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MANAGING DEMANDAND CAPACITY

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Objectives

What level of demand shouldthe business aim to cater?

How to maximize business

revenues without alienatingcustomers

Demand stimulation during quiet

periods Handling problems of

congestion

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Demand >Max Capacity

{Loss of Business}

Demand >OptimumCapacity { Decline ofService Quality}

Demand = Capacity{Ideal use / Del. ofService Promise}

Demand

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Understanding Demand

Patterns

Daily Variation commuter train

services Weekly Variation night clubs, trains

Seasonal Variation air services,

travel & tourism, weddings

Cyclical Variation demand for

mortgages, architectural services

Unpredictable Variation building

repairs following a storm, flood etc.

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Strategies for Shifting Demand to

Match capacity

Shift DemandDemandToo High

DemandToo Low

Use signage tocommunicate busy days and

times. Offer incentives for usageduring non-peak times.

Take care of loyal/regularcustomers first.

Advertise peak usage timesand benefits of non-peak

use.

Charge full price for theservice no discount

Use sales andadvertising to increase

current business

Modify the service offeringto appeal to new market

segment.

Offer discount or pricereductions.

Modify hours of operation

Bring the service to the

customer.

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Strategies for Matching

Capacity & Demand

Shifting Demand to match Capacity

Vary the service offering

Communicate with customers

Modify time and location of service

delivery

Differentiate on price

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Continued . . .

Regulating demand during peak periods

Higher Pricing

Align / Stretch existing capacity withdemand fluctuations

Use part time employees

Outsourcing

Rent/Share

Schedule downtime

Cross train

Modify/ Move

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Managing Service Capacity

Equipment & personnel can beswitched between alternate uses

Switch resources between alternateuses

Rent out extra capacity Complete back-up work during slack

periods

servicing equipment to avoid

breakdowns training personnel for multi-tasking

and handling different jobs

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Workforce Flexibility

Short term contracts

Job sharing

Part-time employees

Develop multiple skills through

training facilitate job rotation

Develop a pool of suitably trained

staff that can fill-in at short notice Segment workforce into core and

peripheral components

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Demand Influencers

Demand for services depends

upon

Phase of the business cycle

Demographic factors

Natural disasters

Technological developments

Imperative to understand basic

influencers on demand

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Yield Management

Yield Management(YM)

also known asRevenue

Managementis the process ofallocating the right type ofcapacity or inventory unit to the

right kind of customer at the

right price so as to maximize

revenue or yield

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Yield Management

Predicts allocation of available

capacity Detailed data on past demand patterns by

market segments

Methods of projecting current demand -identify highs & lows in demand

In-depth knowledge of sales, seasonality &

purchase patterns

Pre-determined market segments Optimum price

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Yield Management - Steps

1. Identification of a customer base using asegmentation process

2. Develop awareness among managers ofchanging customer needs & expectations

3. Estimating price elasticity of demand foreach market segment

4. Make managers responsive to changingmarket conditions demandseasonality/variations

5. Reliable demand forecasting methodsand historical demand data

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WAITING LINE STRATEGIES

Employ operational logic

Establish a reservation process

Differentiate waiting customers

Make waiting fun or at leasttolerable

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Yield Management

Suitable for Service Organizations

whose -

Capacity is fixed

Demand is unstable

Markets can be segmented

Essentially a form a pricediscrimination

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DANGERS

Loss of competitive focus

Customer alienation

Employee Morale Incompatible incentives

Lack of employee training

Inappropriate organization