Basant Kumar Sinha

PGMF1614
PGDM-MARKETING.

MSO ASSIGMENT-2

Level Capacity Strategy

The objective of level capacity strategy is to maximize utilization of expensive fixed resources.

• Level strategy

– Produce a constant amount each period

– Stable workforce, no hiring/firing, no overtime,

– no subcontract

– Low smoothing costs, high inventory costs.

– Resource utilization goals are frequently achieved at the expense of service quality.

Level Strategy

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Level capacity strategy is the strategy to supply the demand through setting up a uniform capacity level
in particular period. This level has to be setup throughout the planning period, so forecasting the
demand has to be accurate is very critical to use this type of strategy .level strategy means the company
uses always same level of operators ,staffs, materials, or machine on particular period.
Example: - Airlines industry, which need to maximize the revenue from their most expensive resource
(planes). The prime objective is to have planes flying as frequently as possible, preferably full of
passenger. This may mean that passenger do not always receive the service they anticipated.

Example of approaches adopted under the level capacity strategy include:

Promoting off-peak demand-This is often combined with a pricing strategy to encourage customer to
switch. The organization must be careful that this does not bring about a change in service concept. A
restaurant encouraging customer to move to less popular times may institute a ‘happy hour with cheap
drink, which may damage the restaurants reputation with existing customer.

Chase capacity strategy

This strategy is usually adopted by high volume consumer service, since a major aspect of their
competitive strategy is the provision of ready and rapid access to service. For this service, capital
resource utilization is rarely a prime goal, although cost reduction will be very important. To explain this
further, consider the following statement concerning a fast food restaurant:

 A key objective is to maintain short queue length. This is managed by staffing tills and kitchen in
line with expected demand.
 If the queues are too long, customer go to another fast food outlet.
 The premises are not fully utilized: there are only about six hours out of the possible 24 hr when
the facilities are 100 per-cents utilized.

The challenge of these high-volume standard services is to develop volume flexibility.

• Chase strategy

– Produce as much as needed

– Zero inventory, no holding cost, no shortages

– Zero inventory is difficult to achieve because work hours may not be flexible

– Low inventory costs, high smoothing costs.

 Chase Strategy

14000
Number of Units

12000
10000
8000 Demand
6000 Production
4000
2000
0
ll r er
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Period

Examples of organization that employ the chase capacity strategy include:

 Retailers that need to deal with extremely high demand at weekends and after normal office
hours.
 Direct insurance companies operating extended hours through call centre.
 Theme parks, which may open up more attractions as demand, grow.

Typical approaches to the chase capacity strategy include:

 Flexible staffing levels.

 The use of subcontractors or temporary staff.
 Making use of customer.

Level Capacity strategy Chase Capacity strategy

Advantage Advantage
Stable output rate and workforce. Investment in inventory is low
Labor utilization is high
Disadvantage Disadvantage
Greater inventory cost The cost of fluctuating work force.
Increase overtime and idle time. Potential damage to employee morale.
Resource utilization vary over time
Demand management strategies
Most companies operate a mixes approach to capacity management. Whether adopting a principally
chase or level strategy, most service organization also operate some degree of demand management.
Example of this approach include :

Pricing strategies:
This typically takes the form of offering price incentive to encourage customer to move to off-peak
times. The ‘happy hour’ in the pub or wine bar is good example.

Restricted service at peak times:

The philosophy here is similar, though taking the form of a disincentive. In this case the service may
provide a limited service at peak times, again encouraging customer to move to less busy times. Some
restaurant operates this policy, providing a limited menu at these times.

Advertising and promotion:

Increasing public awareness of the service and information customer of special offers will stimulate
demand. Bookshops not only advertise, but will also stimulate demand by arranging session for authors
to autograph their work.

Level capacity strategy Chase capacity strategy Demand management

International airlines Ensure that planes are Schedule staff Promote off peak
flying with maximum reservation department demand. Try to
payload as frequently as to meet demand to maximize revenue from
possible. ensure booking can be each flight.
made
Insurance company Protect back office Schedule direct sales Influence selling cycle
experts from variation operation to provide so as not to coincide
in customer demand. maximum access for with policy renewal
customers. peaks