Balancing demand and

capacity
 Fluctuations in Demand Threaten Service Productivity

Managing Capacity

Analyze Patterns of Demand

Learning Managing Demand

objectives Inventory Demand Through Waiting Lines and Queuing Systems

Customer Perceptions of Waiting Time

Inventory Demand Through Reservation Systems

Fluctuations in Demand

1 2 3
Wide swing in demand is Effectively use of Utilize staff, equipment,
caused by the change of expensive product capacity facilities as productively as
seasons, while service is the key to a success possible
products cannot be kept for business.
later date.
 Fluctuations in Demand
Threaten Service Productivity
From Excess Demand to Excess Capacity
Excess demand The level of demand exceeds maximum available capacity 
customers are denied services and business is lost

Demand exceeds No one is turned away, but conditions are crowded, service
optimum capacity quality seems worse, and customers may be dissatisfied

Optimum capacity Staff and facilities are busy without being overworked 
customers receive good service without delays

Excess capacity Productive resources are not fully used, resulting in low
productivity  customers may find experience is disappointing
or doubt about firm’s vitality
Variations in demand relative to capacity
Managing capacity and demand

Two basic approaches of which most firms use a mix of:

1. Adjust level of capacity to meet demand: 2. Manage level of demand:

• Need to understand productive capacity (có • Need to understand the demand patterns and
thể adjust like số chuyến bay có thể adjust but drivers on a segment-to-segment basis  Use
the number of seat cannot) and how it varies marketing strategies to smooth demand
on an incremental basis
Managing capacity and demand
Productive Capacity
• Productive capacity: the resource or assets that a firm uses to create goods or services:
1. Physical facilities designed to contain customers: used in people/ mental stimuli processing
service, e.g., clinic, hotels, airplanes
2. Physical facilities designed for storing or processing goods: belong to customers or being offered
for sale, e.g., parking lot, warehouse
3. Physical equipment used to process people, possessions, or information: toll gates, ATMs
4. Labor: key for productive capacity in high-contact services, required to be well-trained for value-
added and information-based output
5. Infrastructure: used to deliver services and goods, e.g., the highways, power source
• Financial success in capacity-constrained business is a function of management’s ability to use
productive capacity as efficiently and profitably as possible (demand is not the only thing changed)
Managing capactiy
 Managing Capacity
• Varying demands caused capacity limitations
• Adjusting capacity to match demand can help reducing the problem

1. Stretch/ shrink capacity levels (actual capacity 2. Chasing demand (adjust overall level of capacity:
remains unchanged): • Schedule downtime during low demand (maintenance)

• Offer inferior extra capacity at peaks (e.g., bus/train

• Cross-train employees  chuyển staff từ vị trí khác qua
standees) • Use part-time employees
• Use facilities for longer/shorter periods
• Customers perform self-service
• Ask customers to share: like shared taxi
• Reduce amount of time spent in process by minimizing
slack time • Create flexible capacity for needs of different segments
• Rent/share facilities and equipment: vd serve cus này trc vì họ
nhiều flexible hours
Analyze
Patterns of
Demand
• Demand differs by market segment
• Firm needs to understand demand
patterns to schedule resources
Understanding patterns of demand

• Why customers from a segment

choose to use the service when they
do? Underlying Causes of
Predictable Cycles of
Cyclical Variations Demand Levels:
• Keep good records of transactions to • Employment • Day
analyze demand patterns • Pay day • Week
• Holidays • Month
• Sophisticated software can help to • Seasonal climate changes • Year
track customer consumption • Natural cycles (e.g., coastal • Others
tides)
patterns
• Record weather conditions and other
special factors that might influence
demand
Managing demand
Managing Demand

Inventorying
Take no action and
Intervention demand until
leave demand to
approach: capacity becomes
find its own levels
available:

Reduce demand in Increase demand in

peak periods Formal wait and
low periods Reservation system
queuing system
Ex: increase price Ex: coupon
Managing
demand
Alternate demand management strategies for
different capacity situations
Managing
demand
Alternate demand management strategies for
different capacity situations
Marketing Mix Elements to Shape Demand
Patterns
1. Use price to manage demand:
- Increase price to reduce demand, increase profit
- Lower price selectively to stimulate demand (avoid cannibalizing other services)
 Understand how demand changes when there is a change of price/ unit at a point of time

2. Change product elements:

- Change menu and levels of service
- Eliminate time-consuming service during peak hours (used to increase capacity)
 Be appealing to different needs within the same customer group
Marketing Mix Elements to Shape Demand
Patterns
1. Use price to manage demand:

2. Change product elements:

3. Modify place and time of delivery:

- Vary times when service is available
- Offer service to customers at a new location
4. Promotion and Education: communication efforts help smooth demand:
- Signage, advertising and publicity to encourage/ discourage behavior
- Communicate clearly about change in pricing, product characteristics and distribution 
customers shift the timing of service usage
Notes:
5. Reduce demand should be focused on less profitable, lower yield segments
6. Increase demand should pay attention to the extra costs
Hotel Room Demand
Curves by
Segment and Season
Bh = business travelers in high season
Bl = business travelers in low season
Th = tourist in high season
Tl = tourist in low season
Inventorying Demand
Waiting Is a
Universal
Phenomenon!
• An average person may spend up to 30
minutes/day waiting in line—equivalent to over
one week per year!
• Wait is boring, time-wasting, and physically
uncomfortable
• Physical objects wait for processing
 Why Do Waiting
Lines Occur?
• The number of arrivals at a facility exceeds
capacity of system to process at a specific point
in that process
• Queues are basically a symptom of unresolved
capacity management problems
• Not all queues take form of a physical waiting
line in a single location
• Queues may be physical but geographically dispersed
• Some are virtual (e.g., phone)
Managing Waiting Lines
• Reducing customer waiting time is a mix of approaches

• Increasing capacity is not always the best choice when considering

customer satisfaction and cost

1. Rethink design of queuing system

2. Install a reservations system

3. Tailoring the queuing system to different market segments

4. Manage customer behavior and perceptions of wait

5. Redesign processes to shorten transaction time

Managing Waiting
Lines problems of fairness vd: hang
kia move nhanh hơn hang mình
• Selecting the most suitable type of queue is
important to customer satisfaction
• Considering the fairness in each queueing system
• Be careful when combining reservation and
waiting line
To solve the problems of parallel
lines
Queuing Systems be Tailored to Market
Segments
Duration of
Payment of Importance of
Urgency of job service
premium price customer
transaction

Frequent users/high
Emergencies vs. Number of items to
volume purchasers
non-emergencies transact
vs. others

Complexity of task
Customer Perceptions of
Waiting Time
Ten Propositions on Psychology of Waiting Time
Feels longer than

Unoccupied time Occupied time

Solo waits Group waits

Physically uncomfortable waits Comfortable waits

Pre- and post-process waits In-process waits

Unexplained waits Explained waits

Unfamiliar waits Familiar waits

Uncertain waits Known, finite waits

Unfair waits Fair waits

Anxious waits Calm waits

Monotonous waits Valued waits

Inventory Demand Through
Reservations System
Reservation
systems • Customer dissatisfaction due to excessive waits can be
avoided, guaranteeing service will be available when
customer want it
Pros:
• Helps to control and smooth out the demand in a more
manageable way (e.g., leave time for emergency jobs)
• Allow the implementation of revenue management and
preselling of a service to different customer segments
• Prepare and educate customers for the service encounter
• Data captured helps organizations to understand their demand
patterns and to plan their operations, staffing levels and
financial projections for future periods
Cons:
• Customers fail to show up or service firms overbook
Characteristics of Well-Designed Reservations
System
• Fast and user-friendly for customers and staff
• Responsive to customer queries and needs
• Offers options for self service (e.g., through an online reservations system)
• Accommodates preferences (e.g., room with a view)
• Deflects demand from unavailable first choices to alternative times and locations
 • The average revenue received per unit of capacity – yield
• Revenue management in (relatively) fixed capacity
businesses increase yield to increase profitability
• Yield analysis identifies the opportunity cost of selling
capacity for a given date to a customer from one segment

Reservation 1.
when another may yield a higher rate
Should a hotel accept an advance booking of 200 room nights at

strategies focus on $140 each when the same room nights might be sold later at
$300

yield 2. Should a business apply first-come, first-served basis? Or

prioritize emergency with premium rate and standard customers
face variability delivery dates?
• Past usage, current market intelligence are key in
allocating capacity among different segments
• Accepting or rejecting business should be based on
realistic estimations of the probabilities of obtaining
higher-rated business and the awareness of maintaining
the current customer relationships.