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Managing demand and capacity

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Demand & Capacity Imbalance

Demand & Capacity Imbalance

Wasted Capacity

Tight Capacity

Demand

Capacity

time

Good

Balance

Demand > capacity

lost customers

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Understanding Capacity Constraints andUnderstanding Capacity Constraints and

Demand PatternsDemand PatternsCapacity Constraints Demand Patterns

Time, labour, equipment and

facilities

Optimal versus maximal use ofcapacity

Charting demand patterns

Predictable cycles

Random demand fluctuations Demand patterns by market

segment

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Strategies forShifting DemandStrategies forShifting Demand

to Match Capacityto Match CapacityDemand Too High Demand Too Low

Use signage to

communicate busy days

and times

Offer incentives to

customers for usage

during non-peak times

Take care of loyal or

regular customers first

Advertise peak usage

times and benefits of non-peak use

Charge full price for the

service--no discounts

Use sales and advertising

to increase business from

current market segments

Modify the service offering

to appeal to new market

segments

Offer discounts or price

reductions

Modify hours ofoperation

Bring the service to the

customer

Shift

Demand

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Strategies for Flexing CapacityStrategies for Flexing Capacity

to Match Demandto Match DemandDemand Too High Demand Too Low

Stretch time, labor,facilities and equipment

Cross-train employees

Hire part-timeemployees

Request overtime workfrom employees

Rent or share facilities

Rent or shareequipment

Subcontract oroutsource activities

Perform maintenance

renovations

Schedule vacations Schedule employee

training

Lay off employees

Shift

Demand

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What is the Nature ofDemand Relative toWhat is the Nature ofDemand Relative to

Supply?Supply?

Extent of Demand fluctuations over time

Wide Narr ow

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What is the Constraint

on Capacity?What is the C

onstraint

on Capacity?

Na t re f t e c stra i t y e f se rvice

ime y Lega

y onsu t ng

y Ac count ng

y Me d c a

Lab r y La f rmy Ac count ng f rm

y onsu t ng f rm

y ea th c n c

Equi me t y De very serv ces

y e ecommun ca t on

y Ut t es

y ea th c ub

Facilities y o te sy estaurants

y osp ta s

y A r nes

y Sc hools

y heaters

y hurches

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Waiting Line Issues andS

trategiesWaiting Line Issues andS

trategiesUnoccupied time feels longer

Preprocess waits feel longer

Anxiety makes waits seem longer

Uncertain waits seem longer than finite waits

Unexplained waits seem longer

Unfair waits feel longer

Longer waits are more acceptable for valuable services

Solo waits feel longer

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ManagingD

emandManagingD

emandProduct Variations over time

Modifying Timing and Location ofDelivery

Pricing

Communication with Customers

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ManagingD

emandManagingD

emandPricing.

Advertising and Promotion.

Reservations.

Change the Nature ofDemand.

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ManagingD

emandManagingD

emandPerishability

Services can not be stored.

When demand fluctuates, service firms have problems.

Strategies can be formulated for producing better match between

demand and supply.

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ManagingD

emandManagingD

emandTailor Capacity

(Strategy leverage to manage peaks and falls)

Manage Demand Level (Productive capacity constituents and constraints)

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Strategies

on the demand side

Differential pricing

x Noon shows in theatres are priced low

Non-peak demand

x Off-season holiday packages

Complementary services

x Benihana Tokyo

Reservation systems

x Airlines, Hotels

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Managing CapacityManaging CapacitySchedule employees and equipment intelligently.

Stretch the capacity: Squeeze more people in.

Speed up service.

Schedule downtime during periods of low demand

(repair, maintenance, vacations)

Employ part-timers, flex-timers, call-in workers, seasonal

workers.

Rent/share extra facilities equipment.

Cross-train employees

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Patterns andD

eterminantsofD

emandPatterns andD

eterminantsofD

emandDemand cycle - Predictable / Duration

Cause behind cyclic variation

Any random change symptom.

Disaggregation by segmentation

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Using Market Mix t

oshape

Demand patterns

Using Market Mix t

oshape

Demand patterns

Product variations

Pricing strategies

Delivery system/Time modification

Communication efforts

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Strategies

on the supply side

Part time employees

Extra assistant in polyclinic or part-time teachers in colleges

Peak-time efficiency routine

Kitchen staff working as waiters in crowded restaurants.

Increased customer participation

Customers picking theirown grocery.

Shared services

Banks working with DSAs for selling loans and credit cards.

Facilities for future expansion

College building buys surrounding land for later developments.

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QuestionsQuestions