Excess demand: too much demand relative to capacity at a given time result that some customer denied services

and business lost Excess capacity: too much capacity relative to demand at a given time resulting in underutilized capacity ,low productivity and doubts about viability of the service Optimum capacity: staff and facility busy without being overworked and customer receive good service without delays

Demand exceeds optimum capacity: over crowded and customer

likely to perceive a deterioration in service quality and may feel dissatisfied

VOLUME DEMANDED
CAPACITY UTILIZED Maximum Available Capacity Optimum Capacity (Demand and Supply Well Balanced

Demand exceeds capacity (business is lost)

Demand exceeds optimum capacity (quality declines)

Low Utilization (May Send Bad Signals)

Excess capacity (wasted resources)

TIME CYCLE 1

TIME CYCLE 2

1.

To adjust the level of capacity to meet variation in demand: it requires an understanding of what constitutes productive capacity and how it may be increased or decreased in an incremental basis

2.

To manage the level of demand using marketing strategies to

smooth out the peaks and fill in the valley so as to generate

continuous flow of request for services Many firms use mix of both approaches

Productive capacity means the resources of asset that a firm can employ to create goods and services. In services productive capacity can take several forms:

Physical facilities to contain customers

Ex. In case of people processing services like hospitals ,colleges primary capacity constraints likely to define in terms of beds, rooms or seats

Physical facilities to store or process goods

Ex. Parking lots, warehouses

Physical equipment to process people, possessions, or information

Ex. Bank ATMs ,Airport security detectors

Labor used for physical or mental work

Ex. Nurses , Call centre staff etc

Public/private infrastructuree.g., highways, airports, electricity

Level capacity (fixed level at all times) Stretch and shrink

offer inferior extra capacity at peaks (e.g. bus/metro

standees)
vary seated space per customer (e.g. elbow room, leg room) extend/cut hours of service

Chase demand (adjust capacity to match demand)

schedule downtime in low demand periods (Repair renovation
during low demand )

use part-time employees (additional hotel employee during holiday,

extra staff during tax preparation service firm in April-July)

rent or share extra facilities and equipment Ex. tourism cross-train employees ( In supermarket manager call stockers to
operate cash register when checkout lines are too long)

Flexible Capacity (vary mix by segment): Additional chairs in the

classroom , convert business class seats into economic class if not occupied

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

Predictable Cycles of Demand Levels

day week month year other

Underlying Causes of Cyclical Variations

employment billing or tax

payments/refunds school hours/holidays seasonal climate changes public/religious holidays natural cycles (e.g. coastal tides)

Random fluctuations are usually caused by the factors beyond management control therefore divide the demand into different market segment depending upon the continuous demand and walk in demand

Take no action let customers sort it out

Reduce demand higher prices communication promoting alternative times Increase demand lower prices communication, including promotional incentives vary product features to increase desirability more convenient delivery times and places
Inventory demand by reservation system Inventory demand by formalized queuing

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

Price per Room Night Th

Tl

Bl

Bh

Bh = business travelers in high season Bl = business travelers in low season

Th = tourist in high season

Tl = tourist in low season

Bl

Bh

Th Tl
Note: hypothetical example

Quantity of Rooms Demanded at Each Price by Travelers in Each Segment in Each Season

Add extra capacity so that demand can be met at most times

(problem: may add too many costs)

Rethink design of queuing system to give priority to certain customers or transactions

Redesign processes to shorten transaction time Manage customer behavior and perceptions of wait

Install a reservations system

Single line, single server, single stage Single line, single servers at sequential stages Parallel lines to multiple servers

Designated lines to designated servers

Single line to multiple servers (snake)

Take a number (single or multiple servers)
28 30 31 26 32

29
25

21 20 24

27
23

Urgency of job emergencies vs. non-emergencies Duration of service transaction number of items to transact complexity of task Payment of premium price First class vs. economy Importance of customer frequent users/loyal customers vs. others

1. Unoccupied time feels longer 2. Preprocess/post process waiting feel longer than in-process 3. Anxiety makes waiting seem longer 4. Uncertain waiting is longer than known, finite waiting 5. Unexplained waiting seems longer 6. Unfair waiting is longer than equitable waiting 7. People will wait longer for more valuable services 8. Waiting alone feels longer than in groups 9. Physically uncomfortable waiting feels longer 10. Waiting seems longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt

Controls and smoothes demand

Pre-sells service Informs and educates customers in advance of arrival Customers avoid waiting in line for service (if service times are honored)

Data capture helps organizations prepare financial projections

Fast and user friendly for customers and staff Can answer customer questions Offers options for self service (e.g. Web) Accommodates preferences (e.g., room with view) Deflects demand from unavailable first choices to alternative times and locations Includes strategies for no-shows and overbooking
requiring deposits to discourage no-shows
canceling unpaid bookings after designated time compensating victims of over-booking

Capacity (% rooms)
100%

(Low Season)

Week 7

(High Season) Executive service guests

Week 36

Out of commission for renovation Executive service guests Transient guests

50%

Weekend package
Transient guests

W/E package

Groups and conventions

Groups (no conventions)

Airline contracts Nights: M Tu W Th F S Sn Airline contracts

Time

Tu

Th

Sn

Historical data on demand level and composition, noting responses to marketing variables Demand forecasts by segment under specified conditions Fixed and variable cost data, profitability of incremental sales Site-by-site demand variations Customer attitudes towards queuing

Customer evaluations of quality at different levels of capacity utilization