TOPICS COVERED

Demand –supply Management

MANAGING DEMAND
AND CAPACITY
 Managing Demand and Capacity
 Perishability – implications for demand and supply

 Present the implications of time, labor, equipment,

and facilities constraints combined with variations
in demand patterns.

 Strategies for matching supply and demand

through (a) shifting demand to match capacity or
(b) adjusting capacity to meet demand.
 Understanding Capacity Constraints and
Demand Patterns

Capacity Constraints Demand Patterns

 Time, labor, equipment • Charting demand
and facilities patterns
 Optimal versus • Predictable cycles
maximal use of
capacity • Random demand
fluctuations
• Demand patterns by
market segment
 What is the Constraint on Capacity?

Nature of the constraint Type of service

Time Legal
Consulting
Accounting
Medical
Labor Law firm
Accounting firm
Consulting firm
Health clinic
Equipment Delivery services
Telecommunication
Utilities
Health club
Facilities Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
Variations in Demand Relative to Capacity

Source: C. Lovelock, “Getting the Most Out of Your Productive Capacity,” in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.
 Strategies for Shifting Demand
to Match Capacity

Demand Too High Shift Demand 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 non-peak 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
 Figure 14-4
Strategies for Flexing Capacity
to Match Demand

Demand Too High Flex Capacity Demand Too Low

 Stretch time, labor, facilities
and equipment
• Perform maintenance
renovations
 Cross-train employees
 Hire part-time employees
• Schedule vacations
 Request overtime work from • Schedule employee training
employees • Lay off employees
 Rent or share facilities
 Rent or share equipment
 Subcontract or outsource
activities
 What is the Nature of Demand Relative to
Supply?
Extent of demand fluctuations over time
Extent to which
supply is Wide Narrow
constrained
Peak demand can 1 2
usually be met Electricity Insurance
without a major Natural gas Legal services
delay Telephone Banking
Hospital maternity unit Laundry and dry cleaning
Police and fire
emergencies
Peak demand 4 3
regularly exceeds Accounting and tax Services similar to those in
capacity preparation 2 but which have
Passenger transportation insufficient capacity for
Hotels and motels their base level of business
Restaurants
Theaters

Source: Christopher H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing, 47, 3 (Summer 1983): 17.
 Waiting Line Strategies
 Employ operational logic
 modify operations
 adjust queuing system

 Establish a reservation process

 Differentiate waiting customers

 importance of the customer
 urgency of the job
 duration of the service transaction
 payment of a premium price

 Make waiting fun, or at least tolerable

 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
“valuable” services
 solo waits feel longer