Challenges of

matching Supply and

Demand

HRM Presentation
Challenges of matching
Supply and Demand
 Challenges of matching
Supply and Demand
• Lack of Inventory –due to perish ability of service
• When demand exceeds maximum capacity ---Business
is lost ,Customer turn too competitor
• If demand exceeds optimal capacity but is less than
maximum capacity service quality declines
• Customers are not fully satisfied
• Service staff often feels over worked
• When demand is lower the optimal capacity ----resource
are being wasted
• Service would like for demand to always fall between
optimal capacity and maximum capacity
Lack of Inventory Capability

• This is due to variation in Demand

relative to capacity
• Marketer face four possible scenario
inn demand and capacity
• Demand exceeds capacity
• Demand exceeds Optimum Capacity
– leading to over crowding
• Demand and supply are well
balanced
 Understanding Capacity
• Understanding capacity constraint is
very essential
• Time constraints
• Lawyer charted accountant
• Medical service ..The cannot create more
than 24 hours service
• Labour Constraint
• Hotels
• Travel agency
• Equipment constraint
• Gyms ,Telecom service ,
• Facility Constraint
• Movie hall ,
• train ,
• Restaurant ,
• Hospital
Optimal versus Maximal Use
of Capacity
• Optimal level:
• Resource are fully employed but not over-
used
• Customers receive quality service in a
timely manner
• Maximum Capacity
• Absolute limit of service availability :
Excessive waiting by customer in famous
restaurant
 Capacity Planning

• It s Goal is to minimize discrepancy between

the capacity of an organization and the
demand of its customers to avoid inefficiency
• Capacity =
• Number of machines or workers X Number of
shifts X Utilization X Efficiency
• Capacity can be increased through introducing
new techniques ,equipments and materials
 Capacity Utilization

• How capacity is used to satisfy

customers
• Type of capacity Planning :
• Lead strategy:
• Aggressive strategy with goal of
luring customer away from the
company's competitor
• Dis advantage
• It often result in excess inventory
• Lag Strategy: adding capacity after
organization is running at full
capacity or beyond due to increase in
demand conservative .No loss in
inventory but may result in loss of
possible customer
• Match Strategy
• Adding capacity in small amounts in
response to changing demand in the
market it is also moderate strategy
 Steps for capacity Planning
• Determine Service level Requirement
• Categories the work done by system and
to quantify users expectation for how that
work gets done
• Analyze Current Capacity
• To determine how it is meeting the needs
of the users
• Planning
• Implement the required changes in system
 Strategies and Tools for
Matching Capacity and
Demand
• Two Aspects :
• Strategies for Managing Capacity
to Match Demand
• Strategies for Managing
Demand to Match Capacity
 Strategies for Managing
Capacity to Match Demand
• A given firms optimum level of flexibility to
match capacity to demand will fall between two
extreme
• At one extreme is a level –capacity strategy
• Were firm designs its system to provide a
constant level of capacity and absorbs the cost
when demand is far above or far below that
 Strategies for managing
Capacity to match
Demand
• Employment of Part-Time Employees :
• During Peak time
• Eg: Visiting faculties in colleges
• Cross –Train Employees :
• Gardener taught the work of room cleaner
Increase in Capacity through
Customer Participation;
Buffet in restaurants
• Use of Sub-Contracting to Increase
the Capacity
• Income tax authority sub-contracted Unit
Trust of India t cope with the increasing
requirement of preparing PAN
• Sharing Capacity
• Airlines during peak time
• Stretching the existing capacity
• Stretching time ,labor, facilities
,equipments
• Modify or Move Facilities and
Equipments
 Strategies for managing
demand to match Capacity
• Service system can smooth their demand by
using active and passive measures
• Communication :an informing the customer when
the facility is not so busy (Hair cut )
• Decrease demand on peak time in order to
concentrate on the customer and satisfy them
• Advertising and sales promotion
• Restaurant offering in weekdays to avoid week
end rush
• Enhance breakfast menu to give additional
demand for breakfast
• Service Variation
• Nature of service varies depending
upon the demand pattern
• Eg: Hotel renting their facilities for
exhibition when sufficient banquet
load is not available
• Modify Timings and Location
of Service Delivery
• Some service organization
modify the time and place of
delivery to meet the market
needs .Time sensitivity occurs
when demand varies at different
times and the product is not
storable
• Bank working for 7 days
• By Adjusting Prices :
• offer service at low price during low
demand period
• Movie theater offers morning show
ticket at low price
• Low tariff in resorts at hill during
winter
• Develop complementary Service
• Diverting waiting customers into
lounge during busy period
• Promoting Off-peak Demand
• Telephone companies offer lower rate
to encourage long distance dialing at
night or on weekend
• “Shop early and avoid Christmas
rush “
 Waiting Line Strategies
• If demand exceeds the supply

• The situation is managed by asking the

customer to wait in line
• Patients are to wait in Physicians clinic
even after appointment
• Waiting is unpleasant experience for
people they look for efficient and quick
• Strategies for Managing
waiting Lines
• Employing operational logic
• Swarna kankanam in Tirupathi
• Indian Railway :Special queues
for Ladies, physical handicapped
,senior citizens
• This reduces not only waiting time,
but also satisfy market segments
that expects special recognition
and privilege
• Reservation System
• This helps service
organization to spread
demand and avoid unequal
demand situation
• Reserving movie tickets
through internet
• Reserving rooms in hotels
• Differentiate Waiting
• This is based on the factors
• Importance of the customer
• Urgency of job
• Duration of service transaction
• Payment of a premium Price
• Make waiting Fun, or at least
Tolerable
• i)Un occupied time feels Longer
than Occupied Time
• Magazine in dentists clinic
• TV In bus stand and railway station
• Music if customers are to wait for
making the telephone call connection
• Looking menu while waiting in resturents
Unique menu
• II)Pre-process Waits feel Longer than In-
Process Waits :
• If Small part of the service is delivered
,psychologically the customer feel that
they are not waiting but are receiving
service
• Process I Hospital
• B.P Check up
• Weight and height measurement
• III) Anxiety makes the Waits seem
Longer
• Tirupati temple keeps the devotees
informed about the time of their turn for
the visit
• V)Unexplained waits are
Longer than Explained Waits
• Waiting for doctor during
emergency
• VI)Unfair Waits are Longer
than Equitable Waits
• Multiple queues ,or service in
hotel
• VII)More Valuable the Service
,the Longer the Customer will
 YIELD MANAGEMENT
• Aim at Earning the highest possible
revenue in capacity –constrain
services through the service –
provider’s operation
• Steps
• Segmenting the market
---customers in hotel are identified as
business class and Leisure travel
• Step 2
• Collecting information that helps
service managers identify
• The high and low demand to help
them match demand with supply
efficiently
• In-depth knowledge of sales
• Seasonal patterns of customer
purchase
• e.g.: executive suit will be occupied
by business travelers
• Deluxe rooms by tourist families
• Step 3
• Advantage of the customers
varying needs by setting
different price for the same
product or service
• Vacation period less tariff rate
• Finally
• These pricing strategy should be
well communicated and convince
customer that extra money is
worth paying
 Benefits of Yield
management
• American Airlines has adopted yield
management and increased its
revenue to 500 million dollars per
year
• It demonstrates the ability of the
management to sell its service at
a higher price –when customers are
willing to pay

• Helps management determine

• It helps in fixing prices in the
discount category using the
demand levels forecasted
earlier
• It helps the organization
manage Inventory at a
optimum level
Challenges and Risks in
Using Yield Management
• Loss of Competitive Focus
• Customer Alienation
Customers may think they are over
paying unless proper communication is
done with the customers
• Employee Morale Problem
They may reset the rules and
regulation on their own discretion
• Incompatible Incentive and Reward system
• Lack of employee Training