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Evaluate Alternative Plans

Produce to meet expected

Produce to exact monthly average demand by
production requirements by maintaining a constant
varying workforce size workforce

Produce to meet expected

Produce to meet the
demand for all but the first
minimum expected demand
two months using a
using a constant workforce
constant workforce and use
and subcontract to meet
overtime to meet additional
additional requirements
output requirements

Dr.D K Singh, Professor in Office, KSOM 31

Plan 1: Exact Production; Vary Workforce

Production
exactly matches
requirements.

Workers are
added or reduced
as needed.

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Plan 2: Constant Workforce; Vary Inventory and Stockout

Number of
workers is
set to
meet
average
demand
over the
time
horizon.
This then
determine
s
productio
n rate and
inventory/
backorder
s.

Plan 3: Constant Low Workforce; Subcontract

Workforce sized to
meet minimum
demand (April).

Demand over
minimum is met with
subcontracting.

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Plan 3: Constant Low Workforce;Workforce

Subcontract
sized to
meet minimum
demand (April).

Demand over
minimum is met with
subcontracting.

Plan 4: Constant Workforce; Overtime

Demand in
the first two
months is
high, so
overtime is
used to
compensate
. Then,
inventory
can be built
for high
demand in
June.

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Plan Comparison

Graphical
Summary

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Level Scheduling • Requirements

• A level schedule holds
production constant over a
period of time.
• It is something of a
combination of the strategies
mentioned here.
• For each period, it keeps the
workforce constant and
inventory low, and depends on
demand to pull products
through.
Dr.D K Singh, Professor in Office, KSOM
• Advantages
• The entire system can be • Production should be
planned to minimize repetitive (assembly-line
inventory and work-in- format).
process. • The system must contain
• Product modifications are excess capacity.
up-to-date because of the• Output of the system must be
low amount of work-in- fixed for a period of time.
process. • There must be a smooth
• There is a smooth flow relationship among
throughout the production purchasing, marketing, and
system. production.
• Purchased items from • The cost of carrying inventory
vendors can be delivered must be high.
when needed, often directly
• Equipment costs must be low.
to the production line. • The workforce must be multi-
skilled. 39

Yield Management
• Is the process of allocating the right type of capacity to the right type of
customer at the right price and time to maximize revenue or yield.
- Can be a powerful approach to making demand more predictable
• Has existed as long as there has been limited capacity for serving
customers.
• Widespread scientific application began with American Airlines’
computerized reservation system (SABRE).

Dr.D K Singh, Professor in Office, KSOM 40

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Yield Management Success Factors

Fixed costs are

Demand can be
high and Inventory is
segmented by
variable costs perishable
customer
are low

Product can be Demand is

sold in advance highly variable

Dr.D K Singh, Professor in Office, KSOM 41

Yield Management – Hotels

• Hotels offer one set of rates during the week and another set
during the weekend.
• The variable costs associated with a room are low in comparison to
the cost of adding rooms to the property.
• Available rooms cannot be transferred from night to night.
• Blocks of rooms can be sold to conventions or tours.
• Potential guests may cut short their stay or not show up at all.

Dr.D K Singh, Professor in Office, KSOM 42

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Yield Management – Levers Yield management

is most common
when price is
variable and
duration is
predictable.

Yield Management Systems

• Pricing structures must appear logical to the customer and justify the
different prices.
• Must handle variability in arrival or starting times, duration, and time
between customers.
• Must be able to handle the service process.
• Must train employees to work in an environment where overbooking
and price changes are standard occurrences that directly impact the
customer.
• The essence of yield management is the ability to manage demand.
Dr.D K Singh, Professor in Office, KSOM 44