Car Cos. Optimize Supply Distribution Among Sites
<B> Car Cos. Optimize Supply Distribution Among Sites</B>
By Warren Lieberman
While some car rental firms are now rolling out their first generation automated yield management systems, those companies that were the pioneers are now enhancing their systems. One of the more significant enhancements is supply distribution optimization.
In many first-generation yield management systems, prices and product availability (i.e., the number of cars available at a specific price for each length of rental and for a specific checkout date) are optimized for a single location. In many major markets, however, a car rental company will have several locations that can share cars amongst themselves. The SDO enhancement provides recommendations for when it is economically attractive to shift cars among these locations, and the number of cars that should be transferred, based on the relative imbalances of supply and demand at each location and the cost of transporting the vehicles.
How important is SDO? Its contribution to the bottom line can be quite impressive. Hertz, for example, credits SDO with the ability to increase its net operating contribution by more than 1 percent in the markets where it is applicable. With such an impact, the SDO enhancement will be of great interest to car rental companies that are using yield management systems that treat each location independently.
Some car rental firms continue to view increases in daily rates as their greatest revenue enhancement opportunity during peak times. That is, if one or several days are going to be sellouts in a given week, the daily rates for rentals spanning those days are increased. Experience shows, however, that the car companies earn greater profits through more effective control over the length of rentals.
Say, for example, a customer wants to rent a car in Denver for three days, picking it up on Monday and returning it Thursday. Usually the daily rate at a particular firm is $42. On this occasion, however, the customer is cited a rate of $62 a day--unless, the reservation agent explains, the car is picked up on Tuesday, in which case the rate would be lower. Instead, the customer calls another company, which cites a rate of $47 a day, causing the person to rent from the second firm.
In this scenario, the first car rental company gave up an opportunity to receive $126 from a three-day rental in order to earn $62 for a one-day rental on Monday--even though the car was likely to be on the lot on Tuesday and Wednesday. Unfortunately, some car reservation systems are not yet capable of implementing appropriate length-of-rental controls. But as suppliers increasingly roll out advanced yield management systems, the appropriate modifications will doubtless be made.
Another expected change concerns smaller car rental firms and franchisees. "Off the shelf" systems currently under development will allow franchisees to acquire access to technology that only has been available to the largest firms. These systems will be available on a "pay as you go" basis, thus hastening the spread of yield management to smaller car rental locations.
Leading firms, meanwhile, will be under pressure to continue to implement enhancements if they want to stay ahead.
<I>Warren Lieberman heads the Travel and Hospitality Division at DFI Aeronomics, which counts among its clients six of the world's leading car rental firms.