Cheapest Car Rental rents cars at the Chicago O’ Hare airport. The car rental market consists of two segments: the short-term segment, which rents for an average of 0.5 week, and the medium-term segment, which rents for an average of 2 weeks. Cheapest Car Rental currently rents an average of 200 cars a week to the short-term segment and 100 cars a week to the medium-term segment.
Approximately 20 percent of the cars returned (evenly distributed across both segments) are found to be defective and in need of repairs before they can be made available to rent again. The remaining cars not needing repairs are cleaned, filled with gas, and then made available to rent. On average, there are 100 cars waiting to be cleaned. The average cost of this operation is $5 per car. Cars needing repairs spend an average of 2 weeks in the repair shop and incur an average cost of $150 per car.
Assume that cars are rented as soon as they are available for rent, which is as soon as they have been cleaned or repaired.
Short-term renters pay $200 per week, while medium-term renters pay $120 per week.
Identify throughput, inventory, and flow time at each stage.
- What profit does Cheapest earn per week with the current system?
Cheapest Car Rental is comparing two possible improvements:
- Decrease time in repairs from 2 weeks to 1 week.
- Decrease cost per repair from $150 per car to $120 per car while keeping repair flow time at 2 weeks.
Assume that the effort that is required in each case is the same.
Describe the change that you think will be most effective explains the reason for your answer.
Compare and contrast Cheapest Car Rental and a competitor.
Discuss the importance of average inventory, average flow time, and average throughput in relation to aggregate flow performance in the car rental industry.