Managing supply and

demand

Presented by
Sanjeet kumar singh
Rai Business School,New Delhi
Intoduction
The perishable and intangible nature of services makes it
impossible for service companies to store them in order
to use them during peak demand periods. On the other
hand, demand for services depends on many factors
like the phase in which the economy operates i.e.,
whether the economy is in a recession or expansion;
demographic factors, natural disasters, and the
technological developments in the market.
Managing Demand and Supply
Perishability – implications for demand and supply

Present the implications of time, labor, equipment, and

facilities constraints combined with variations in
demand patterns.

Strategies for matching supply and demand through

(a) shifting demand to match capacity or (b)
adjusting capacity to meet demand.
Overview
 Demonstrate the benefits and risks
of yield management strategies in
forging a balance among capacity
utilization

 Provide strategies for managing

waiting lines for times when capacity
and demand cannot be aligned.
Variations in Demand Relative
to Capacity
Alternative supply and demand
outcomes
Alternative supply and demand
outcomes
Demand versus Supply
 Understanding Supply Constraints
and Demand Patterns

Supply Constraints Demand Patterns

 Time, labor,  Charting demand
equipment, and patterns
facilities  Predictable cycles
 Optimal versus  Random demand
maximum use of fluctuations
capacity  Demand patterns by

market segment
Constraints on Supply
Nature of the Constraint Type of Service
Time Legal
Consulting
Accounting
Medical
Labor Law firm
Accounting firm
Consulting firm
Health clinic
Equipment Delivery services
Telecommunication
Network services
Utilities
Health club
Facilities Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
How to manage Demand and
Supply
 Demand and Supply can be matched either by shifting
demand and stretching or aligning supply to meet
demand. Shifting demand involves varying original
offer to meet the current demand, communicating the
periods of peak and low demand to the customers,
altering timings of service delivery to spread the
demand across the peak and slack periods, and finally
adopting price differentiation strategy to meet the
demand fluctuations.
 Strategies for Shifting Demand to Match Supply

Demand Too High Shift Demand

Demand Too Low

• Use signage to communicate busy • Use sales and advertising to

days and times.
• Offer incentives to customers for increase business from current
usage during nonpeak times.
market segments.
• Take care of loyal or “regular”
customers first. • Modify the service offering to
• Advertise peak usage times and
appeal to new market
benefits of nonpeak use.
• Charge full price for the service—no segments.
discounts.
• Offer discounts or price
reductions.
• Modify hours of operation.
• Bring the service to the
customer.
Adjusting demand to meet
supply
Adjusting demand to meet
supply
 Strategies for Adjusting Supply to Match Demand

Demand Too High Demand Too Low

• Stretch time, labor, facilities and • Perform maintenance,
equipment. renovations.
• Cross-train employees.
• Hire part-time employees. • Schedule vacations.
• Request overtime work from employees. • Schedule employee training.
• Rent or share facilities.
•
• Rent or share equipment.
Lay off employees.
• Subcontract or outsource activities.
Adjusting supply to meet demand
Adjusting supply to meet demand
Challenges and Risks in Using
Yield Management
 Loss of competitive focus

 Customer alienation

 Employee morale problems

 Incompatible incentive and reward systems

 Lack of employee training

 Inappropriate organization of the yield management

function
Organization and Customer
 Organizations should consider the psychological
feelings of the customers while they are waiting and
make the process more tolerable for them. This can be
achieved by keeping customers busy while waiting,
involving them in activities related to the service,
reducing their anxiety by informing them about the
current situation and the duration of waiting.
Customers have to be explained the reasons why the
service delivery was taking so long and why some of
them were served first.
Waiting Line Strategies
Employ operational logic
 modify operations
 adjust queuing system

Establish a reservation process

Differentiate waiting customers

 importance of the customer
 urgency of the job

 duration of the service transaction

 payment of a premium price

Make waiting fun, or at least tolerable

Waiting Line Configurations
Wait times
 unexplained waits seem longer than
explained waits
 unfair waits feel longer than equitable
waits
 the more valuable the service, the
longer the customer will wait
 solo waits feel longer than group
waits
conclusion
 Organizations should understand the
customers'tendency to wait for longer periods
depending on the value of the service and their
irritability while waiting alone. Additionally, by
adopting reservation systems, organizations can
spread the demand equally across peak and
slack periods.