Kirk Myers, REI’s manager of corporate social responsibility (CSR), has been tasked with finding a way to optimize the organization’s rental program while minimizing its environmental impacts. After looking at the data, he found that at times the rental program had major queuing problems — equipment was either not available or wait times were too long. He will have to take into consideration customer experience/service, inventory, revenue, waste, and usage implications when crafting his recommendations. Students are asked to apply the news vendor model and VUT equation to find the best solution.
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After reading and discussing the material, students should:
- Model a queuing system (particularly one in which servers move to customers instead of the other way around), using the variability, utilization, and process time (VUT) equation to quantitatively evaluate the impact of resource capacity on responsiveness.
- Appreciate the power of pooling, by seeing explicitly how satisfying two sources of demand from a common stock reduces the amount of inventory required to achieve a target service level.
- Model a rental process as a series of single period inventory problems, computing appropriate underage and overage costs for a rental system, using the Newsvendor model to set appropriate stock levels.
- Assess the environmental benefits of a rental business model and determine how rentals can be more cost effective to the customer, more profitable to the retailer, and more resource efficient. The effectiveness of a rental model can be further enhanced by pooling rental inventory.