting accuracy improved by over 10% with a longer horizon that allows usto plan budgets, forecast revenue and optimize prices with better information.” - Managing Director, Revenue Management“Our revenue management solution has delivered 2.5% revenue improvements year on year.” - Managing Director, Revenue Management Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL
    19. 19. Finally, Shift to a RM Principles-Centric Organisation Carriers have a done a good job of focusing on business processes; change management and training – But focus was primarily around RMS – There is a need to move to being RM principles-centric This means: – The organisation is “militant” about “one number truth” – CEO demands a budget that is based on consensus-based demand and sales forecasting – Sales forecasts are based on rigorous and collaborative demand planning – Rates are set based on system profit and are not seen as one-offs – When sales demand an allocation or a rate for a transaction, they mean to say “profitable” allocation or “profitable” rate – Sales incentives are aligned with RM principles – Operations are working with RM to understand preliminary loading plans – RM-based metrics and reports drive decision making – Etc. etc. Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL 19
    20. 20. Entering the Next Dimension:Cargo Revenue Management Anand Medepalli VP, Freight Transportation

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