Supply chain optimization takes many forms, some more visible than others. In the case of a rental car agency, the impact is obvious. If you arrive and the car you want isn’t available, you go somewhere else. But at the same time, a car sitting idle on a lot is wasting money.
This is one reason why Avis Budget Group in Europe uses FICO Xpress Optimization. A recent article in the German magazine Business Intelligence provided a fantastic case study on Avis, showing some of the benefits of using mathematical optimization to solve supply chain challenges and make real-time decisions.
Here are some of the highlights of the article (translated into English):
Avis Budget EMEA Limited uses mathematical modeling and analysis to make better decisions. One of the software tools is FICO Xpress Optimization, which has been continuously improved since its launch ten years ago. “With this technology, we optimize our business decisions to balance supply and demand. This leads to an improved customer experience and higher profitability,” said Phil Norton, IT Director of Fleet, Finance, Revenue Management, Legal, and Strategy.
Prior to deploying this software, the company relied on a manual pricing, reservation, and fleet mapping process: station and fleet managers attempted to use information from the reservation system to predict future demand. Price analysts searched the same data to make estimates for the optimal car rental prices.
This method does not work anymore. “Customers now expect more service and a wider range,” says Norton. Businesses need to be more flexible and demand stronger IT support. “Our key IT challenge is to keep up with the new requirements for system improvements, because the world is changing fast,” says Norton.
Using an optimization solution, the company has developed an intelligence model that optimally supports decision-making. “We use Xpress as an optimization engine to make recommendations, such as which fleet should be made available for booking at which locations, which upgrades are most meaningful, or how we should distribute the vehicles,” explains the manager.
In this process, the forecast of customer demand must be very accurate. “We have to make sure that we have the right car for the right customer at the right time – and that the recommendations are as accurate as possible,” says the expert. He underlines the need for more real-time data to enable real-time decisions: “The tendency for short-term booking of car rental customers means that the situation can change very quickly at any time, so we have to make all decisions based on the latest reservation trends.”
The use of technology also brings about a major organizational change: a new role for the analysts. “They’re not going through the optimizations anymore, they’re putting that into the system,” says Norton, “Their role now is to deliver the inputs they need to get an accurate result.”
In view of the many locations throughout Europe, the many different car categories, the very different rental periods and routes, it would be a great challenge to optimize the data as a decision-making basis within an acceptable timeframe. “With the FICO optimization software, we’ve found meaningful ways to break up the problem into smaller parts without losing the accuracy of the result,” Norton says.
For more information, read our case study on how Avis Europe optimized fleet usage to drive $19 million in gains.