Managing Demand and Capacity

Description
Managing Demand and Capacity

Managing demand and capacity

Demand & Capacity Imbalance
Demand > capacity lost customers

Capacity
Tight Capacity Good Balance

Demand

Wasted Capacity

time

Understanding Capacity Constraints and Demand Patterns
Capacity Constraints
• •

Demand Patterns
• • • •

Time, labour, equipment and facilities Optimal versus maximal use of capacity

Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment

Strategies for Shifting Demand to Match Capacity
Demand Too High




• •



Use signage to communicate busy days and times Offer incentives to customers for usage during non-peak times Take care of loyal or regular customers first Advertise peak usage times and benefits of non-peak use Charge full price for the service--no discounts

Shift Demand

Demand Too Low




• • •

Use sales and advertising to increase business from current market segments Modify the service offering to appeal to new market segments Offer discounts or price reductions Modify hours of operation Bring the service to the customer

Strategies for Flexing Capacity to Match Demand
Demand Too High


• • • • • •

Stretch time, labor, facilities and equipment Cross-train employees Hire part-time employees Request overtime work from employees Rent or share facilities Rent or share equipment Subcontract or outsource activities

Shift Demand

Demand Too Low
• • •



Perform maintenance renovations Schedule vacations Schedule employee training Lay off employees

What is the Nature of Demand Relative to Supply?
Extent of Demand fluctuations over time
Wide Narrow

What is the Constraint on Capacity?
Nature of the constraint Time Type of service ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? ? Legal Consulting Accounting Medical Law firm Accounting firm Consulting firm Health clinic Delivery services Telecommunication Utilities Health club Hotels Restaurants Hospitals Airlines Schools Theaters Churches

Labor

Equipment

Facilities

Waiting Line Issues and Strategies
? Unoccupied

time feels longer ? Preprocess waits feel longer ? Anxiety makes waits seem longer ? Uncertain waits seem longer than finite waits ? Unexplained waits seem longer ? Unfair waits feel longer ? Longer waits are more acceptable for “valuable” services ? Solo waits feel longer

Managing Demand
? Product

Variations over time ? Modifying Timing and Location of Delivery ? Pricing ? Communication with Customers

Managing Demand
? Pricing.

? Advertising

and Promotion. ? Reservations. ? Change the Nature of Demand.

Managing Demand
? Perishability ? Services can not be stored. ? When demand fluctuates, service firms have problems.

Strategies can be formulated for producing better match between demand and supply.

Managing Demand
? Tailor Capacity ? (Strategy leverage to manage peaks and falls) ? Manage Demand Level ? (Productive capacity constituents and constraints)

Strategies on the demand side
? Differential pricing
? Noon shows in theatres are priced low

? Non-peak demand
? Off-season holiday packages

? Complementary services
? Benihana Tokyo

? Reservation systems
? Airlines, Hotels

Managing Capacity
? Schedule

employees and equipment intelligently. ? “Stretch” the capacity:
? Squeeze more people in. ? Speed up service.
? Schedule

downtime during periods of low demand (repair, maintenance, vacations) ? Employ part-timers, flex-timers, call-in workers, seasonal workers. ? Rent/share extra facilities equipment. ? Cross-train employees

Patterns and Determinants of Demand
? Demand

cycle - Predictable / Duration ? Cause behind cyclic variation ? Any “random” change symptom. ? Disaggregation by segmentation

Using Market Mix to shape Demand patterns
? Product

variations ? Pricing strategies ? Delivery system/Time modification ? Communication efforts

Strategies on the supply side
• • • • •

Part time employees
? Extra assistant in polyclinic or part-time teachers in colleges

Peak-time efficiency routine
? Kitchen staff working as waiters in crowded restaurants.

Increased customer participation
? Customers picking their own grocery.

Shared services
? Banks working with DSAs for selling loans and credit cards.

Facilities for future expansion
? College building buys surrounding land for later developments.

Questions



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