Demand Management 1

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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Demand Management 1

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