15-1

MANAGING DEMAND
AND CAPACITY
AN OVERVIEW
 15-2

Managing Demand and Capacity -

Objectives
 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
 15-3

Variations in Demand Relative to Capacity

 15-4

Understanding Capacity Constraints

and Demand Patterns

Capacity Constraints Demand Patterns

 Time, labor, equipment,  Charting demand
and facilities patterns
 Optimal versus  Predictable cycles
maximum use of  Random demand
capacity fluctuations
 Demand patterns by
market segment
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Demand and Capacity for Service

Providers
 15-6

Strategies for Shifting Demand to Match

Capacity
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Strategies for Adjusting Capacity to Match

Demand
 15-8

Challenges and Risks in Using

Yield Management
 Loss of competitive focus

 Customer alienation

 Employee morale problems

 Incompatible incentive and reward systems

 Lack of employee training

 Inappropriate organization of the yield

management function
 15-9

Waiting Line Strategies

 Employ operational logic
 modify operations
 adjust queuing system

 Establish a reservation process

 Differentiate waiting customers
 importance of the customer
 urgency of the job
 duration of the service transaction
 payment of a premium price

 Make waiting fun, or at least tolerable

 15-10

Issues to Consider in Making Waiting

More Tolerable
 Unoccupied time feels longer than occupied time.
 Preprocess waits feel longer than in-process waits.
 Anxiety makes waits seem longer.
 Uncertain waits seem longer than known, finite
waits.
 Unexplained waits seem longer than explained
waits.
 Unfair waits feel longer than equitable waits.
 The more valuable the service, the longer the
customer will wait.
 Solo waits feel longer than group waits.
 15-11

Waiting Line Configurations

 15-12
Understanding Capacity Constraints and
Demand Patterns

Capacity Constraints Demand Patterns

 Time, labour, • Charting demand

equipment and patterns
facilities • Predictable cycles
 Optimal versus • Random demand
maximal use of fluctuations
capacity • Demand patterns by
market segment
 15-13

What is the Constraint on Capacity?

Nature of the constraint Type of service

Time Legal
Consulting
Accounting
Medical
Labor Law firm
Accounting firm
Consulting firm
Health clinic
Equipment Delivery services
Telecommunication
Utilities
Health club
Facilities Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches