Overbooking, Gains or Losses?

Since the core concept of yield management of airline is to sell the right seat to the right type of customer, at the right time and for the right price, overbooking has become the trump for airline to maximize its revenue or profits. In the airline industry, seats are regarded as inventory. If a plane leaves gates with empty seats, this inventory is lost and spoiled. Company will lose revenue without any compensation for losing inventory so that overbooking is a effective strategy to avoid such kind of loss. Because not everyone travels on their booked flight for various reasons, most airlines will overbook their flights, sometimes by as much as 50% with mixed prices to make sure the plane will take off with no empty seats. If overbooking is done correctly, that will be a win-win situation between travelers and airline companies. Customers can get lower fare and airlines can earn more revenue. However, what if overbooking goes wrong?

Using overbooking method requires a very comprehensive and accurate demand forecast.  Some exceptional cases might happen that if the actual number of passengers is higher than airline company forecast. Some passengers will be forced to take later flight sometimes have to stay over the night in airport. Airline need to compensate those passenger with any discounts, premiums or accommodation. On the other hand, the airline should try to predict the price of overbooking. A passenger who is denied a seat despite his reservation can happen to be very expensive. In the short run, it is only a ticket revenue loss, but long term implications include passenger loyalty and airline reputation. In a word, the higher level of overbooking, the faster cost increasing and higher risk with less passengers are willing to modify their flight arrangement. Poor overbooking decisions will be very costly.

References:Why and How Airlines Overbook Flights http://www.thetravelinsider.info/airlinemismanagement/allaboutoverbookingflights.htm

Yield Management In The Airline Industry


Supply Chain Risk Management Becoming a Higher Priority for Companies?

With the devastating storms in the past few years such as super-storm Sandy and the devastating earthquake and resulting tsunami that hit Japan in March 2011, is it time for supply chain risk management to become a higher priority in operations strategy for all companies around the world regardless if they’re on the coast or not? Natural disasters can be unexpected and cause immeasurable damage to a country’s infrastructure thus impacting the transportation of goods and knocking out the useful capability of office buildings, warehouses, and distribution centers.

The resulting question can best be summed in assessing risk as this, from a supply chain expert Adrian Gonzalez:

“Supply chain management is about managing risks…And since risks are dynamic in nature, with new ones emerging all the time, companies must continuously study the landscape and determine which risks are worth addressing now and how. Simply put, what costs and other tradeoffs are you willing to incur today to avoid a much costlier scenario tomorrow?”

The threat of natural disasters is one that looms heavy every minute of every day, supply chains are exposed and need to take action today to avoid the pitfalls tomorrow. Foresight in supply chain risk management such as diversifying supply routes and sourcing parts from more than one supplier with great capacity and flexibility will help remedy these ever-present risks in transportation management. Reducing the overall risk level of your supply chain is different for every single company, recurring analyses of risks and solutions is needed to remain prosperous and vital in the 21st century battle for supply chain optimization.
A careful and prudent analysis between tradeoffs in regards to risk management can be a determinant of a large loss or small loss in the event of a natural disaster.

Rare Video: Japan Tsunami



Wieland, A., Wallenburg, C.M., 2012. Dealing with supply chain risks: Linking risk management practices and strategies to performance. International Journal of Physical Distribution & Logistics Management, 42(10).


Go Green! Go VRSP!!

Whenever referring to VRSP, words like “time”, “distance”, “capacity” and “cost”will jump into mind immediately. VRSP realizes the models where the objective to be optimized is minimized cost. However, how many people have ever thought about that VRSP is also beneficial to the environment not just about cutting the cost.

According to our previous study in class, transportation has an environmental significance to entail the responsibility to the environment which means to balance between green logistics and efficient transportation system. The assumption of VRSP to reduce total distance is equal to say reduce the fuel emission and consequent pollutant. For a simple instance, many companies like UPS use “no left turns” routing method can shave off great amount of fuel bill which also implies less CO2 emissions. Based on the research we got, two subcategories of VRSP play a critical role in  the green logistics which are time-dependent VRSP and hazardous materials transportation.

Time-dependent VRSP refers to optimally route a fleet of vehicles of fixed capacity when the traveling times between nodes depend on the time of the day that the trip on that arc was initiated which stands for reducing number of total vehicles used and total travelling time. The travelling time is measured by knowing the departing time and an accurate estimate of the average speed of the vehicle while traveling on the arc. In this system, vehicles are required to drive at a faster speed without being caught in congestion. Despite    a longer distance may be applied, there is likely to be environmental benefit because less pollution is created when vehicles are traveling at the best speeds for the environment and for shorter times. Meanwhile, this system can satisfy delivery time windows more reliably. The next one is hazardous materials transportation. This concept is finding a route to reduce the accidents and hazardous impacts on human and environment as low as possible, especially in large urban areas. However, this risk-analysis-based routing methodology has a high implementation degree to minimize the risk, alongside cost, it needs justify different objective quantities and trade-off the objectives. In others words, a great deal of data base and accurate information are required.

Related Articles: I. The Relationship between Vehicle Routing& Scheduling and Green Logistics -A Literature Survey by A. Sbihi R.W. Eglese

II. Improving the environmental sustainability of logistics by Alan Mckinnon, Sharon Cullinane, Michael Browne, Anthony Whiteing

UPS and FedEx Air Freight Hubs

Since the first flight took place by the Wright Brothers, the delivery of air cargo and freight has grown greatly. The first cargo flight was between Dayton and Columbus, Ohio in November 1910. The shipment was of very small proportions, just a bolt of silk, but the flight stayed in the records for its speed, an amount of time for delivery that couldn’t possibly be matched by train. That was the just the beginning of what was to come in the cargo airlines industry which has blossomed into United Parcel Service (UPS) and FedEx carrying much freight into and out of their main airline hubs in Louisville, KY and Memphis, TN, respectively. These two carriers account for more than 2/3 of the annual air volume.

Cargo deregulation in 1977 paved the way for unprecedented growth for air shippers. Between 1982 and 2000, the average annual growth rate for air shippers was 8% per year. Despite this growth, air freight still only accounts for roughly ½ of 1% of the total freight ton-miles transported in the United States. Water, rail, and truck account for 99.5% of total ton-miles shipped in the United States every year.

There are three market segments in today’s cargo industry: express, heavyweight, and mail transport. Express is a segment whose packages are time-definite and weigh less than 100 lbs. while heavyweight packages weigh greater than 100 lbs. Express cargo make up the greatest proportion of items shipped via air.

UPS ships 2.2 million packages and documents per day in the United States by air while this same information couldn’t be found for FedEx. They both employ an advanced sort system to separate, organize and ship packages by delivery location. UPS has 229 aircraft in its delivery fleet while FedEx has 669 aircraft. UPS serves more than 382 airports domestically while FedEx serves more than 375 worldwide.


1.    http://ardent.mit.edu/airports/ASP_exercises/ASP%20matl%20for%20posting%202007/UPS%20and%20FedEx%20Hub%20Operations%20Cosmas%20Martini.pdf
2.    http://www.pressroom.ups.com/Fact+Sheets/UPS+Fact+Sheet
3.    http://news.van.fedex.com/files/factsheet_corporate.pdf
4.    http://news.van.fedex.com/files/June%202012%20FedEx%20Express%20Worldwide%2 0Fact%20Sheet.pdf

Motor Carrier Driver Handbook Synopsis

The logistics industry places a heavy emphasis on studying and perfecting the most fuel-efficient technologies for carriers, the optimal network of distribution centers, logistical routing, and information visibility in whatever system a particular 3PL, Private Motor Carrier, or Corporate Logistics Department chooses. These topics are of course incredibly important and relevant to the smooth running of transportation of goods but what about the actual drivers who are employed by these motor carriers? How much of an emphasis on their practices while driving an 18-wheeler is studied in depth? From my experience, very little, the remaining portion of the article will look to enlighten any supply chain professional on the actual practices of the driver, a very succinct handbook, so to speak.

Standards have to be understood and followed if you are a truck driver transporting goods from coast to coast, port to port, factory to warehouse to store, etc. This system is complex and should be better understood. First off, there are Federal Motor Carrier safety regulations that need to be followed. The safety regulations need to be followed starting at the weight of the vehicle (10,001 pounds for interstate carriers, 18,001 for intrastate), age of the driver (21 for interstate, 18 for intrastate), US DOT numbers displayed on vehicle, and hours of service of drivers to name just a slight few. The drivers may also only drive 11 hours following 10 consecutive hours of off-duty time or you may not drive any more after 14 hours of on-duty time following 10 consecutive hours of on-duty time. Also, drivers must carry a log book detailing their driving patterns for each day. These types of rules are much more extensive than the scope of this article allows for, a link to a driver handbook from the state government of Connecticut is at the end of this article.

Inspections are commonplace as well; a motor carrier inspector may stop and inspect a truck of his choosing. All relevant paperwork is provided to the inspector including driver’s license, medical examiner’s certificate, medical waiver if applicable, record of duty status, trip receipts, shipping or delivery manifest, vehicle registration, and current annual inspections for each unit. Additional documents will also need to be produced if your vehicle is carrying hazardous materials. The driver may be issued fines if any defects or violations are documented.


Other Resources: