CHAPTER 9

BALANCING DEMAND
AND PRODUCTIVE CAPACITY
GROUP 4 P V Bhanu Prakash Reddy
Rachana Vatsyayan
Ramesh Nair
Sadique Reza
Saurabh Pugalia
Sneha Nagar
INTRODUCTION
Balancing demand and capacity is essential to create benefits for the customers as
well as improving financial returns for the business.
FLUCTUATIONS IN DEMAND THREATEN
SERVICE PRODUCTIVITY

4 Conditions faced by Fixed Capacity Service:

Excess demand
Demand exceeds optimum capacity
Demand and supply are well balanced at the level of optimum capacity
Excess capacity
 VOLUME DEMANDED

Demand exceeds capacity

(business is lost)
CAPACITY UTILIZED

Maximum Available Demand exceeds

Capacity optimum capacity
(quality declines)
Optimum Capacity
(well balanced
demand and supply)

Excess Capacity
Low Utilization (wasted resources)
(may send bad signals)
Productive Capacity
The resources or assets that a firm can employ to create goods and services.
Different forms of productive capacity are:

Physical facilities to contain customers

Physical facilities to store or process goods
Physical equipment to process people, possessions, or information

Labor used for physical or mental work

Public/private infrastructure
CAPACITY MANAGEMENT STRATEGIES
Stretch and Shrink
- offer inferior extra capacity at peaks
- increase capacity
- extend/cut hours of service
Adjust Capacity to match demand (Chase Demand)
- schedule downtime in low demand periods
- use part-time employees
- rent or share extra facilities and equipment
- invite customers to provide self-service

Creating flexible capacity

- creating an optimum mix to serve the needs of different
market segments
PATTERNS OF DEMAND

Predictable cycles of demand:

Day (varies by hour)
Week (varies by day)
Month (varies by day or by week)
Yearly (varies by month or by season or public holidays)
Other period
Causes of cyclical variations

Employment
Billing or tax payments
Pay days
School hours/holidays
Seasonal Climate changes
Natural cycles
Causes of Random changes in demand:
Weather
Health problems
Accidents, fire, crime
Natural Disasters

Dividing demand by market segment:

Different customers have different demand patterns by day or by season

Variation in the net profitability of each completed transaction

MANAGING DEMAND LEVELS
5 Basic approaches to managing Demand:
Take no action
Reduce demand
Increase demand
Inventory demand by reservation system
Inventory demand by formalized queuing
MARKETING STRATEGIES CAN RESHAPE SOME
DEMAND PATTERNS:

Use price and other costs to manage demand

Change product elements
Modify the place and time of delivery
Promotion and education
alternative queue configurations

Single Line/Single Server Parallel Lines to Multiple Servers

Single line/Single server at sequential stages

Designated lines to designated servers Single lines to multiple servers

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“Take a Number” (single or multiple servers)

thank you