Coordinating the tourism supply chain using bid prices

Abstract

A bid price control method for coordinating a decentralised tourism supply chain is presented in this paper. The method is applied to a supply chain channel involving a hotel and a retailer of tourism services. Information is shared between the hotel and the retailer by incorporating the opportunity costs of inputs purchased by the retailer from the supplier into the retailer's linear programming model (LP). Proxies for the opportunity costs, which are based on the dual prices of the hotel's LP and the rack rates are utilised. The hotel and the retailer use the dual prices from their own LPs as bid prices for independently making acceptance and rejection decisions concerning bookings requested; any booking request that is accepted by the retailer, but not by the hotel, is rejected. Simulation is used to compare the revenue of the supplier from the coordinated supply channel with that when the supplier acts alone. It was found that the proposed method can yield improvements in revenue, but the results depend on the demand intensity and the method used for computing the opportunity costs of the hotel's resources. The greatest improvements in revenue were achieved at low demand intensities. At high demand intensities, there may not be any improvements in revenue and reductions in revenue are even possible. The major limitation of the study is that the scenario depicted is a simplification of what occurs in practice. The paper extends the revenue management methodology to coordinating inventory decisions among suppliers and retailers in the tourism industry. It also gives insights into the possibility of further improving the revenue of tourism supply chain partners through this type of cooperation.