This afternoon I’m going to take a look at the recent developments in Aggregate planning

for services

We can break this area down into the following fields : AGGREGATE PLANNING FOR
SERVICES and REVENUE MANAGEMENT
 My first point concerns... Aggregate planning for services

Aggregate planning for services: takes into account projected customer demands,
equipment capacities, and labor capabilities. The resulting plan is a time-phased projection
of service staff requirements.

 I’d like you to think about the significance of this figure here

Aggregate planning for manufacturing and aggregate planning for services share
similarities in some respect, but there are some important differences 
1. Most services cannot be inventoried
It is impossible to store an airline seat, hotel room, or hair appointment for use later when
demand may be higher. When the goods that accompany a service can be inventoried, they
typically have a very short life.
2. Demand for services is difficult to predict
Demand variations occur frequently and are often severe. The exponential distribution is
commonly used to simulate the erratic demand for services—high-demand peaks over
short periods of time with long periods of low demand in between. 
Customer service levels established by management express the percentage of demand that
must be met and, sometimes, how quickly demand must be met. This is an important input
to aggregate planning for services.
3. Capacity is also difficult to predict 
The variety of services offered and the individualized nature of services make capacity
difficult to predict. The “capacity” of a bank teller depends on the number and type of
transactions requested by the customer. Units of capacity can also vary.
4. Service capacity must be provided at the appropriate place and time
Many services have branches or outlets widely dispersed over a geographic region.
Determining the range of services and staff levels at each location is part of aggregate
planning.
5. Labor is usually the most constraining resource for services. This is an advantage in
aggregate planning because labor is very flexible. 
Variations in demand can be handled by hiring temporary workers, using part-time
workers, or using overtime. 
Summer recreation programs and theme parks hire teenagers out of school for the
summer. Federal Express staffs its peak hours of midnight to 2 A.M. with area college
students. McDonald’s,Walmart, and other retail establishments woo senior citizens as
reliable part-time workers.
 Finally, I’d like to address the problem of.....Revenue management

Revenue management (also called yield management) seeks to maximize profit or yield
from time-sensitive products and services. It is used in industries with inflexible and
expensive capacity, perishable products or services, segmented markets, advanced sales,
and uncertain demand. 
The types of problems addressed by revenue management include overbooking,
partitioning demand into fare classes, and single order quantities.

During periods of low demand, price discounts are offered. During periods of peak demand,
higher prices are charged.
Overbooking
Services with reservation systems can lose money when customers fail to show up, or
cancel reservations at the last minute. It is not unusual for no-shows to account for 10 to
30% of an aircraft’s available seats. Thus, hotels, airlines, and restaurants routinely
overbook their capacity.
Fare Classes
Hotels, airlines, stadiums, and theaters typically offer different ticket prices for certain
classes of seats or customers. Planners must determine the number of seats or rooms to
allocate to these different fare classes. Too many high-priced seats can lose customers,
while too few high-priced seats can lower profits. 
Single Order Quantities
The useful life for products such as newspapers, flowers, baked goods, and seasonal items
is so short that in many instances only one order for production can take place.
Determining the size of that single order can be difficult.

In each of these problems, the cost of overestimating demand (times the probability that it
will occur) must be balanced with the cost of underestimating demand and its probability
of occurrence.
The optimum probability is where the cost of underestimating demand is equal to or just
greater than the cost of overestimating demand
This example illustrates the problem for a single order quantity.

The leftover doughnuts are sold at 75% discount. Fresh doughnuts are sold for $1.20 each.
The cost to make each doughnut is $0.45
So the cost of underestimating demand is evaluated by
The cost of each doughnut sold - The cost to make each doughnut
the cost of overestimating demand is
The cost to make each doughnut – the amount of money lost by leftover ones
So we get the probability of overestimating demand. The optimal probability of
overestimating demand falls between 0.83 and 0.92. Since we are concerned with
overestimating demand less than or equal to 0.833 we choose the next lowest value, or
0.83. Following across the table, the Doughman Bakery should bake 9 dozen doughnuts.
That brings me to the end of my presentation. Thanks for your attention. Up next is Ha
Phuong.