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Demand & Capacity Imbalance
Demand > capacity lost customers
Tight Capacity Good Balance
Understanding Capacity Constraints and Demand Patterns
Capacity Constraints Demand Patterns
Time, labour, equipment and facilities Optimal versus maximal use of capacity
Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment
Strategies for Shifting Demand to Match Capacity
Demand 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 nonpeak 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 of operation Bring the service to the customer
Strategies for Flexing Capacity to Match Demand
Demand Too High
Demand Too Low
Stretch time, labor, facilities and equipment Cross-train employees Hire part-time employees Request overtime work from employees Rent or share facilities Rent or share equipment Subcontract or outsource activities
Perform maintenance renovations Schedule vacations Schedule employee training Lay off employees
What is the Nature of Demand Relative to Supply?
Extent of Demand fluctuations over time
What is the Constraint on Capacity?
Na t re ime ft e c stra i t y e f service Le g a o nsu t ng Ac c o unt ng Me d c a La f rm Ac c o unt ng f rm o nsu t ng f rm ea th c n c De very serv c es e ec o m m un c a t o n Ut t es ea th c ub
La b r
Equi me t
y y y y y y y y y y y y
y o te s y esta ura nts y o sp ta s y A r nes y Sc ho o ls y hea ters y hurc hes
Waiting Line Issues and Strategies
Unoccupied 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 ³valuable´ services Solo waits feel longer
Product Variations over time Modifying Timing and Location of Delivery Pricing Communication with Customers
Pricing. Advertising and Promotion. Reservations. Change the Nature of Demand.
Services can not be stored. When demand fluctuates, service firms have problems.
Strategies can be formulated for producing better match between demand and supply.
(Strategy leverage to manage peaks and falls)
Manage Demand Level
(Productive capacity constituents and constraints)
Strategies on the demand side
x Noon shows in theatres are priced low
x Off-season holiday packages
x Benihana Tokyo
x Airlines, Hotels
Schedule employees and equipment intelligently. ³Stretch´ 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
Patterns and Determinants of Demand
Demand cycle - Predictable / Duration Cause behind cyclic variation Any ³random´ change symptom. Disaggregation by segmentation
Using Market Mix to shape Demand patterns
Product variations Pricing strategies Delivery system/Time modification Communication efforts
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 their own grocery.
Banks working with DSAs for selling loans and credit cards.
Facilities for future expansion
College building buys surrounding land for later developments.