Unformatted text preview: 28 Interactive Models for Operations and Supply Chain Management Interactive Case
Cutthroat Canyon Resort Battles No-Shows Cutthroat Canyon Resort lies in a small canyon that runs perpendicular to the
highway between Livingston and Gardner, Montana. The resort consists of a lodge
with 18 rooms and 6 duplex cabins. Just down the road lies Yankee Jim Canyon,
and beyond that, the North Entrance to Yellowstone National Park. Like all resorts
in the vicinity of Yellowstone, Cutthroat Canyon serves two types of customers.
The ﬁrst, and most desirable from a business standpoint, is customers who make
reservations to stay at the resort because they enjoy the amenities the resort has to
offer—its peace and quiet, its excellent food, and its small-stream trout ﬁshing.
These customers often return year after year and stay for four or ﬁve days. The
other customers certainly add to the revenue stream but are a more difﬁcult lot to
plan for. They are typically on their way to Yellowstone, pulling a monster RV, and
ﬁnd that, when they arrive at the north entrance, the campgrounds are full. They
quickly learn that the spaces that are not reserved are taken on a ﬁrst-come, ﬁrst-
served basis in the early morning. So they stay at Cutthroat Canyon for a night and
then drive down to the park early to stake a claim on a campsite. If they get one,
they move on; if they don’t, they try again the next day. Many reserve a room for
several days, but if they ﬁnd a campsite in Yellowstone, they cancel at the last
minute. This often leaves Bonnie DePuy, the resort owner, with empty rooms after
she has denied others who have called in requesting a reservation. Bonnie’s niece,
who is working at the resort for the summer, has suggested using an overbooking
approach she learned about in her operations management class at college. Bonnie
is skeptical but is willing to listen. Bonnie has approached a large neighboring resort and has negotiated an agree-
ment to use it as lodging for any customers she “bumps” at a cost of $100. She has
determined that the opportunity cost for an empty room in her lodge is $80.
Historical records from the past two summers provide 200 days of no-show data.
Those data are presented below and converted to probabilities. Numberof No-Shows Frequency Probability (%) Capacity Management 29 Analysis 1. Make sure the defaults are set to match the parameters in the table on page 28. Evaluate
each possible overbooking policy and record your results. a. What is the expected cost per night of not overbooking at all? b. What is the low-cost overbooking policy, given Bonnie’s vacant room and bumping
costs? c. Under the low—cost policy, what is the expected cost of bumping customers? What is
the expected cost of vacant rooms? What is the expected total cost? (1. Create a graph with “cost” on the y-axis and “number overbooked” on the x—axis.
Graph the vacant room cost associated with each overbooking policy and the bump-
ing cost associated with each overbooking policy. Describe the relationship between
the two graphs. e. If Bonnie adopts the low-cost policy, what will be her daily expected savings over the
current costs of not overbooking at all? What would she expect to save in the course
of the 100-day season? f. What should she tell the neighboring resort in terms of the number of “bumped”
customers to expect? 2. If Bonnie increases her room rental charges in the future, every dollar of increase would
also increase the opportunity cost of a vacant room the same amount. a. Would it ever be justiﬁed to change to the policy to overbook by an additional per-
son? How did you determine this? 3. Bonnie has learned that next summer the neighboring resort plans to decrease its costs
to her by $20 per customer. a. If that happens, what should her overbooking policy be? b. What will the bumping costs have to be before it will result in a preferred policy of
overbooking by one less person? c. Can the bumping costs be low enough to justify overbooking by one less person?
Explain your answer. 4. Suppose Bonnie increases her room rental to $130 and the neighbor decreases the
bumping cost by the amount identiﬁed in 3b. a. What would be the optimal overbooking policy?
b. What would be the total expected costs per day?
c. What would be the expected costs associated with no overbooking? ...
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- Spring '08