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8/2/2019 Demand Management 1
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DEMAND MANAGEMENT
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Maximize Profits or Revenue
New approach
Demand Management
Yield Management Revenue Management
Service Industry
Hotel
Airlines
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Characteristics of Business
Unutilized capacity
Perishable Inventory
Unpredictable Demand Price Elastic Demand
Undifferentiated product (service)
Dynamic Pricing possible Price Discrimination without spoiling market
Pricing changes as new information is discovered
Legal/Moral Aspect
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Operations Strategy
Strategic Management of - competencies,capabilities and processes, technologies,resources and tactical activities necessary inany supply network in order to
create and deliver product and service
combination and value demanded by the
customer
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Demand
Identify and deliver
Customer needs and wants
Cost to the customer Convenience
Communication
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Critical core competencies
Alignment of activities to demand
Linkage between demand and supply
Synchronise Demand relationship with customers
/consumers
Resource configuration Time
Information flow
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Alignment of Activities
Fundamental principle to keep pace withdemand and customer behaviour
Design, produce and deliver in variety andvolume that matches demand
Swings in demand closely monitored
Too little or too much leads to waste orinefficiency
Produce what is required
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Linkage
Strategic understanding of demand and itssynchronised connection with supply isimportant
Only improving the supply chain with outunderstanding demand may not be effective
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Demand relationship
Customers and consumers dynamicbehaviour
Product attributes Seasonality
Promotional strategy
Cyclic pattern
Credit terms
Repeat purchase patterns
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Resource configuration
Strategy at a network level involving internalas well as external connections in the supplychain
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Timing
Reduce cycle time to have faster response tochanging demand
Move fast to meet unplanned demand/unrecoganised market
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Information
Timely and accurate information flows help infast and right response
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Demand
Sources of demand - Understandingcustomers and the value they seek andpotential changes
Operational Process Shape and customiseto sources of demand and their individualbehaviour
Nature of demand
Understand Type,timing, quantity of demand and meet thedemand
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Types of Demand
Dependent vs Independent
Inputs and outputs
Push/Pull Aggregate or parts demand
Demand
short, medium, long term needs
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Factors affecting demand
Size of market
Share of market
Season and cycles Random variation
Business cycle
Product life cycle
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Demand considerations for
Airline
Car rental
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Approaches
Changing capacity
Partitioning
Price differentiation Off Peak demand
Reservation
Complimentary services
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Changing capacity
Products Increasing resources
Service Customer participation self service
Primary and secondary capacity
Flexible capacity multi skilled
Short term overtime
Absorbing and releasing sub contracting
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Shift Demand to meet Capacity
Demand too high
Communicate busy days and times
Incentives for non peak usage
Set priority to take care of loyal and high needcustomers
No discount but charge full price
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Demand too low
Advertise benefits of non peak usage
Vary the service offering
Differentiation in price
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Adjust capacity to meet demand
Demand too high
Stretch time, resource, equipment temporarily
Use part time resources
Cross train resources
Sub contract
Overtime
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Demand to low
Schedule downtime
Schedule training
Perform maintenance, improvement
Lay off
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Demand Forecasting
Judgment /Subjective
Sales/Marketing
Customers and consumers ( Survey)
Delphi technique
Time series / Objective
Trends
Seasonal
Cyclical
Random
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Yield Management
Fare Classes
Demand Forecasting
Customer Mix Overbooking
Performance Measurement
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Challenges of Yield Management
Loss of competitive focus
Customer alienation
Employee morale Lack of training
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Waiting Line strategies
Operational logic
Modify operations
Adjust queuing system Differentiate waiting customers
Importance
Urgency
Duration of transaction
Premium price
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Yield = Actual Revenue/Potential revenue
Actual revenue = Capacity used* Averageprice
Potential revenue = Total capacity* Maximumprice
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Revenue Management
Maximising profiabilityby selling theoptimised no of seats at various price levelsbased on demand and pricing elasticity
Better than load factor methodology
For high fixed cost, low margin price -segmentable business
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Selling
The right product
The right customer
At the right time
At the right place
At the optimum price
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Fare Classes
Over and above travel classes economy,business, first, etc.
One bucket for one customer segment Multiple fare classes possible within same bucket
Two customers with same fare class ticket may
have paid different fare, depending on time ofbooking
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Demand Forecasting
Demand Forecast
Cancellation Forecast
No-show Forecast
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Demand Forecasting
Distribution of demand
On a given day for each segment
Independent variables:
Day of the week/month/year
Events
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Performance Measurement
Spoilage / Occupancy
Overbooking
Turndowns Similar to stock outs in inventory management
Customer attrition for each segment
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Elements of Revenue Management
Dynamic Pricing
Price change in wake of new information
Use of analytics to understand consumerbehavior and determine pricing
Complex pricing platform that is scalable
Focus on revenue maximization and not break-even or profit maximization
Hence not suited for industries with high variable cost
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Yield Management Applications
Source: Shumsky 2002
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Seats on a scheduled commercial carrier(airline)
Hotel roomsPerishable commodity Milk supply
Industries using yield management
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Thank You
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