SCHEDULING SERVICES

There are more scheduling challenges in servicing passenger planes than boarding and deplaning passengers…

Yield Management

Many companies, especially in the travel and tourist industries, operate with fixed capacities. Examples
include hotels and motels, which operate with a fixed number of rooms to rent each night; airlines,
which operate with a fixed number of seats to sell on any given flight; and cruise lines, which operate
with a fixed number of berths to sell for any given cruise. The number of rooms, seats, or berths can be
thought of as perishable inventory. For example, unsold seats on a flight cannot be carried over to the
next flight; they are lost. The same is true for hotel rooms and cruise berths. Of course that unsold
inventory does not generate income, so companies with fixed capacities must develop strategies to deal
with sales.

Yield management is the application of pricing strategies to allocate capacity among various categories
of demand with the goal of maximizing the revenue generated by the fixed capacity. Demand for fixed
capacity usually consists of customers who make advance reservations and walk-ins. Customers who
make advance reservations are typically price sensitive, while walk-ins are often price-insensitive.
Companies must decide on the percentage of their limited inventory to allocate to reservations, trading
off lower revenue per unit for increased certainty of sales, and how much to allocate to walk-ins, where
demand is less certain but revenue per unit is higher. The ability to predict demand is critical to the
success of yield management, so forecasting plays a key role in the process. Seasonal variations are
generally important, so forecasts must incorporate seasonality and plans must also be somewhat
flexible to allow for ever-present random variations.

Required:

Discuss some of the unique problems encountered in service systems, and describe some of the approaches used
for scheduling service systems.

Source: Operations Management 12th edition by William J. Stevenson