TH2303

Balancing Demand and Productive Capacity for Quality Service

What is Demand and Capacity?
It is essential to grasp the basic concept of demand, supply, capacity, and productivity to understand their
dynamics. In the tourism industry, demand is the volume of goods and services customers require at a given
time. The actual demand speaks about providing services to attend to the needs of the customer, such as
airline seats to transport the passengers to a destination, tables as dining spaces for hungry customers, and
rooms for accommodation during their stay.
The counterforce for demand is the supply, the number of goods or products available for consumption in
the market. In the service-oriented tourism industry, capacity is the counterpart of supply. Capacity is an
organization's ability to render or provide services to its customers. It relies on the number of inputs (labor,
time, and space) to sustain the demand requirements. Meanwhile, an organization's productivity is its ability
to create goods and services efficiently and effectively. Organizations will become profitable by maximizing
productivity, resulting in sustainability and continued relevance in the industry (Cornell & Manzano, 2022).

Managing Demand and Capacity

Managing Demand (Cornell & Manzano, 2022)
Service organizations such as the tourism industry must consider the factors affecting demand and capacity.
These factors may result in conditions that will challenge the managers of an organization to maintain their
production. Tourism and hospitality companies may face some of the following conditions regarding demand:
● Excess demand is when the demand for services surpasses the maximum available capacity, which
leads to denying services to customers. It results in a loss of opportunity to gain profit.
● Demand exceeding optimum capacity is a situation where customers can still be accommodated, but
the place is already crowded. In this scenario, the quality of the experience deteriorates, resulting in
guests' dissatisfaction with rendered services.
● Balanced demand and supply at optimum capacity is ideal for organizations and customers. At this
rate, the tourism and hospitality establishment is full capacity but not strained, and the employees
are busy but not overworked. It is when the customers receive good service on time and without
delays.
Managing demand is the primary objective of service organizations to maximize productivity. It is the task of
the managers to oversee and understand what the customers want and take the necessary steps to fulfill
those wants by planning and ensuring the organization is in the right place to meet them. An organization
needs to understand the following factors about demand:
● Market segment demand pattern. A service organization should thoroughly know its customers to
develop a strategy to cater to them appropriately. By analyzing their customer profile, they can
identify the demand patterns, whether predictable or random, resulting in designing a service specific
to the market segment.
● A predictable cycle refers to the periodic increase and decrease of demand levels at a specific time
that happens at different intervals. These may happen by hour, day, weekly, monthly, or season.
Once these cycles are detected, the reasons they occur are identified and researched so that
organizations can implement the applicable strategies for each part of the cycle to ensure success.
● Random demand fluctuation is the opposite of a predictable cycle wherein the demand is random.
The weather, health-related incidents, natural disasters, and acts of war and terrorism cause random
and unpredictable conditions.
By understanding these factors, an organization can focus on demand management activities to contribute to
a reduction in the level of disruptions.
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The following are the approaches to managing demand:

● Leave demand and take no action. It is a management approach to determine and monitor the level
of demand for an organization's products and services. It is an approach where guests' common
troubles or complaints happen because there is no management interference regarding the quality of
service provided.
● During peak periods, reduce the demand. It is done by placing higher prices on products and services
to increase profits and encourage customers to use other time slots. This strategy will somehow
reduce the demand during peak periods while increasing profitability during low phases.
● During lean periods, increase the demand. Lowering the prices of products and services during low
periods can encourage customers to buy them, which can help increase demand.
● Queuing system on inventory demand. Inventory demand refers to the amount required to meet the
guests' needs at any given time. The queuing system seeks to keep the waiting customers occupied
and comfortable while they wait for products and services. It allows the establishment to predict the
waiting period accurately before implementing other customer management strategies.
● A reservation system on inventory demand is where a priority system (i.e., by reservation) is going
to be considered in the products and services of an establishment to manage peak periods or future
peak seasons.
These are options an organization can use to maximize profitability. Careful implementation of these
approaches will help an organization adjust and adapt to how the market accepts its products and services.
Understanding an organization's marketing mix will improve the chance of success in the industry.

Determining Demand (Bicer et al., 2022)

A tourism and hospitality organization needs to understand customer demand patterns, as these will help
them run the business to ensure profitability and success. The following are some ways to determine demand
in the tourism and hospitality industry:
● Demand forecasting refers to predicting customers' future demands based on historical sales data
and real-time inventory trends. For example, last year's room and menu sales of hotels and
restaurants determine the current year's influx of guests and customers.
● Competitor data are used by new or small businesses without sufficient internal sales data. It creates
a competitive pricing strategy for similar products by analyzing competitors' influx, providing a stable
starting point for the business. Restaurants use this type of data to gain actionable insight into their
competitors' products and services, which they can use as a basis for their menu prices.
● Economic trends. Organizations need to monitor the state of local and global economic trends.
Periods of local or global depression can affect product and service demands for travel agencies and
airline sales.
● Marketing projections. When a company invests in increasing its marketing efforts towards its
products and services, the inventory should be adjusted to meet the influx of demand caused by the
new incoming customers. For example, if a resort or airline advertises different promos that
customers may avail of, they should adjust the products and services to accommodate them
properly.
Applying these different ways of determining demand will allow businesses to be prepared to accommodate
customers' different needs and wants in the tourism and hospitality industry. Once the demand is
determined, it is up to the business to ensure that all its operations and processes will be sufficient. It is
important for a business to manage not only the demand but also its capacity since this will ultimately
determine the satisfaction of the customers with the establishment.

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Managing Capacity (Ford et al., 2019)

Productive service capacity pertains to the assets and resources organizations utilize to manufacture goods
and render services. Depending on the type of service the tourism and hospitality enterprise provides, the
capacity will either meet, exceed, or fail to reach the market's needs. The factors to consider in managing
capacity include the following:
● Time is the primary constraint on service production. If an employee's work period is not used
productively, profits will be lost or if there is a high level of demand, an additional time cannot be
created to satisfy them. It is then the responsibility of the company to have an effective manager that
can coach or train them to correctly do their jobs so that there would be no wasted time for both
employees and customers.
● In the service-oriented tourism industry, where demand fluctuates and persists, labor is of concern
because it may contribute to extra costs, especially if idle or unneeded labor has been incurred.
Reducing employees' schedules during the lean season since fewer customers must be
accommodated will help enhance labor efficiency.
● In some cases, equipment capacities could also be a limitation. For example, a new airline company
can only maintain and service a few small aircraft that can cater to a small amount of the market.
● Limitation on facilities is when organizations are limited to the spaces they can provide to the
market. For example, event venues can only accommodate a certain number of people, spas are
limited to the number of sauna areas, and restaurants are restricted to the number of tables and
seats available.
Knowing the difference between optimal and maximum capacity is important to understand further and
manage capacity. Optimal capacity is the condition where the services of an organization are fully utilized but
not overused, and customers are still receiving quality service. On the other hand, maximum capacity is
when the total limit of service is fully utilized but sometimes results in customer dissatisfaction. An
organization must consider different factors to meet customer demands considering its capacity.

Strategies in Modifying Demand to Match Existing Capacity (Ford et al., 2019)

These strategies reduce excess customers beyond an organization's capacity during peak times and
encourage them to use the service during lean periods. It allows organizations to maximize productivity by
moving customers during slow periods or attracting new ones. Below are some of the strategies to manage
the demand and capacity:
● Communicating with customers informs guests of the operation's peak period to sway them to use
their service at other times to avoid crowding, delays, and long waiting times. For example, hotels
post on their official page to inform guests of their current status (e.g., fully booked)or to remind
guests to book in advance during special occasions such as Christmas and New Year.
● Modify the timing and location of the service delivery. Organizations can adjust their operating
hours to cater to different market segments to disperse overcrowding or offer online transactions
(e.g., online ordering) to accommodate the different customers whenever and wherever they are.
● Incentive offering during off-peak usage. Entice customers by offering special discounts, packages,
promos, or freebies when they use an organization's services during the lean season. Travel agencies
give discounts during lean periods, such as 10-20% off on their packages, so travelers would be
enticed to avail of them.
● Set priorities. Prioritizing regular customers or customers with immediate attention or consideration,
such as senior citizens of persons with disabilities (PWDs), may guarantee continued patronage of the
organization but ensure that other customers are still attended to.
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● Full charge pricing during peak periods and disallowing the usage of discount cards and coupons can
reduce demand. For example, hotels may not honor gift certificates during the holiday season as they
will be normally fully booked.

Strategies for Adjusting Capacity to Meet Demand

Shifting capacity involves expanding an organization's ability to meet customer needs during peak periods
and minimizing the capacity during downtime to minimize costs or waste resources. The following are the
considerations to shift capacity:
● Increase capacity temporarily. Capacities can be temporarily expanded to meet the demand. For
example, employees will be required to work longer hours, facilities will be maximized further in
space, and equipment will be programmed to accommodate more tasks. Some ways to increase
capacity include extending operating hours temporarily, hiring part-time employees to supplement
labor during peak demand, cross-training employees to allow them to become versatile, outsourcing
activities instead of hiring new employees for temporary positions, and renting facilities and
equipment during temporary peak periods instead of procuring them.
● Chase demand strategy involves adjusting service resources (people, facilities, time, and equipment)
to go after the fluctuations of demand patterns. The focus is on the people, facilities, and equipment
to adjust these resources' basic mix and use. Some techniques of the chase demand strategy include
scheduling the downtime of operations during lean periods to allow an opportunity for the facilities
and equipment to recover, performing maintenance and renovations during lean periods to avoid
disruptions in the operations, strategically scheduling the vacations and training of employees so they
will be properly rested and trained, establishing self-service facilities so employees will perform on
their own on basic processes, and creating a flexible facility that caters to different types of markets.
● Increasing demand to match capacity is used to increase demand when service demand is low. Some
methods for this strategy include educating the customers through the advertisement of materials
that inform them of the advantages when availing of the services, converting the facility to be used
for different purposes, modifying the service offering by offering new types of services (home or
delivery services) to target other customers, and offering price differentiation through giving promo
or discounted packages during lean seasons.
Strategies for aligning capacities and demand are important for an organization to be relevant in the
competitive nature of the tourism and hospitality industry. An organization's ability to decide and choose the
best for them, such as wise use of goods and services, is key to keeping profitable. When properly
implemented and managed, a tourism and hospitality business will become profitable and ensure that it will
always have customers.

Waiting Lines and Queue Systems (Ford et al., 2019)

Waiting (queue) happens whenever a system processes a transaction that exceeds the number of influx
dealings. It is a manifestation of a surplus of requirements over the capacity to transact and sometimes is
usually a mismatch of capacity management and demand.
There are conditions where precise matching of capacity and demand would be too costly for an organization
to maintain. In the tourism and hospitality industry, for instance, there is queueing in airports because there
are times when other planes take longer to deplane and take off.
Queues will always be a part of the tourism industry since customers are mostly availing of services only the
industry provides. How a tourism establishment manages its queuing system will make or break the customer

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experience. The type of system they will be implementing should be appropriate to the type of service they
are giving to the customers.

Type of Queues
The challenge for tourism and hospitality organizations is to choose which type of queue best fits their
requirements. A way of implementing the correct type of queue is to determine customers' specific needs
and categorize them according to their concerns so that they can be addressed properly. The following are
the different types of queues that organizations may use in their operations:
● A single sequential line is when customers pass through several serving segments. Bottlenecks may
happen in any segment that would take longer than the previous segment. A buffet line in
restaurants is an example.
● Parallel lines to multiple servers apply to establishments that cater to many people at any given
time. The immigration section at the airport utilizes this type of queuing system.
● Single line to multiple servers is when customers form a single line and are served by the first server
available among multiple servers. For instance, check-in counters of airline companies within airport
premises cater to departing passengers checking in their luggage.
● Designated lines are a system that segregates lines for different customers based on specific
categories. For example, restaurants have counters specific for senior citizens or persons with
disabilities (PWD) and a separate one for other customers.
● The numbering system is when customers receive numbers from an automated counter. This system
caters to large numbers of customers being attended to by organizations. Big travel agencies use this
type of queuing.
● The waiting list is where customers are requested to provide their names along with their group size.
Customers await until their names are called.
It is vital for a tourism and hospitality establishment to choose which appropriate queueing system they will
use since it contributes to guests' satisfaction/dissatisfaction. An example is a travel agency using a
numbering queuing system on a "first come, first serve" basis compared to a travel agency using a designated
line where each counter has different roles in accommodating their clients. The one using the numbering
system gives a fair and visual means of who will be called upon regardless of who the customers are. The
other one with designated lines for specific needs (e.g., refunds, rebooking) will be able to accommodate
guests with noncomplicated transactions compared to having a single line for all transactions. However, this
type may not apply to all travel agencies, especially small ones.
Organizations may consider the following strategies to deal with queuing:
● Audit the operational process. The organization should study the operational process to identify the
reasons for unnecessary queuing. Based on the study, they may reorganize or redesign to eliminate
waiting lines and facilitate movement. Since queuing is part of the operations, service organizations
may conduct a queue configuration. Queue configuration considers the design and effect of the
queue system that will be placed and discusses the number of queues, locations, space needed, and
the impact on customers.
● Institute a reservation process to lessen or avoid waiting in lines. It allows customers to choose any
time they intend to arrive at the company and guarantees that they will be accommodated once they
arrive. The reservation system could spread the demand to less popular periods or slots.

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● Differentiate waiting customers. In the tourism and hospitality industry, service organizations'
waiting lines have policies on prioritizing customers based on their needs or profiles (dignitaries,
senior citizens, and PWDs). Differentiating customers allows them to wait a shorter time, such as the
usual rule of "first come, first served." Below are the bases of differentiating customers.
o Importance of the customer. Customers who spend large amounts with the organization can
be given priority in service by providing them with a special waiting area or separate lines.
o The urgency of the job. Customers who require more pressing needs, such as medical or
security concerns, may be served first.
o Duration of the service transaction. Customers may be referred to express lanes for
immediate disposal if they require short service. In contrast, customers who require more
attention will be endorsed to a service provider that caters to specialized requirements.
o Payment of a premium price. Some service organizations have special accommodations for
customers who pay extra. Customers in this category are given a special priority lane, such as
separate check-in lines, express systems, or VIP lounges.
Reducing customers' waiting time is difficult in the tourism and hospitality industry. The length of time and
conditions during the waiting time impact guest experiences. The long wait for customers implies the
organization lacks concern for them, which would also translate to poor service quality. Therefore, the
service- oriented tourism and hospitality industry must use the correct queue type to accommodate
customers properly.

References:
Arenas, C. (2022). Quality service management in tourism and hospitality. Edric Publishing House.
Bicer, I., Tarakci, M., and Kuzu, A. (2022). Using uncertainty modeling to better predict demand. In Harvard
Business Review. Retrieved June 21, 2023, https://hbr.org/2022/01/using-uncertainty-modeling-to-
better-predict-demand
Cornell, D. & Manzano, R. (2022). Quality service management in tourism and hospitality. Rex Bookstore.
Ford, R., Sturman, M., & Heaton, C. (2019). Managing hospitality organizations: Achieving excellence in the
guest experience. Sage Publications.
Goetsch, D. & Davis, S. (2022). Quality management for organizational excellence. Pearson
Goldstein, S. & Schroeder, R. (2021). Operations management in the supply chain (8th Ed.). New York:
McGraw- Hill Education.

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