Chapter 15: Managing Demand and Capacity

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Chapter 15 Managing Demand and Capacity

• Provider Gap 3 failure to deliver what was
  designed and specified
• The fundamental issue underlying supply and
  demand management in services is the lack of
  _________________
• The lack of inventory capability in services is
  due to the following service characteristics
• _____________________________
• ______________________________________

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Managing Demand and Capacity

• Perishability
• An unsold airline seat for a given flight cannot
  be
• Simultaneous production and consumption
• Service cannot be provided in advance of customer
  demanding the service cannot be
  from one place to another
• Ex _______________________________

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Managing Demand and Capacity

• Exercise
• Compare a car repair service with an automobile
  dealer in terms of inventory capability
• Which service business is least likely to
  experience wide fluctuations in demand?

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Figure 15.1Variations in Demand Relative to
Capacity
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4 Scenarios Involving Capacity and Demand

• Demand exceeds maximum capacity (excess demand)
• Demand exceeds optimum capacity service quality
  declines
• Supply and demand are balanced at the level of
  optimum capacity
• Demand is below optimum capacity (excess
  capacity)

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Capacity Constraints for Service Firms(Table
15.2)

• Time businesses that sell time, advice, counsel,
  personal services, etc. Lawyers, consultants,
  doctors, accountants more time cannot be
  produced,
• Labor law firms, consulting firms, health
  clinics - constrained by number of people
  available to serve at a point in time

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Capacity Constraints for Service Firms

• Equipment trucks, aircraft, utility unless
  equipment is used to capacity, revenue is
  severely affected
• EX ________________________________
• Facilities hotels, restaurants, hospitals,
  airlines, schools, theaters, churches facility
  has capacity, beyond which service cannot be
  provided.

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Capacity Constraints for Service Firms

• 
  organizations resources employed at
  some ideal level service quality consistently
  delivered customers are happy employees are
  happy demand and supply are balanced
• 
  organizations resources are used to their
  absolute maximum every seat is full, every
  minute and hour is used cannot be supported over
  long periods of time

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Manage Fluctuating Demand for Service Firms

• Services (e.g., restaurants) face fluctuating
  demand. What is the likely pattern of demand
  (season, week, day, hour, etc)?
• When is demand predictable? When is demand
  random?

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Strategies for Matching Capacity and Demand

• Shifting demand to match capacity
• Shift customers away from periods in which
  demand exceeds capacity
• Flexing (adjusting) capacity to meet demand

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Shift Demand to Match Capacity

• Vary the service offering ski resorts in winter
  - executive training facility in
• Communicate with customers
• Modify timing and delivery of service changing
  banking hours to include
• Differentiate on price

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Flexing Capacity to Meet Demand

• Stretch existing capacity people, facilities,
  and equipment are asked to work longer to meet
  demand EX
• Align capacity with demand fluctuations use
  part-time employees, outsource, rent or share
  facilities, etc.

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Managing Demand and Capacity

• Yield Management
• Process of allocating the right type of capacity
  to the right kind of customer at the right price
  so as to maximize capacity

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Yield Management

• Yield actual revenue
• potential revenue
• actual capacity used x average actual price
• total capacity x maximum price

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Yield Management

• Hotel (Friday Sunday)
• Total capacity 300 rooms
• Maximum price 150 per room
• Actual capacity used 100 rooms
• Average actual price 125 per room
• Yield 100 x 125 27.8
• 300 x 150

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Yield Management Improving Yield for Friday to
Sunday

• Hotel (Friday Sunday)
• Total capacity 300 rooms
• Maximum price 100 per room
• Actual capacity used 250 rooms
• Average actual price 90 per room
• Yield 250 x 90 75
• 300 x 100

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Waiting Line Strategies When Demand and Capacity
Cannot be Aligned

• Employ analyze operational
  processes to remove any efficiencies
• Installing ticket vending machines in train
  stations to expedite the purchase of train
  tickets
• Establish a
  spread demand reduce long waits

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Waiting Line Strategies When Demand and Capacity
Cannot be Aligned

• Differentiate
  not all customers need to wait the same length of
  time for the service. EX Express checkout lanes
  for customers purchasing 10 items or less
• Make waiting fun, or
  it is not the actual time waiting that impacts
  customer satisfaction - it is how customers feel
  about the wait and their perceptions of it