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



Detroit Automakers Stockpile Cars Again

Recently, the Big Three in Detroit have began to build up their stock of passenger cars again, despite what they said about never doing that again since the downturn that occurred in 2009. Ford, GM and Chrysler all have several months worth of supply in different models of their passenger cars, with Chrysler holding on to approximately 6 months worth of inventory on their 2013 Dodge Dart.
The 2013 Dodge Dart
In part, this build up of inventory is due to a robust resurgence of the Japanese automakers Toyota and Honda. Last year, both of these companies suffered set backs due to the natural disasters that took place in Japan. These companies, in an effort to gain back market share, have offered some of the best financing terms they ever have. This has resulted in a build up of American made cars.
This shows the inventory held by several different car companies

This inventory build up can be potentially very problematic. The big three currently have a very large decision to make, they can either cut production or they can offer their own sort of incentives to drive sales. This directly relates to transportation management because if Ford, GM and Chrysler begin to slow their production there will be repercussions through out shipping lanes. LTL companies that work with auto suppliers will be forced to raise their rates to recover the lack of business from the suppliers which means some companies might go out of business and it will put a strain on the transportation system. Another risk associated with inventory build up is obsolescence. This is especially relevant to the car industry where there is a new model released every year. If the American car companies are unable to sell off their inventory of 2013 cars before the 2014 model is scheduled to come out then they will take a massive hit to their profits.



Pipeline Regulations

           After the re-election of President Obama he has made it very clear that his administration will begin to take a strong look into the pipeline transportation industry.  The Obama administration is looking to tighten up the regulations on pipelines and make sure their level of safety greatly increases.   During his most recent term in office pipelines have taken several lives and one of the largest being the natural gas pipeline explosion in San Bruno California.  In the San Bruno tragedy on September 9, 2010 a 30” steel pipeline exploded and killed eight people while destroying 38 homes in the process.  Disasters like this one are the main target that will be addressed with the coming regulations.


San Bruno pipeline explosion

One of the potential regulations that the Obama administration could be looking to impose is the inspection of older pipelines that had bypassed previous regulations to the grandfather clauses.  These inspections will hopefully catch any structural damage in the pipes but currently the industry lacks the proper inspection technology to make a complete and thorough search impractical.  The pressure testing that’s currently used to test many of the newer types of pipelines may even damage some of the older pipelines further.  Jeffrey Wiese the Associate Administrator of Pipeline Safety with the Department of Transportation’s Pipeline and Hazardous Material Safety Administration (PHMSA) points out another flaw in the inspections when he said, “You have pipelines that are the sole gas source into a town.  You can’t just take them out of service for an inspections”.  Another possible regulation that the Obama administration may impose is a much greater increase in the number of homes required to use pressure shut off valve that will shut off supply of gas if there is an issue with the distribution system. These shut off valves won’t allow gas to transport through faulty pipes but have also been proven to shut off at incorrect and inopportune times.  Customers living in the northern parts of the country will not be happy if their gas is improperly cut off during the frigid winter months.

The regulations that are sure to come to pipeline industry will aim to improve safety and hopefully encourage companies to invest research and development money into inspection technology.  Wiese describes the inspection process of pipelines today as “grossly underinvested” and with regulation put in place by the Obama administration hopefully the ball will get rolling with more research in this department to prevent future disasters.



SGB’s jatropha vision: Jet fuel grown from seeds

Biofuel industry has played more and more important role in energy market for past decade. Biofuel is considered as candidate for next generation of energy source because of the non-sustainability of fossil fuel, and “In 2010, worldwide biofuel production reached 105 billion liters (28 billion gallons US), up 17% from 2009, and biofuels provided 2.7% of
the world’s fuels for road transport, a contribution largely made up of ethanol and biodiesel[1]”. From the growth  market share of biofuel in energy industry,and price of gasoline price, it is obvious biofuel has a bright future.

However, there is several concerts about biofuel implement. First of all, food safety is the biggest barrier on the way of biofuel growth. ethanol fuel made up 82% of total biofuel in 2010 (23 out of 28 billion gallons US), and the main source of making it is corn.US and Mexico hold 90% of ethanol production of the world, which come with price US might lost dominate of corn export lasted from 1960s.[2] Corn export is the huge chunk of the agriculture , so it is not expected of its shrinking. At same time, food safety flesh yellow on the growth of amount of corn use to make fuels.

Secondly, transportation as the biggest consumer of biofuel industry facing problems too. Biofuel is not traditional energy, most of them require innovation in power system to adapt using pure or semi biofuel, and innovation means capital investment and risk of fall on efficiency. Air transportation seem moved forward in adapting biofuel by integrate development of source and growth of vendor and supplier. It do give advantage to air transportation in long-term, but unstable of supply in biofuel scared itself. Weather and regulation are the most heavy factors attribute to production of biofuel. While jatropha of SB’s perfect overcome this two problem. It is rough planet can grow in drought and wild place, its nut has high yell rate of oil  and it is not crop of food. These make it weather and regulation friendly. The forecast of jatropha fuel is 10% of biofuel industry and competitive price of gasoline. Boeing and Airbus has already step into the development of jatropha fuel, and Air Japan and Air New Zealand also took move on adapt
jatropha fuel plant.

As most new things, jatropha fuel face the lack of knowledge popularizing and faith of investor. However, the double of investment from 9.4 million Angel fund to 17 million venture capital in 2 years should give us sign of the potential of jatropha fuel also the power of it to the transportation industry and the world.







Ship Free or Lose Out

Ship Free or Lose Out
More Retailers Absorb Cost of Sending Packages to Vie With Web-Only Rivals

Traditional retailers are taking the expensive step of offering more free-shipping deals this holiday season, as they seek to lure the growing number of Internet shoppers to their websites and away from online-only rivals, particularly Amazon.com.

Amazon offers free shipping on most orders over $25, as well as cheap, low-hassle delivery options such as its Prime membership program, which other retailers have found hard to match. The online retail giant also offers low prices, since it doesn’t have to pay for sparkly stores or cheery salespeople and— as rivals like to point out—because it doesn’t collect sales taxes for the most part.

For consumers, free shipping can make a big difference in the ultimate price they pay.

“Free shipping used to be a way to entice customers to your store over another site, but now it’s just the price of entry,” said Kevin Mansell, chief executive of Kohl’s discount department store.

For giant retailers such as Wal-Mart and Target free shipping hasn’t yet started to affect their bottom lines, said Colin McGranahan, retail analyst at Sanford C. Bernstein. Internet sales make up less than 2% of Wal-Mart’s $419 billion of annual sales and Target’s $67 billion.

Several department stores, too, are now offering year-round free shipping—and the cost has begun crimping gross margins.

Nordstrom which in August, began offering free shipping and returns on all online orders, estimates that the free shipping cut its gross margin—of 36.6% in the third quarter—by about 0.15 percentage point.

Even so, the company says that the boost to sales from free shipping outweighs the costs; online inventory offers higher returns because of fewer overhead and labor costs, said Nordstrom’s chief financial officer, Mike Koppel.

Internet sales are projected to rise 15% this holiday, while in-store sales are expected to grow by less than 3%. But some of that Internet growth will occur at traditional retailers’ websites rather than at online-only retailers

Retailers are trying to find a way to offer a program similar to Amazon Prime, in which customers pay $79 a year for unlimited two-day-delivery service on purchases, as well as other perks, like movie streaming. Some analysts estimate that Amazon Prime will have 10 million customers by the end of the year and that the service accounts for about $7.5 billion of the company’s revenue, although the program still loses money for the company.



Return to Sender: Managing Reverse Logistics

One of the most important aspects of customer service is not what companies do leading up to a purchase by a consumer, but how they respond to a customer that is unhappy with their product. There are many e-commerce companies that don’t spend the time and resources they should on reverse logistics. According to the article, 85% of consumers will not be a repeat buyer of an online retailer if the return process is a hassle. On the other hand, 95% of consumers said they would return to an online retailer if the process is convenient.

Some online companies don’t have a return process at all, while others have one but don’t give it the attention it deserves. As a result, customers become irritated because they have to go through a long process to return a product. Online businesses need to have an efficient reverse logistics process to have repeat customers and sustain growth. To do this, there are three factors companies should consider. The three factors are the return process should be easy to implement, cost-effective, and customer-friendly.

A way for online companies to change or implement a return process is to hire a third-party company. A third party provider would allow for a better understanding of the return process requirements and whether a new return process could help the business grow. A provider could customize the return process so it is tailored towards what the online retainer wants. In addition, it could be integrated with the retailer’s web site, so the customer can easily see how to return an item if necessary.

Managing returns across boarders is also important. The following is a list of questions for companies to consider when managing their cross-boarder returns process:

• How long will customers have to wait for a refund or replacement item?
• How can customers track items in the system?
• How can you monitor the rate of returns by the market?
• How can you manage stock re-integration?



Supply Chain Conundrum: In or Out of China

As China has raised their labor costs more than 20%. Many US companies start to reevaluate their sourcing and manufacturing in China. Like stay in China, return manufacturing to some U.S. states that still known for lower cost labor, or find out new labor sources such as Vietnam, Cambodia and South America.

But there are still some good effects on raising supply chain operations and costs. Rising Chinese wages means an increase in standard of living for the largest potential market on the planet, which consists of nearly 1 billion employed consumers. Many of those potential consumers are beginning to see a pay increase that allows for disposable income that can now be spent on products and services that would have been unaffordable even a decade ago. This new realization coupled with a similar increase in labor costs across the rest of Asia is causing companies to reconsider their strategy in China and its mostly untapped market potential.

The companies need to weigh the potential benefits of staying in China, moving somewhere else or repatriating some of those positions to the U.S. Obviously, managing supply chain risk is more easily done when operations are firmly planted on home soil, but time will tell whether convenience and a narrowing wage gap will send these positions back to the U.S

The increasing popularity of technology in supply chain such as transportation management software and warehouse management software buffered some of the added costs within today’s supply chain. They upgraded the supply chain with smoother operations and lowered costs. And business start to rely on technology to lessen financial strain.