6. managing demand capacity

8/2/2019 6. Managing Demand Capacity

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Slide2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 1

Balancing Demand

and Capacity


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Relating Demand to Capacity:Four Key Concepts

Excess demand: too much demand relative to capacity at agiven time

Excess capacity: too much capacity relative to demand at agiven time

Maximum capacity: upper limit to a firms ability to meetdemand at a given time

Optimum capacity: point beyond which service qualitydeclines as more customers are serviced


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Variations in Demand Relative to Capacity(Fig. 9-1)

VOLUME DEMANDED

TIME CYCLE 1 TIME CYCLE 2

Maximum AvailableCapacity

Optimum Capacity(Demand and Supply

Well Balanced

Low Utilization(May Send Bad Signals)

Demand exceeds capacity(business is lost)

Demand exceedsoptimum capacity(quality declines)

Excess capacity(wasted resources)

CAPACITY UTILIZED


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Defining Productive Capacityin Services

Physical facilities to contain customers

Physical facilities to store or process goods

Physical equipment to process people, possessions, orinformation

Labor used for physical or mental work

Public/private infrastructuree.g., highways, airports,electricity


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Alternative Capacity Management Strategies

Level capacity (fixed level at all times)

Stretch and shrink offer inferior extra capacity at peaks (e.g. bus/metro standees) vary seated space per customer (e.g. elbow room, leg room)

extend/cut hours of service

Chase demand (adjust capacity to match demand) schedule downtime in low demand periods use part-time employees rent or share extra facilities and equipment cross-train employees

Flexible Capacity (vary mix by segment)


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Predictable Demand Patterns andTheir Underlying Causes (Table 9-1)

Predictable Cyclesof Demand Levels

dayweekmonthyearother

Underlying Causes ofCyclical Variations

employment

billing or taxpayments/refunds

pay days

school hours/holidays

seasonal climate changes

public/religious holidays

natural cycles(e.g. coastal tides)


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Causes of Seemingly Random Changes inDemand Levels

Weather

Health problems

Accidents, Fires, Crime

Natural disasters

Question:which of theseevents can be predicted?



Alternative Demand Management Strategies(Table 9-2)

Take no action let customers sort it out

Reduce demand higher prices

communication promoting alternative times

Increase demand lower prices communication, including promotional incentives vary product features to increase desirability

more convenient delivery times and places

Inventory demand by reservation system

Inventory demand by formalized queueing



Avoiding Burdensome Waits for Customers

Add extra capacity so that demand can be met at mosttimes (problem: may add too many costs)

Rethink design of queuing system to give priority to certaincustomers or transactions

Redesign processes to shorten transaction time

Manage customer behavior and perceptions of wait

Install a reservations system



Alternative Queuing Configurations (Fig. 9-4)

Single line, single server, single stage

Single line, single servers at sequential stages

Parallel lines to multiple servers

Designated lines to designated servers

Single line to multiple servers (snake)

Take a number (single or multiple servers)28

2921

20

24

23

30 25

3126

2732



Tailoring Queuing Systems to Market Segments:Criteria for Allocation to Designated Lines

Urgency of job

emergencies vs. non-emergencies

Duration of service transaction

number of items to transact complexity of task

Payment of premium price

First class vs. economy

Importance of customer frequent users/loyal customers vs. others



Ten Propositions on the Psychology of WaitingLines (Table 9-3)

1. Unoccupied time feels longer2. Preprocess/postprocess waiting feel longer than in-

process

3. Anxiety makes waiting seem longer

4. Uncertain waiting is longer than known, finite waiting5. Unexplained waiting seems longer

6. Unfair waiting is longer than equitable waiting

7. People will wait longer for more valuable services

8. Waiting alone feels longer than in groups

9. Physically uncomfortable waiting feels longer

10. Waiting seems longer to new or occasional users

Sources: Maister; Davis & Heineke; Jones & Peppiatt



Benefits of Effective Reservations Systems

Controls and smoothes demand

Pre-sells service

Informs and educates customers in advance of arrival

Customers avoid waiting in line for service (if service timesare honored)

Data capture helps organizations prepare financialprojections



Characteristics of Well-designedReservations Systems

Fast and user friendly for customers and staff

Can answer customer questions

Offers options for self service (e.g. Web)

Accommodates preferences (e.g., room with view)

Deflects demand from unavailable first choices toalternative times and locations

Includes strategies for no-shows and overbooking requiring deposits to discourage no-shows canceling unpaid bookings after designated time compensating victims of over-booking


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Information Needed for Demand andCapacity Management Strategies

Historical data on demand level and composition, notingresponses to marketing variables

Demand forecasts by segment under specified conditions

Fixed and variable cost data, profitability of incrementalsales

Site-by-site demand variations

Customer attitudes towards queuing

Customer evaluations of quality at different levels ofcapacity utilization

6. managing demand capacity

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