1 / 38

Capacity allocation

Capacity allocation. Lecture 4. Capacity allocation. How many low-fare seats (hotel rooms, rental cars) to allow to be booked while facing the possibility of future high-fare demand Airlines, rental car companies, hotels, cruise lines, freight transportation, made-to-order manufacturing.

tori
Download Presentation

Capacity allocation

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript


  1. Capacityallocation Lecture 4

  2. Capacity allocation • How many low-fare seats (hotel rooms, rental cars) to allow to be booked while facing the possibility of future high-fare demand • Airlines, rental car companies, hotels, cruise lines, freight transportation, made-to-order manufacturing

  3. The two-class problem • The basic model: all the discount bookings occur any full-fare passengers seek to book • Maximizing revenue/taking into account incremental costs and ancilliary contribution/taking into account sunk costs

  4. Determinethediscountbookinglimit • Tradeoff between setting it too high or too low (dilution vs. spoilage) • ***7.1

  5. B=60->61 • PlaneC=100 • *Dd=50 • *Df=45; Df=55 • *86% • **Dd=65 • **Df=30 • **14%..*6.5% • ***Dd=65 • ***Df=45 • ***14%..*93.5% • =6.5%*190+93.5%*(190-200)=3 • =86%*0+14%*3=0.42 • =86%*0+14%*(6.5%*190+93.5%*(190-200)) • =14%*(6.5%*190+93.5%*(190-200))=>6.5%*190+93.5%*(190-200) • =190—93.5%*200=> Pd—93.5%*Pf>0=>Pd/Pf>93.5%;190/200=95% • 50%*10000+50%*20000=

  6. Discountbookinglimitforanairplanewith 150 seatsis 80 seats. • Theairplaneisbeingsubstitutedforonewith 100 seats. • Whatisthediscountbookinglimitnow?

  7. Kui pd/pf = 0.5, siis paneme me täishinnaga müüki alati mü=66 piletit, olenemata sellest kui suur on full demand standardhälve

  8. Kui diskonteeritud piletid on väga kallid, siis mida riskantsem on täishinnaga piletite müük, seda vähem me täishinnale pileteid protectime

  9. Kui diskonteeritud piletid on väga odavad, siis mida riskantsem on täishinnaga piletite müük, seda rohkem me täishinnale pileteid protectime

  10. Relationtothenewsvendorproblem, 1882 • Overage and underagecosts • O=20 • U=5 • Withrespecttothehighpriceclass • O=pd • U=pf-pd

  11. UsingLittlewood’s (1972) rule • Thealgorithmforsetting b: • Set b to 0; set pd=190; set pf=200->pd/pf=95% • Set b=b+1 (e.g. remainder = 99, if PlaneCapacity=100) • Checkwhether1-Ff(C-b) > 95%– probability, thatthereis too muchfulldemand, isover 95% • If no, gobacktoincreasing b • Otherwisestop at previous b

  12. Dynamicprogramming, Bellman’sprinciple

  13. ExpectedMarginalSeatRevenue (EMSR) Heuristics, thecasewiththreepriceclasses, heuristicEMSRa • Littlewoodlookupforthedistributionof P1: • P3/P1 • Littlewoodlookupforthedistributionof P2: • P3/P2 • Bookinglimit b3= PlaneC minus thetwoquantitiescomputedabove • Thecaseswithmoreclassesanalogous – e.g. firstcalculate b4, then b3, then b2

  14. HeuristicEMSRb, thistime, forexample, forfourclasses • Firstof all, wewantthebookinglimit b4 • Fortheclassesaboveit, calculate a following „weightedaverage“ class • AvgNew=Avg3+Avg2+Avg1 • StdevNew=sqrt(Stdev3^2+Stdev2^2+Stdev1^2) • priceNew=price3*Avg3 /AvgNew + price2*Avg2/AvgNew + price1*Avg1/AvgNew • Do a Littlewoodlookup on price4/priceNew on a distributiongivenbyAvgNew and StdevNewtodeterming b4 • Proceedanalogouslyfor b3, then b2

  15. ComparisonofEMSRa, EMSRb and dynamicprogramming, see Belobaba 1992

  16. Demanddependence • Demandineachfareclassisindependentofdemandintheotherfareclasses • E.g. no cannibalization – opening a discountclass, has no effect on full-faredemand • Also, no buy-up/sell-up – closing a discountfareclassdoesnotleadtoincreaseddemandinhigherfareclasses

  17. Two-classcapacityallocationwithdemanddependence • Insteadof=pd/pf, wehavethemodifiedformula=1/(1-alfa)*(pd/pf-alfa) • to look upusingLittlewood’srule, • alfa beingthefractionofcustomers, whowillswitchtofullprice, afterbeingdenied a discountedticket

  18. Modified EMSR Heuristics, Belobaba and Weatherford 1996 • Allowsbuy-uptothenexthighestclassonly • ModifiedEMSRa – usemodifiedformulaforthecalculationofthenextlevelonly, originalformulafor all theclassesabovethat • ModifiedEMSRb – usemodifiedformulawithrespectto „weightedaverage“ classcreatedforEMSRb (createthisclassintheoriginalway) • Though, they are „heuristicsgrafted on toanotherheuristic“

  19. Measuringtheeffectivenessofrevenuemanagement • Totalrevenueopportunity • No revenuemanagement • RevenueOpportunityMetric • Example: • ROM = ($45 000 – $35 000)/($50 000 - $35 000) • =67% • But, ROM forflightswithverylowdemandwillalwaysbecloseto 100% • And, see Fig7.5 above, iffull-faredemandishigh, butuncertain, ROM willbelower, thanwhenfull-faredemandishigh, butmorecertain (lowstdev) • Thus, astheseexamples show, changesin ROM, mightalsobeduetochangesintheunderlyingfactorsofdemand, ratherthanduetochangesintheeffectivenessofrevenuemanagement

  20. LECTURE 4 ENDS HERE

  21. Tacticalrevenuemanagement • Calculates and periodicallyupdatesthebookinglimits • Resources • Unitsofcapacity (flightdeparture, hotel room night, rentalcarday) • Products • Customers are seekingtopurchasethose (a seat on Flight 130 from St. Louis to Cleveland on Monday, June 30 – singleresource; A two-nightstay at theSheraton Cleveland, arriving on March 19 and departing on March 21 – tworesources) • Fareclasses • A combinationof a price and a setofrestrictions on whocanpurchase and when (e.g. group and regionalpricing)

  22. Thefactthat RM operatesfareclasses, doesnotchangemuchfromcustomersview – hestill sees onlythelowestavailablefare • Sinceairlinesstillrespondtotheoffers made bythecompetition, RM supplementsratherthanreplacespricing

  23. Capacityallocation • Howmanyseats (hotelrooms, rentalcars) toallowlow-farecustomerstobook – giventhepossiblefuturehigh-faredemand • Two-classproblem • Discountcustomers • Full-farecustomers • BASIC MODEL – all discountbookingshappenbeforefull-farebookings • Wemaximizeexpectedrevenue – incrementalcosts and ancillarycontribution are zero • Inrealitycompaniesshouldmaximizeexpectedtotalcontribution

More Related