15-1

Managing Demand andCapacity

The Underlying Issue: Lack of Inventory Capability Capacity Constraints Demand Patterns Strategies for Matching Capacity and Demand Yield Management: Balancing Capacity Utilization,

Pricing, Market Segmentation, and Financial Return

Waiting Line Strategies: When Demand and Capacity Cannot Be Matched

ChapterChapter

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15-2

Objectives for Chapter 15:Delivering Service Through Intermediaries

Explain the underlying issue for capacity-constrained services: lack of inventory capability.

Present the implications of time, labor, equipment, and facilities constraints combined with variations in demand patterns.

Lay out strategies for matching supply and demand through (a) shifting demand to match capacity or (b) adjusting capacity to meet demand.

Demonstrate the benefits and risks of yield management strategies in forging a balance among capacity utilization, pricing, market segmentation, and financial return.

Provide strategies for managing waiting lines for times when capacity and demand cannot be aligned.

15-3

Variations in Demand Relative to Capacity

15-4

Understanding Capacity Constraintsand Demand Patterns

Capacity Constraints Time, labor, equipment,

and facilities Optimal versus

maximum use of capacity

Demand Patterns Charting demand

patterns Predictable cycles Random demand

fluctuations Demand patterns by

market segment

15-5

Demand and Capacity for Service Providers

15-6

Constraints on Capacity

15-7

Strategies for Shifting Demand to Match Capacity

15-8

Strategies for Adjusting Capacity to Match Demand

15-9

Challenges and Risks in UsingYield Management Loss of competitive focus

Customer alienation

Employee morale problems

Incompatible incentive and reward systems

Lack of employee training

Inappropriate organization of the yield management function

15-10

Waiting Line Strategies

Employ operational logic modify operations adjust queuing system

Establish a reservation process

Differentiate waiting customers importance of the customer urgency of the job duration of the service transaction payment of a premium price

Make waiting fun, or at least tolerable

15-11

Issues to Consider in Making WaitingMore Tolerable

Unoccupied time feels longer than occupied time. Preprocess waits feel longer than in-process waits. Anxiety makes waits seem longer. Uncertain waits seem longer than known, finite

waits. Unexplained waits seem longer than explained

waits. Unfair waits feel longer than equitable waits. The more valuable the service, the longer the

customer will wait. Solo waits feel longer than group waits.

15-12

Waiting Line Configurations