Lecture 4:

Capacity planning in services

Advanced Diploma: Operations Management

 Learning Objective

Compare capacity planning in services to capacity

planning in manufacturing.
 Planning Service Capacity
• Capacity planning in services has similar issues as
manufacturing capacity planning
• Facility sizing is done the same way but there are several
important differences
• Service capacity is more time based and location dependent,
• It’s subject to more volatile demand fluctuations, and
• Utilization directly impacts service quality
Compare capacity planning in services to
capacity planning in manufacturing

Manufacturing
Service Capacity
Capacity
Capacity must be available when
Goods can be stored for later use service is needed – cannot be
stored

Goods can be shipped to other Service must be available at

locations customer demand point

Volatility of demand is relatively

Much higher volatility is typical
low
 Capacity Utilization and Service Quality
• The relationship between service capacity
utilization and service quality is critical
• Arrival rate: the average number of customers that
come to a facility during a specific period of time
• Service rate: the average number of customers
that can be processed over the same period of
time
• Best operating point is near 70 percent
• The best operating point is near 70% of max
capacity
• In the critical zone
• Above the critical zone, λ > µ, many customer
are likely not to be served
 Relationship Between the Rate of Service
Utilization and Service Quality

Optimal levels of utilization are context specific

• Low rates are appropriate when the degree of uncertainty
(in demand) is high and/or the stakes are high (e.g.,
emergency rooms, fire departments)
• Higher rates are possible for predictable services (e.g.,
commuter trains) or those without extensive customer
contact (e.g., postal sorting)
 Summary
• Services often require that capacity be available immediately
and that it be near where the customer resides. For example, a
bank needs automated teller machines (ATMs) located where
customers want immediate cash, and enough of them so that
customers will not have to wait in long lines.
• Firms that offer services often need to deal with dramatic changes in
customer demand over time