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Rushen Chahal


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Objectives for Chapter 14: Managing Demand and Capacity

Explain: the underlying issue for capacity-constrained services the implications of capacity constraints the implications of different types of demand patterns on matching supply and demand Lay out strategies for matching supply and demand through: shifting demand to match capacity or flexing capacity to meet demand Demonstrate the benefits and risks of yield management strategies Provide strategies for managing waiting lines

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Understanding Capacity Constraints and Demand Patterns

Capacity Constraints Demand Patterns

Time, labor, equipment and facilities Optimal versus maximal use of capacity

Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment
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Figure 14-3

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

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Figure 14-4

Strategies for Flexing Capacity to Match Demand

Demand Too High
Flex Capacity

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

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Table 14-1

What is the Nature of Demand Relative to Supply? Extent of demand fluctuations over time
Extent to which supply is constrained Wide Narrow
2 Insurance Legal services Banking Laundry and dry cleaning Peak demand can 1 usually be met Electricity without a major Natural gas delay Telephone Hospital maternity unit Police and fire emergencies Peak demand regularly exceeds capacity 4 Accounting and tax preparation Passenger transportation Hotels and motels Restaurants Theaters

3 Services similar to those in 2 but which have insufficient capacity for their base level of business

Source: Christopher H. Lovelock, Classifying Services to Gain Strategic Marketing Insights, Journal of Marketing, 47, 3 (Summer 1983): 17.

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Table 14-2

What is the Constraint on Capacity?

Nature of the constraint

Type of service
Legal Consulting Accounting Medical Law firm Accounting firm Consulting firm Health clinic Delivery services Telecommunication Utilities Health club Hotels Restaurants Hospitals Airlines Schools Theaters Churches




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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

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