09 May HOW MUCH TRUCKING CAPACITY SHOULD THE MANAGER SAVE FOR THE SPOT MARKET?
Revenue management using Littlewood’s rule This posting contains two example problems on Revenue management using Littlewood’s rule. 1. A trucking firm has current daily capacity of 200 000 cubic feet. A large manufacturer is willing to purchase the entire capacity at $0.10 per cubic foot per day. The manager of this trucking firm has observed that on the spot market trucking capacity sells for an average $0.13 per cubic foot. Demand however is not guaranteed at this price. The manager forecasts daily demand on the spot market to be normally distributed with mean 60 000 cubic feet and a standard deviation of 20 000. How much trucking capacity should the manager save for the spot market? 2. A manager at a larger manufacturer is planning warehouse e needs for the coming year. She predicts that warehousing needs will be normally distributed with a mean of 500 000 square feet and a standard deviation of 150 000 sq feet. The manager can obtain a full year lease at $0.50 per square feet per month or purchase storage space on the spot market. Spot market rates have averaged $0.70 per square foot per month. How large an annual contract should the manager sign?
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