Deck 11: Managing Capacity and Demand

Question 1

Reconsider Example 11.1 (Surfside Hotel), because rising costs now have resulted in a $100 opportunity loss from a no-show. Assume that the no-show experience has not significantly changed and that the resulting loss when a guest is overbooked still is $100. Should Surfside revise its no-show policy?

Answer 1

A room that remains vacant because of a o show results in a opportunity loss of $100 room contribution.
The expected number of no shows from table 11.6 is 3.04.
This yields an expected opportunity loss of 3.04 X $100 = $304, per night.
The resulting loss when the when the customer walks out = $100 per customer.
In the "Managing Service Inventory," the critical fractile criteria, which we apply to our inventory of rooms:
Here
Cu = the $100 room contribution that is lost when a reservation is not honored (i.e., the
Number of no-shows is under estimated)
Co = the $100 opportunity loss associated with not having a room available for an overbooked guest (i.e., the number of no-shows is over estimated)
d = the number of no-shows based on past experience
x = the number of rooms overbooked
Substitute the values in the above formula to get the best overbooking strategy.
The number of rooms overbooked should just cover the cumulative probability of no-shows and no more, as calculated below:
Therefore from table 11.6 of textbook, a strategy of overbooking by three rooms (cumulative probability at three rooms overbooking is 0.48) satisfies the critical fractile
Criterion, because the cumulative probability
= 0.5
Therefore the hotel should consider its decision to revise its no show policy by reducing further the number of overbooking to its current policy.

Question 2

How can computer-based reservation systems increase service capacity utilization ?

Answer 2

The maximum output that can be sustained by a company to produce a product or provide a service is called capacity. Capacity utilization is the level at which a company uses its productive capacity. It's a connection between current output with installed capacity and possible output if capacity was utilized fully. Focus of service providers to provide best in class services have made companies resort to using innovative means to retain customers.
In the past customers had either to walk-in to the service provider to avail services, or had to make a prior call to book an appointment. In such cases, there was a higher waiting time especially for walk-in customers. With the advent of computer-based reservation systems, customers could make prior reservations to avail a service. Computer based reservation helped companies plan service offerings accordingly. Moreover, organizations faced the challenge of last minute cancellations. With an online reservation system, companies were able overbook, and plan reservations so as to optimally utilize capacity.
Therefore, computer-based reservation helped companies increase capacity utilization. In the past companies had to lose revenue due to unutilized capacity, but today companies can plan to offer special discounts during slack periods thereby attracting more partons.

Question 3

Gateway International Airport (GIA) has experienced substantial growth in both commercial and general aviation operations during the past several years. (An operation is a landing or takeoff.) Because of the initiation of new commercial service at the airport, which is scheduled for several months in the future, the Federal Aviation Administration (FAA) has concluded that the increased operations and associated change in the hourly distribution of takeoffs and landings will require an entirely new work schedule for the current air traffic control (ATC) staff. The FAA feels that GIA might need to hire additional ATC personnel, because the present staff of five probably will not be enough to handle the expected demand.
After examining the various service plans that each commercial airline submitted for the next 6-month period, the FAA developed an average hourly demand forecast of total operations (Figure 11.14) and a weekly forecast of variation from the average daily demand (Figure 11.15). An assistant to the manager for operations has been delegated the task of developing workforce requirements and schedules for the ATC staff to maintain an adequate level of operational safety with a minimum of excess ATC "capacity."
The various constraints are:
1. Each controller will work a continuous, 8-hour shift (ignoring any lunch break), which always will begin at the start of an hour at any time during the day (i.e., any and all shifts begin at X:00), and the controller must have at least 16 hours off before resuming duty.
2. Each controller will work exactly 5 days per week.
3. Each controller is entitled to 2 consecutive days off, with any consecutive pair of days being eligible.
4. FAA guidelines will govern GIA's workforce requirements so that the ratio of total operations to the number of available controllers in any hourly period cannot exceed 16.
Do you feel this would result in a larger or smaller degree of difficulty in meeting the four general constraints? Why?

Answer 3

In the present case the numbers of controllers that are required to control the operations are determined. The numbers are determined after taking into consideration the following constraints:
• Each controller will work in 8-hour shift and each controller must be allowed 2 consecutive days off.
• Each controller would be required to work for exactly 5 days in a week.
• The ratio of total operations to the available controllers must not exceed 16.
• There are three shifts that run from 00:01 to 8:00, 08:01 to 16:00 and from 16:01 to 24:00.
After taking into consideration the above given constraints the number of controllers required in order to control the operations are determined out to be 15.
In the next case the constraint of shifts is removed and overlapping of shifts is allowed. The employees are required to work on hourly basis. The number of controllers required in order to take care of operations were calculated out to be 14.
Although in the latter case the number of controllers required to take care of operation were lesser as compared to the former case but there would be difficulty in meeting the four general constraints in the latter case.
The problem of meeting constraint might arise due to the following reasons:
• It will be difficult to determine the starting and ending hours for the each employee for seven days in case the constraint of shifts is removed.
• It will also be difficult to include all the controllers to work for five days and to determine the exact two days that would be made off for each controller.
Thus, the above given reasons are the primary reasons that might create difficulty in meeting the four constraints in case there is overlapping of shifts and the employees are allowed to work on hourly basis.

Question 4

Discuss how you would use the LP model to make your hiring decision for the next six months.

Question 5

A commuter airline overbooks all its flights by one passenger (i.e., the ticket agent will take seven reservations for an airplane that only has six seats). The no-show experience for the past 20 days is shown below:

Using the critical fractile
find the maximum implied overbooking opportunity loss C o if the revenue C u from a passenger is $20.

Question 6

Illustrate how a particular service has implemented successfully strategies for managing both demand and capacity.

Question 7

Gateway International Airport (GIA) has experienced substantial growth in both commercial and general aviation operations during the past several years. (An operation is a landing or takeoff.) Because of the initiation of new commercial service at the airport, which is scheduled for several months in the future, the Federal Aviation Administration (FAA) has concluded that the increased operations and associated change in the hourly distribution of takeoffs and landings will require an entirely new work schedule for the current air traffic control (ATC) staff. The FAA feels that GIA might need to hire additional ATC personnel, because the present staff of five probably will not be enough to handle the expected demand.
After examining the various service plans that each commercial airline submitted for the next 6-month period, the FAA developed an average hourly demand forecast of total operations (Figure 11.14) and a weekly forecast of variation from the average daily demand (Figure 11.15). An assistant to the manager for operations has been delegated the task of developing workforce requirements and schedules for the ATC staff to maintain an adequate level of operational safety with a minimum of excess ATC "capacity."
The various constraints are:
1. Each controller will work a continuous, 8-hour shift (ignoring any lunch break), which always will begin at the start of an hour at any time during the day (i.e., any and all shifts begin at X:00), and the controller must have at least 16 hours off before resuming duty.
2. Each controller will work exactly 5 days per week.
3. Each controller is entitled to 2 consecutive days off, with any consecutive pair of days being eligible.
4. FAA guidelines will govern GIA's workforce requirements so that the ratio of total operations to the number of available controllers in any hourly period cannot exceed 16.
What additional suggestions can you make to the manager of operations to minimize the workforce requirements level and days-off scheduling difficulty?

Question 8

Crazy Joe operates a canoe rental service on the Guadalupe River. He currently leases 15 canoes from a dealer in a nearby city at a cost of $10 per day. On weekends, when the water is high, he picks up the canoes and drives to a launching point on the river, where he rents canoes to white-water enthusiasts for $30 per day. Lately, canoeists have complained about the unavailability of canoes, so Crazy Joe has recorded the demand for canoes and found the experience below for the past 20 days:

Recommend an appropriate number of canoes to lease.

Question 9

What possible dangers are associated with developing complementary services ?

Question 10

An airline serving Denver's International Airport and Steamboat Springs, Colorado, is considering overbooking its flights to avoid flying with empty seats. For example, the ticket agent is thinking of taking seven reservations for an airplane that has only six seats. During the past month, the no-show experience has been

The operating costs associated with each flight are pilot, $150; first officer, $100; fuel, $30; and landing fee, $20.
What would be your recommendation for overbooking if a one-way ticket sells for $80 and the cost of not honoring a reservation is a free lift ticket worth $50 plus a seat on the next flight? What is the expected profit per flight for your overbooking choice?

Question 11

Gateway International Airport (GIA) has experienced substantial growth in both commercial and general aviation operations during the past several years. (An operation is a landing or takeoff.) Because of the initiation of new commercial service at the airport, which is scheduled for several months in the future, the Federal Aviation Administration (FAA) has concluded that the increased operations and associated change in the hourly distribution of takeoffs and landings will require an entirely new work schedule for the current air traffic control (ATC) staff. The FAA feels that GIA might need to hire additional ATC personnel, because the present staff of five probably will not be enough to handle the expected demand.
After examining the various service plans that each commercial airline submitted for the next 6-month period, the FAA developed an average hourly demand forecast of total operations (Figure 11.14) and a weekly forecast of variation from the average daily demand (Figure 11.15). An assistant to the manager for operations has been delegated the task of developing workforce requirements and schedules for the ATC staff to maintain an adequate level of operational safety with a minimum of excess ATC "capacity."
The various constraints are:
1. Each controller will work a continuous, 8-hour shift (ignoring any lunch break), which always will begin at the start of an hour at any time during the day (i.e., any and all shifts begin at X:00), and the controller must have at least 16 hours off before resuming duty.
2. Each controller will work exactly 5 days per week.
3. Each controller is entitled to 2 consecutive days off, with any consecutive pair of days being eligible.
4. FAA guidelines will govern GIA's workforce requirements so that the ratio of total operations to the number of available controllers in any hourly period cannot exceed 16.
Assume that you are the assistant to the manager for operations at the FAA. Use the techniques of workshift scheduling to analyze the total workforce requirements and days-off schedule. For the primary analysis, assume that:
a. Operator requirements will be based on a shift profile of demand (i.e., 8 hours).
b. There will be exactly three separate shifts each day, with no overlapping of shifts.
c. The distribution of hourly demand in Figure 11.14 is constant for each day of the week, but the levels of hourly demand vary during the week as shown in Figure 11.15.

Question 12

Will the widespread use of yield management eventually erode the concept of fixed prices for any service?

Question 13

For the forecast period (i.e., July - December), determine the number of new trainees who must be hired at the beginning of each month so that total personnel costs for the flight attendant staff and training program are minimized. Formulate the problem as a linear programming model and solve.

Question 14

Reconsider Example 11.2 (Hospital Emergency Room) to determine if additional nurses will be required to staff the revised daily shift requirements shown below:

Develop a weekly workshift schedule providing 2 consecutive days off per week for each nurse. Formulate the problem as an integer linear programming model to minimize the number of nurses needed, and solve using Excel Solver. If more nurses are required than the existing staff of eight, suggest an alternative to hiring
full-time nurses.

Question 15

An outpatient clinic has kept a record of walk-in patients during the past year. The table below shows the expected number of walk-ins by day of the week:

The clinic has a staff of five physicians, and each can examine 15 patients a day on average.
a. What is the maximum number of appointments that should be scheduled for each day if it is desirable to smooth out the demand for the week?
b. Why would you recommend against scheduling appointments at their maximum level?
c. If most walk-ins arrive in the morning, when should the appointments be made to avoid excessive waiting?

Question 16

Go to http://en.wikipedia.org/wiki/Yield_management/ and discuss the ethical issues associated with yield management.

Question 17

What organizational problems can arise from the use of part-time employees ?

Question 18

The sheriff has been asked by the county commissioners to increase weekend patrols in the lake region during the summer months. The sheriff has proposed the following weekly schedule, shifting deputies from weekday assignments to weekends:

Develop a weekly workshift schedule of duty tours, providing 2 consecutive days off per week for each officer. Formulate the problem as an integer linear programming model to minimize the number of officers needed, and solve using Excel Solver.

Question 19

Gateway International Airport (GIA) has experienced substantial growth in both commercial and general aviation operations during the past several years. (An operation is a landing or takeoff.) Because of the initiation of new commercial service at the airport, which is scheduled for several months in the future, the Federal Aviation Administration (FAA) has concluded that the increased operations and associated change in the hourly distribution of takeoffs and landings will require an entirely new work schedule for the current air traffic control (ATC) staff. The FAA feels that GIA might need to hire additional ATC personnel, because the present staff of five probably will not be enough to handle the expected demand.
After examining the various service plans that each commercial airline submitted for the next 6-month period, the FAA developed an average hourly demand forecast of total operations (Figure 11.14) and a weekly forecast of variation from the average daily demand (Figure 11.15). An assistant to the manager for operations has been delegated the task of developing workforce requirements and schedules for the ATC staff to maintain an adequate level of operational safety with a minimum of excess ATC "capacity."
The various constraints are:
1. Each controller will work a continuous, 8-hour shift (ignoring any lunch break), which always will begin at the start of an hour at any time during the day (i.e., any and all shifts begin at X:00), and the controller must have at least 16 hours off before resuming duty.
2. Each controller will work exactly 5 days per week.
3. Each controller is entitled to 2 consecutive days off, with any consecutive pair of days being eligible.
4. FAA guidelines will govern GIA's workforce requirements so that the ratio of total operations to the number of available controllers in any hourly period cannot exceed 16.
On the basis of your primary analysis, discuss the potential implications for workforce requirements and days-off scheduling if assumptions a and b above are relaxed so that the analysis can be based on hourly demand without the constraints of a preset number of shifts and no overlapping of shifts. In other words, discuss the effects of analysing hourly demand requirements on the basis of each ATC position essentially having its own shift, which can overlap with any other ATC shift to meet that demand.

Question 20

Reconsider Example 11.3 (Blackjack Airline). After initial success with the Los Angeles-to-Las Vegas route, Blackjack Airline's demand for full-fare tickets has increased to an average of 75, with the standard deviation remaining at 15. This early experience has allowed Blackjack to make a better estimate of the percentage of discount-seeking passengers, which appears to be 80 percent. Consequently, Blackjack has decided to raise all ticket prices by $10. Under these new conditions, how many full-fare seats should Blackjack reserve?

Question 21

How would you deal with the noninteger results ?

Question 22

Town and Country has experienced a substantial increase in business volume because of recent fare wars between the major air carriers. Town and Country operates a single office at a major international airport, with a fleet of 60 compact and 30 midsize cars. Recent developments have prompted management to rethink the company's reservation policy. The table below contains data on the rental experience of Town and Country:

The daily demand appears to follow a normal distribution; however, it has been observed that midsize-car customers do not choose to rent a compact when no midsize car is available. The discount rate is available to persons who are willing to reserve a car at least 14 days in advance and agree to pick up that car within 2 hours after their flight arrives. Otherwise, a nonrefundable deposit against their credit card will be forfeited. The current reservation policy is that 40 compact cars are held for customers who are willing to pay the full rate and 25 midsize cars are held for full rate-paying customers.
a. Using yield management, determine the optimal number of compact and midsize cars to be held for customers paying the full rate.
b. Given your optimal reservation policy determined here, would you consider a fleet expansion?