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Chapter Chapter -- 44

MANAGING MANAGING DEMAND & SUPPLYDEMAND & SUPPLY

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IntroductionIntroductionForecasting DemandForecasting DemandUnderstanding Demand PatternsUnderstanding Demand PatternsManaging Capacity ConstraintsManaging Capacity ConstraintsCapacity PlanningCapacity PlanningStrategies for Managing Capacity Strategies for Managing Capacity to Match Demandto Match Demand

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Strategies for Managing Strategies for Managing Demand to Match CapacityDemand to Match CapacityStrategies When Demand Strategies When Demand and Capacity can not be and Capacity can not be Matched Matched Yield ManagementYield ManagementSummarySummary

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INTRODUCTIONINTRODUCTION

Service capacity is a Service capacity is a perishable commodity. The perishable commodity. The lack of inventory capability lack of inventory capability leads to four possible leads to four possible scenarios at any given time.scenarios at any given time.

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Excess Demand Excess Demand Demand Exceeds Optimum Demand Exceeds Optimum Capacity Capacity Demand and Supply are Demand and Supply are Balanced at the level of Balanced at the level of Optimum Capacity Optimum Capacity Excess capacityExcess capacity

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FORECASTING DEMANDFORECASTING DEMAND

Forecasting Demand is a very Forecasting Demand is a very imp. activity as the better the imp. activity as the better the assessment, the better the assessment, the better the quality of the planning. A few quality of the planning. A few situations that differ widely situations that differ widely from manufacturing companies from manufacturing companies They are: They are:

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Fixed Capacity with Fixed Capacity with Widely Fluctuating Widely Fluctuating DemandDemandService Systems that Service Systems that Cannot Carry InventoriesCannot Carry InventoriesSharing Capacity Sharing Capacity

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UNDERSTANDING UNDERSTANDING DEMAND PATTERNSDEMAND PATTERNS

Matching capacity to demand Matching capacity to demand over a period of time requires over a period of time requires the consideration of demand the consideration of demand curves commonly faced. We curves commonly faced. We can then seek ways to adjust can then seek ways to adjust service output along such service output along such curves, some them are:curves, some them are:

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Typical Curves Representing Forecasts of Demand: Demand vs TimeTypical Curves Representing Forecasts of Demand: Demand vs Time(Fig. 4.1)(Fig. 4.1)

(a) STABLE, CONSTANT DEMAND

- - - - - - - - - - - - - - - - - - - -

(b) STABLE, CYCLICAL DEMAND

(c) INCREASING DEMAND : LINEAR AND ACCELERATING

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Typical Curves Representing Forecasts of Demand: Demand Typical Curves Representing Forecasts of Demand: Demand vsvs TimeTime(Fig. 4.1)(Fig. 4.1)

(d) INCREASING DEMAND:SATURATING

(e) DECREASING DEMAND:LINEAR & DECELETRATING

(f) DECREASING DEMAND:VANISHING

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Typical Curves Representing Forecasts of Demand: Demand Typical Curves Representing Forecasts of Demand: Demand vsvs TimeTime(Fig. 4.1)(Fig. 4.1)

(g) LOGISTICAL DEMAND

(h) LIFE – CYCLE DEMAND

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There are the four major There are the four major constraints depending upon constraints depending upon the type of service that service the type of service that service firms face in order to fully firms face in order to fully control the demand. They are:control the demand. They are:

MANAGING CAPACITYMANAGING CAPACITYCONSTRAINTSCONSTRAINTS

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Time Time -- Legal, Consulting, Legal, Consulting, Accounting, MedicalAccounting, MedicalLabourLabour -- Law firm, Accounting Law firm, Accounting firm, Consulting firmfirm, Consulting firmEquipmentEquipment –– Utilities, Utilities, HelathHelathclubs, Telecommunicationclubs, TelecommunicationFacilities Facilities –– Hotels, Restaurants,Hotels, Restaurants,Hospitals, Schools.Hospitals, Schools.

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CAPACITY PLANNINGCAPACITY PLANNING

Capacity planning involves Capacity planning involves determining the resource determining the resource capacity that a firm will need capacity that a firm will need to meet its demand. In general to meet its demand. In general terms, capacity is measured by terms, capacity is measured by the maximum output level in a the maximum output level in a period of time. There are two period of time. There are two types of Capacity Planning:types of Capacity Planning:

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LongLong--term Capacity Planning:term Capacity Planning:

These decisions are These decisions are generally strategic in nature, generally strategic in nature, normally involving investments normally involving investments in buildings and equipment in buildings and equipment primarily, and to a lesser primarily, and to a lesser extent in human resources.extent in human resources.

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Fig. 4.2 Long-term Capacity Management Decisions

LONG TERM CAPCTIY DECISIONS

MARKETS- Growth

- Competitive criteria

COMPETITORS-Markets served

- Services offered

TECHNICAL-New technology- Impact of IT

SOCIAL-Trends in employment

- Green issues

POLITICAL- Taxation changes

-International relations

ECONOMY- Rate of growth- Interest rates

INCREASE REDUCE

Single LargeStep

Several Small Steps

ConsolidateCenters

Close Centers

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ShortShort--term Capacity Planning:term Capacity Planning:

Decisions in this area relate Decisions in this area relate to attempting to match supply of to attempting to match supply of resources and demand with two resources and demand with two broad options being to try and broad options being to try and adjust resources to meet adjust resources to meet demand or to try to manage demand or to try to manage demand so that resources do demand so that resources do not need to be adjusted.not need to be adjusted.

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Strategies for Matching Supply of and Demand for ServicesStrategies for Matching Supply of and Demand for Services(Fig. 4.3)(Fig. 4.3)

ManagingService Capacity

ManagingDemand

ManagingSupply

DevelopingComplementary

Services

IncreasingCustomer

Participation

Scheduling workShifts

Creating Adjustablecapacity

PartitioningDemand

Establishing priceIncentives

PromotingOff-peak Demand

Sharing Capacity

Cross-TrainingEmployees

Using Part-timeEmployees

Yield Management

DevelopingReservationsystem

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Strategies for Managing Capacity to Match DemandStrategies for Managing Capacity to Match Demand(Fig. 4.4)(Fig. 4.4)

ALTER CAPACITYDEMANDToo High

DEMANDToo Low

• Stretch time, labour, facilities• Cross train employees• Hire part-time employees• Request overtime work from

employees• Rent or share facilities• Rent or share equipment

• Performancemaintenance, renovations

• Schedule employeetraining

• Lay off employees

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STRATAGIES FOR MANAGING STRATAGIES FOR MANAGING DEMAND TO MATCH CAPACITYDEMAND TO MATCH CAPACITY

Partitioning DemandPartitioning DemandVary the Service OfferingVary the Service OfferingDeveloping Complementary Developing Complementary ServicesServicesPromoting off Peak DemandPromoting off Peak Demand

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Pricing IncentivesPricing IncentivesCommunicate with CustomersCommunicate with CustomersModify Timing of Service DeliveryModify Timing of Service DeliveryModify location of Service Modify location of Service DeliveryDeliveryAdvertising and Sales PromotionAdvertising and Sales Promotion

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STRATEGIES WHEN DEMAND & STRATEGIES WHEN DEMAND & SUPPLY CANNOT BE MATCHEDSUPPLY CANNOT BE MATCHED

ReservationsReservationsWaiting LinesWaiting LinesQueuing SituationsQueuing SituationsTriageTriageDelaying Service DeliveryDelaying Service Delivery

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YIELD MANAGEMENTYIELD MANAGEMENT

Relatively Fixed CapacityRelatively Fixed CapacityAbility to segment MarketsAbility to segment MarketsPerishable InventoryPerishable InventoryProduct Sold in AdvanceProduct Sold in AdvanceFluctuating DemandFluctuating DemandLow Marginal Sales Costs and High Low Marginal Sales Costs and High Marginal Capacity change costsMarginal Capacity change costs

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SUMMARYSUMMARY

Thus, this chapter provides deep Thus, this chapter provides deep insight of how to match service insight of how to match service supply with customer demand. To supply with customer demand. To cut a long story short, using this cut a long story short, using this strategies the manager may strategies the manager may match the supply and demand, if match the supply and demand, if not fully but effectively.not fully but effectively.

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