BUS 466 Services Management

Spring 2016

Chapter 11 – Solved Exercises

11.4) Crazy Joe operates a canoe rental service on the Guadalupe River. He currently leases
15 canoes from a dealer in a nearby city at a cost of $10 per day. On weekends, when the
water is high, he picks up the canoes and drives to a launching point on the river, where he
rents canoes to white-water enthusiasts for $30 per day. Lately, canoeists have complained
about the unavailability of canoes, so Crazy Joe has recorded the demand for canoes and
found the experience below for the past 20 days:

Daily
10 11 12 13 14 15 16 17 18 19 20
demand
Frequency 1 1 2 2 2 3 3 2 2 1 1

Recommend an appropriate number of canoes to lease.

11.5) An airline serving Denver’s International Airport and Steamboat Springs, Colorado, is
considering overbooking its flights to avoid flying with empty seats. For example, the ticket
agent is thinking of taking seven reservations for an airplane that has only six seats. During
the past month, the no-show experience has been

No-shows 0 1 2 3 4
Percentage 30 25 20 15 10

The operating costs associated with each flight are pilot, $150; first officer, $100; fuel, $30;
and landing fee, $20. What would be your recommendation for overbooking if a one-way
ticket sells for $80 and the cost of not honoring a reservation is a free lift ticket worth $50
plus a seat on the next flight? What is the expected profit per flight for your overbooking
choice?

11.7) The sheriff has been asked by the county commissioners to increase weekend patrols in
the lake region during summer months. The sheriff has proposed the following weekly
schedule, shifting deputies from weekday assignments to weekends:

Day Sun. Mon. Tues. Wed. Thurs. Fri. Sat.

Assignments 6 4 4 4 5 5 6

Develop a weekly workshift schedule, providing 2 consecutive days off per week for each
officer. Formulate the problem as an integer linear programming model to minimize the
number of officers needed, and solve using Excel Solver.

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 11.9) Town & Country has experienced a substantial increase in business volume because of
recent fare wars between the major air carriers. Town & Country operates a single office at a
major international airport, with a fleet of 60 compact and 30 midsize cars. Recent
developments have prompted management to rethink the company’s reservation policy. The
table below contains data on the rental experience of Town & Country:

Car Rental Discount Discount Mean Daily Standard

Rate Rate Seekers, % Demand Deviation
Compact $30 $20 80 50 15
Midsize $45 $30 60 30 10

The daily demand appears to follow a normal distribution: however, it has been observed that
midsize-car customers do not choose to rent a compact car when no midsize-car is available.
The discount rate is available to persons who are willing to reserve a car at least 14 days in
advance and agree to pick up that car within 2 hours after their flight arrives. Otherwise, a
nonrefundable deposit against their credit card will be forfeited. The current reservation
policy is that 40 compact cars are held for customers who are willing to pay the full rate and
25 midsize cars are held for full rate paying customers.

a. Using yield management, determine the optimal number of compact and midsize cars
to be held for customers paying the full rate.
b. Given your optimal reservation policy determined here, would you consider a fleet
expansion?

Solutions:

11.4)

Daily Cum. Prob.

Demand Frequency Probability P( d  x )
10 1 .05 0
11 1 .05 .05
12 2 .10 .10
13 2 .10 .20
14 2 .10 .30
15 3 .15 .40
16 3 .15 .55
17 2 .10 .70
18 2 .10 .80
19 1 .05 .90
20 1 .05 .95
Cu (30  10) 20
P(d  x )     .67
Cu  Co (30  10)  10 30

Crazy Joe should lease 16 canoes.

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 11.5) Using a payoff matrix approach:

Passengers Overbooked
No
Shows P(NS) 0 1 2 3 4
0 .30 180* 130 80 30 – 20
1 .25 100 180 130 80 30
2 .20 20 100 180 130 80
3 .15 – 60 20 100 180 130
4 .10 –140 – 60 20 100 180
Expected Profit: $ 60 $101 $109.50 $ 92 $ 55
* Cell value = 6  $80  $300  $180
Thus, overbook 2 passengers (i.e., take 8 reservations) and expect a profit of $109.50 per
flight.

Using the critical fractile model:

Cu 80
P(d  x )    . 61,
Cu  Co 80  50
where Cu = Cost of underestimating no-shows (i.e., there are more no-shows than expected
and the airline must fly empty seats)

Co = Cost of overestimating no-shows (i.e., there are fewer no-shows than expected and the
passengers who cannot be accommodated get free lift tickets)

11.7) Sheriff Patrol Problem:

Objective Function:
Minimize x1  x2  x3  x4  x5  x6  x7
Constraints:
x1 x2 x3 x4 x5 x6 x7 RHS
Sun. 0 1 1 1 1 1 0  6
Mon. 0 0 1 1 1 1 1  4
Tue. 1 0 0 1 1 1 1  4
Wed. 1 1 0 0 1 1 1  4
Th. 1 1 1 0 0 1 1  5
Fri. 1 1 1 1 0 0 1  5
Sat. 1 1 1 1 1 0 0  6

For: i  1 to 7, xi  0 and integer where

xi = Number of deputies assigned to a shift that has two consecutive days off beginning with
day i (i = 1 for Sunday, 2 for Monday, etc.)

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 When the above model is solved by Excel Solver, the following optimal solution is found:

Variable Solution
x1 1.0000000
x2 2.0000000
x3 1.0000000
x4 2.0000000
x5 0
x6 1.0000000
x7 0

Optimal Objective Function Value = 7

Then, the weekly staff schedule for summer months are as follows:

Weekly Staff Schedule for Summer Months

Day x1 x2 x3 x4 x5 x6 x7 Req. Staff Excess
Sun. – 2 1 2 0 1 – 6 6 0
Mon. – – 1 2 0 1 0 4 4 0
Tue. 1 – – 2 0 1 0 4 4 0
Wed. 1 2 – – 0 1 0 4 4 0
Th. 1 2 1 – – 1 0 5 5 0
Fri. 1 2 1 2 – – 0 5 6 1
Sat. 1 2 1 2 0 – – 6 6 0

11.9) (a)

Model Rental Discount % Discount Daily Standard Fleet

Car Rate (F) Rate (D) Seekers (p) Demand () Deviation () Size
Compact $30 $20 80 50 15 60
Midsize $45 $30 60 30 10 30

30  20
P(d compact  xcompact )   . 417  xcompact  50  (. 21)(15)  46
30(.8)
45  30
P(d midsize  xmidsize )   .555  xmidsize  30  (.14)(10)  31
45(. 6)
(b) Because the current fleet of midsize cars is smaller than the optimal number of midsize
cars that should be reserved for full-price paying customers, an expansion of the midsize fleet
should be considered.

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