BALANCING DEMAND AND PRODUCTIVE CAPACITY

Fluctuations in Demand Threaten Service Productivity

Productive Capacity and Service Success

Services cannot be stockpiled This is problematic for people or

physical possession services due to wide swings in demand

Goal is to utilize staff, equipment, and facilities as productively as possible

Service Decision Framework:Decisions on Matching Demand and Capacity

W ha t Busin ess A re W e In?

W ha t Service Pro cesses C a n Be U sed in O ur O pera tio n? (PRO CESS)

W ho A re O ur C usto m ers a nd H o w Sho u ld W e Rela te to Th em ?

W ha t Price Sho u ld W e C h arge? (PRICE AN D O TH ER U SER O U TLAYS)

H o w to C o m m u nica te? (PRO M O TIO N & EDU CATIO N , PH YSICAL EV IDEN CE)

O ptio ns fo r D e livery? (PLACE, CYBERSPACE & TIM E, PH YSICAL EVIDEN CE)

H o w C a n W e Ba la nce ?PRO DU CTIV ITY AN D Q U ALITY

W ha t Sh o u ld be the C o re a nd Supp lem en ta ry Elem en ts o f O u r Service Pro duct? (PRO DU CT ELEM EN TS)

H O W SH O U LD W E M ATCH D EM AN D AN D PRO DU CTIVE CAPACITY?

W ha t A re A ppro pria te Ro les fo r Peo p le a nd Techno lo gy? (PEO PLE)

H o w C a n O ur F irm A ch ieve Service Lea dersh ip?

How Should We Match Demand and Productive Capacity?

How do we define our productive capacity? (e.g., buildings,

physical space, machines, brawn, brains?)

What are demand levels for our service and do they exceed

capacity at any time?

What explains variations in demand?

What strategies can we employ to match demand and

capacity?

How should we design waiting lines and reservations systems?

From Excess Demand to Excess Capacity

Four conditions potentially faced by fixed-capacity services:

Excess demandToo much demand relative to

capacity at a given timeDemand exceeds optimum

capacity – Maximum CapacityUpper limit to a firm’s ability

to meet demand at a given time

Optimum capacityPoint beyond which service

quality declines as more customers are serviced

Excess capacity Too much capacity relative to

demand at a given time

Addressing the Problem of Fluctuating Demand

Two basic approaches:

Adjust level of capacity to meet demandNeed to understand productive capacity and how it varies on an incremental basis

Manage level of demand

Many Service Organizations Are Capacity Constrained

Defining Productive Capacity in Services

Physical facilities to contain customers

Physical facilities to store or process goods

Physical equipment to process people, possessions, or information

Labor used for physical or mental work

Public/private infrastructure

Alternative Capacity Management Strategies

Level capacity (fixed level at all times)

Stretch and shrink

Offer inferior extra capacity at peaks (e.g., bus/train standees)

Vary seated space per customer (e.g., elbow room, leg room)

Extend/cut hours of service

Chase demand (adjust capacity to match demand)

Flexible capacity (vary mix by segment)

Adjusting Capacity to Match Demand

Schedule downtime during periods of low demand

Use part-time employeesRent or share extra facilities and equipmentAsk customers to shareInvite customers to perform self-serviceCross-train employees

Patterns and Determinants of Demand

Predictable Demand Patterns and Their Underlying Causes

dayweekmonth yearother

employmentbilling or tax

payments/refundspay daysschool hours/holidaysseasonal climate

changespublic/religious holidaysnatural cycles (e.g., coastal tides)

Predictable Cycles

of Demand Levels

Underlying Causes of

Cyclical Variations

Causes of Seemingly Random Changes in Demand Levels

WeatherHealth problemsAccidents, Fires,

CrimeNatural disasters

Demand Levels Can Be Managed

Inventory Demand through Waiting Lines and Reservations

Criteria for Allocating Different Market Segments to Designated Lines

Urgency of jobEmergencies versus non-

emergenciesDuration of service transaction

Number of items to transactComplexity of task

Payment of premium priceFirst class versus economy

Importance of customerFrequent users/high volume

purchasers versus others

Minimize Perceptions of Waiting Time

Create an Effective Reservation System

Benefits of ReservationsControls and smoothes demandPre-sells serviceInforms and educates customers in advance of

arrivalSaves customers from having to wait in line for

service (if reservation times are honored)Data captured helps organizations

Prepare financial projectionsPlan operations and staffing levels

DISTRIBUTION CHANNELS IN SERVICES

Direct Organizations that supply products,

rather than services, use distribution channels as intermediaries to deliver products to customers. This system creates an indirect relationship between manufacturer and customer. In the services sector, the relationship is direct. The services firm delivers the service directly to the customer. In the consultancy sector, for example, the customer deals directly with the person who delivers the service.

Agents In some service markets, an indirect

marketing relationship exists. Firms selling services, such as insurance, financial services, labor, travel or entertainment, may use agents as well as selling directly to customers. However, many established insurance companies transformed their distribution model of agents and direct sales force when they faced competition from new entrants that used the Internet to sell directly to customers. The new entrants, with no field sales infrastructure to support, were able to offer customers lower premiums and win business.

Multichannel Using the Internet as an additional distribution channel enables service businesses to offer their customers greater choice. In retail banking, for example, customers can carry out transactions by telephone, online banking or by visiting their branch.

Internet The Internet enables service firms to change their business model, as well as their distribution model. On its website, marketing firm Moderandi Inc. describes a graphic design firm that created a virtual business with no physical offices and a pool of freelance designers to offer its services globally. Clients placed orders and used Internet services, such as conferencing, to interact with the consultancy throughout a project. The low-cost Internet distribution model enabled the consultancy to offer competitive prices and bring the most appropriate design team to the project.

Partnership Partnership with organizations

operating in a firm's target market provides a distribution channel that can accelerate growth.

A firm offering computer maintenance services, for example, could expand its customer base by partnering with a computer manufacturer or distributor and providing services to its partners' customers.