Chapter 9: Balancing demand and capacity PDF

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Chapter 9: Balancing demand and capacity...

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Bal anc i ngdemandandc apac i t y Fl uct uat i onsi ndemandt hreat enprofit abi l i t y Especially in services due to their inability to be stored and saved at a later date.

FROM EXCESS DEMAND TO EXCESS CAPACITY A fixed capacity firm may face one of the following conditions… 1. Excess demand Demand > capacity so not all customers can be accommodated. 2. Demand exceeds optimum capacity No one is refused the service but it is overcrowded, lower quality, and higher dissatisfaction.

3. Demand and supply are well balanced Optimum capacity 4. Excess capacity Demand is bellow optimum capacity and productive resources operating at low productivity. Sometimes optimum capacity and maximum capacity are the same BUT sometimes its better to work bellow max. capacity to preserve quality and experience.

BUILDING BLOCKS OF MANAGING CAPACITY AND DEMAND

2 solutions to fluctuating demand – adjust the level of capacity to meet demand variations & to manage the level of demand.  Need to understand what productive capacity means and how to increase and decrease.  Good understanding of demand patterns.

Defini ngProduct i veServi ceCapaci t y Productive capacity – Resources of assets used by the firm to create services and can take several forms. Financial success depends on how their capacity is utilized 1. PHYSICAL FACILITIES DESIGNED TO CONSTRAIN CUSTOMERS AND USED FOR PEOPLE PROCESSING SERVICES OR MENTAL STIMULUS PROCESSES SERVICES. i.e. Medical clinics, Hotels, Classrooms.  Main form of capacity limitations  furnishings (beds, rooms, seats)

2. PHYSICAL FACILITIES FOR STORING OR PROCESSING GOODS i.e. Pipelines, Warehouses, Parking lots  Either belong to the customer or are being offered to them for sale. 3. PHYSICAL EQUIPTMENT USED TO PROCESS PEOPLE, POSSESSIONS, OR INFORMATION i.e. Diagnostic equipment, toll gates, ATM’s  If there is not enough equipment for the demand the service can completely stop. 4. LABOR 5. INFRASTRUCTURE

Managi ngcapaci t y Capacity can be manipulated to reduce the problem of demand. STRETCHING CAPCITY LEVELS More service with the same capacity levels.  Using the same amount of staff but requiring more tasks to be done.  Leads to tiredness and poor quality for a prolonged period of time. Use facilities for longer periods of time  Extend opening hours Reduce the time that customers spend in the process  Minimizing slack time  Cutting back the level of service; offer a smaller menu. ADJUSTING CAPACITY TO MATCH DEMAND Changing the level of capacity to variations in demand – chasing demand. Schedule downtime during periods of low demand Cross train employees

Use part-time staff Invite customers to perform self service

Maintenance, repairs, and renovations to be done in times of off peak to ensure the capacity is available during peak times. Some employees will be idle even during peak times  Cross train to move staff where they are needed. Hire temporary staff workers to help with peak demands. Co-production is used to boost customer capacity when staff is limited.  Ticket kiosks, self checkout

Ask customers to share Create flexible capacity

Rent or share extra facilities and equipment

Sharing one unit frees up space in other areas for additional customers. Make physical facilities flexible  Tables in a restaurant to be moved into larger or smaller ones. Reduce spending on fixed assets; rent/share during peak times.  Compatible for service firms where one is in its peak and one is off peak  University accommodation rented to travelers in the summer.

Unders t andi ngpat t ernsi ndemand Demand differs per market segment.  Need to understand why customers from a dement choose to use the service when they do. Keeping records of transactions helps analyze demand patterns on past experiences.  Queuing systems & sophisticated software tracks consumption patterns.  Identifies other elements that may have influenced the purchase; weather, day Managi ngdemand Five basic approaches…

MARKETING MIX ELEMENTS CAN BE USED TO SHAPE DEMAND PATTERNS Price & Nonmonetary cost  Prices will encourage or discourage use of a service at specific times.  Nonmonetary costs such as time and effort can be seen to have the same effects. To be effective managers must…  Understand the shape and slope of the services demand curve; how the quantity service demanded responds to changes in price  Determine whether the demand curve for specific service caries sharply from onetime period to another. Limited capacity  make as much use of the capacity as possible for the most profitable segments at a given time.  Capacity availability prioritized for the most valuable segments. Change Product Elements Important to understand no matter the discounted price people will not want to come for that service facility on off seasons – i.e. Ski resorts.  New modified service is targeted at different segments to encourage demand – i.e. hiking. Change to the elements can occur at different parts of everyday service  Appeal to different needs within the same group of customers  Reach out to different customer segments  Both Modify the Place and Time of Delivery 1. Vary the times when the service is available This strategy shows the changing customer preferences. 2. Offer the service to customers in a new location Operate mobile units that take the service to the customers. Promotion and Education Signage, advertising, publicity, and sales messages help to educate customers about peak and off peak times; encourage the use of off peak services.  Train staff to educate customers about the benefits of using an off peak service. Changes in the pricing and product elements must be clearly conveyed to customers to allow informed decisions. Undesirable demand exists and education and communication aims to reduce this to free up capacity being consumed by it.  i.e. Non emergency calls to 999

I nvent orydemandt hroughwai t i ngl i nesandqueui ngsyst ems When demand regularly exceeds supply firms can take steps to inventory management.  By asking customers to wait in line on a first come first served basis  Offering customers, the opportunity to reserve or book a space in advance

If both are implemented at the same time customers in the queue may feel its unfair they have to wait and others get to be served due to reservations....