Yield Management Operations Management Assignment Help

Home » Aggregate Planning » Yield Management

Yield Management

Aggregate planning in services is very different from that in manufacturing. This is due, in large part, to the fact that the capacity of service operations is often viewed as highly perishable  because it cannot be saved or inventoried for future use. For example, the empty seats in a restaurant on Monday morning cannot be saved for use on Saturday night when  it is very busy. Thus. services do not have the luxury to choose between chase and level strategies. as do manufacturing firms, but rather always must use the chase strategy. In other words. capacity must be available when the  customer wants it.  However, even within this constraint. the service manager has considerable latitude n planning. For those services that have high fixed costs and low variable costs. it is important  o  maximize capacity utilization even if it means reducing prices to attract additional customers during slow periods of demand. This method, known as yield management or revenue management, attempts to simultaneously integrate demand management (by changing prices) and supply management (by controlling availability). The goal of yield management is to sell all available capacity. even at discount prices, but. at the same time. not turn away a full-paying customer because the capacity had been previously sold to a bargain hunter.  Examples of Industries that apply yield management concept. include airlines that offer di -counts for advanced reservations and car rental agencies and hotels that offer discounts on  weekend. (See OM in Practice on National Car Rental.) The concept of yield management is introduced in this chapter: the detailed mathematical theory behind yield management is
explained in the ne t chapter. It also is mentioned in the forecasting chapter. After yield management has been applied to a service operation, the service manager would then determine the aggregate workforce requirements in a manner similar to that described previously for a manufacturing company.