This case involves the study of the Hamilton Hotel and the use of forecasting to help predict their demand on a specific day. Marriott Hotels operated the Hamilton hotel. Marriott has been known for a culture that puts people first. Marriott is recognized worldwide for their enduring values, their spirit to serve, and their corporate commitment to creating better places to live and work. 1) Critical Issue: The critical issue is the manager has to choose either to accept up to 60 additional room reservations for Saturday or not.
) critical Facts: The hotel loses revenue if the room is vacant for one night. Customer service is a priority for Marmot’s hotel. Customers often cancel reservations in the last minute or they don’t show up. Sometimes, customers stay in the hotel for an additional date beyond their original reservation. Sometimes, customers checked out early. Every Tuesday, the manager needs to prepare a forecast for the follow week occupancy for each day from Saturday to Friday.
If the hotel meets targets for occupancy ND revenue, hotel managers will be reward for their performance. The hotel has 1877 rooms. On Tuesday, August 18, 1 987 the manager received a reservation request for up to 60 rooms from a tour company for Saturday August 22. Although 1 839 rooms were reserved already for Saturday. The contribution margin from a room was about 590. The cost for denial a room would be about twice the contribution figure. Frequent guests are the customers that stay more than 45 nights a year in the hotel. ) Analysis: In order to forecast the expected demand in the short term and make the eight decision for Snow either to accept up to 60 rooms, first we decided to look at the historical daily demand for the last 13 weeks and analyze the demand pattern.
In graph 1, given data shows peaks and valleys, has no trend and shows seasonal variations in time series. It is difficult to forecast an accurate future demand for this data without using the seasonal forecasting method. Graph 1 When analyzing Pickup Ratio (Demand/Tuesday Bookings) for each Saturday, we can see that most ratios are less than 1. 00.
If reservation manager, Snow, decides to accept 60 rooms reservation from the tour company, she will overbook 22 rooms. As we know, 1839 rooms have been already reserved and she can give only 38 additional rooms. If she accepts 60 rooms reservation and there are no cancellations, she will have to accommodate additional 22 room requests providing with a comparable room in a different hotel somewhere in the city, transporting the quest, giving ratify such as fruit bucket.
According to the text, if a customer is a frequent guest (Marquis cardholder), he or she would received $200 cash plus next two stays at the Marriott for free. Also, the approximate cost for denying a room is about $180. For 22 rooms it will be $3,960. If she decides not to overbook 22 rooms, she might be missing 22*90 = $1 ,980 Of revenue. Moreover, she might be losing an opportunity to establish a good relationship with the tour company, who may book steady numbers of 60 rooms on Saturdays in the future.
This would generate additional profit, since we know from historical data that Saturdays are always under booked. Given a very low variable costs and marginal profit of 90$, it is a great opportunity for Snow to maximize profit during one of the slowest day of the week Saturdays (according to DOD indicator). However, she has to forecast demand for Saturday to make sure that she will have those rooms available. Denying a guest with reserved room can be very costly, especially for loyal customers and negatively reflect on hotel’s reputation. 4) Recommendations & Effectiveness:
We are recommending that the hotel accept the request from the tour company for up to 60 rooms. It was important for us to have the multiple forecasts and use the one with the lowest mean absolute deviation (MAD) before we made our decision. You Will see in the excel attachment that the seasonal forecast did in fact produce the lowest MAD and produced a forecast extremely close to the previous actual data. According to the seasonal forecast the hotel is expected to have 1,787 guests show up out of the 1,839 that were booked.