SCM 352 – Managing Capacity and Demand (Chapter 11)

Vocabulary flashcards covering key terms and concepts from Chapter 11 on matching capacity with demand, customer-induced variability, capacity strategies, staff scheduling, and yield management.

Service Capacity

The maximum achievable output per unit of time for a service system (e.g., transactions per day or available hotel beds).

Perishability of Service Capacity

Unused capacity (e.g., an empty airline seat) cannot be stored for future sale and represents lost revenue forever.

Yield Management

A revenue-maximization system that combines reservations, overbooking, and demand segmentation to allocate fixed, perishable capacity profitably.

Level Capacity Strategy

Providing a constant capacity regardless of demand fluctuations; common in utilities where service must be uninterrupted.

Chase Demand Strategy

Varying capacity (often staffing) to match fluctuating demand, as practiced by call centers.

Hybrid Capacity Strategy

Combining fixed facility capacity with variable staffing, typical of hotels that keep bed count constant but adjust labor seasonally.

Arrival Variability

Uneven customer arrivals that create idle servers or waiting lines because customers decide independently when to seek service.

Capability Variability

Differences in customer knowledge, skill, or physical ability that make service times inconsistent.

Request Variability

Variation caused by customers demanding different services (e.g., buying a CD vs. cashing a check).

Effort Variability

Inconsistent customer willingness to perform their role in the service process (e.g., returning shopping carts).

Subjective Preference Variability

Differing customer expectations about what constitutes good service.

Accommodation Strategy

Managing variability by adding capacity or flexibility (e.g., generous staffing, cross-training employees).

Reduction Strategy

Managing variability by influencing customer behavior (e.g., requiring reservations, limiting service breadth).

Demand Segmentation

Separating customers into distinct groups (e.g., business vs. leisure travelers) to tailor pricing or capacity decisions.

Differential Pricing

Charging different prices for the same service based on time, demand, or customer segment (matinee movie rates, off-season hotel prices).

Off-Peak Demand Development

Attracting alternative customers during slack periods (e.g., using a ski resort for backpackers in summer).

Complementary Services

Additional offerings designed to occupy waiting customers and generate revenue, such as bars in restaurants or arcade games in theaters.

Reservation System

A method of preselling capacity that shifts excess demand to other times or facilities and informs overbooking decisions.

Overbooking

Accepting reservations beyond physical capacity to offset expected no-shows, risking denied service if too many customers arrive.

No-Show Opportunity Loss

Revenue forgone when a reserved capacity unit (room, seat) goes unused; calculated as expected no-shows × unit contribution margin.

Operations Staff Scheduling

Aligning employee shifts with forecast demand intervals to make capacity profiles track customer arrivals.

Customer Coproduction

Designing the service so customers perform some labor (ordering, clearing tables) to supply capacity exactly when needed.

Variable Facility Design

Physical adjustments (e.g., movable airline cabin partition) that allow capacity to shift among service classes.

Capacity Sharing / Leasing

Using idle facilities for other purposes or partners (airlines sharing gates or leasing aircraft during off-season).

Cross-Training Employees

Preparing staff to work in multiple operations, creating flexible capacity to handle localized peaks.

Part-Time Labor

Hiring employees for predictable peak times (e.g., meal periods, bank paydays) to supplement full-time staff economically.

Fixed Capacity

A constraint where facility size or equipment cannot be easily increased, characteristic of airlines and hotels.

Perishable Inventory (Services)

Each seat, room, or rental unit that loses all value once the time of use has passed.

Advance Sales

Accepting future reservations, forcing managers to decide between early discount sales and potential full-fare customers.

Fluctuating Demand

Variable need for service capacity across time; yield management uses forecasts to balance utilization and revenue.

Low Marginal Sales Cost

Extra cost of serving one more customer is negligible (e.g., snack for an airline passenger), making discounts profitable when seats would otherwise be empty.

High Marginal Capacity Change Cost

Expense of adding capacity (buying an aircraft) is large, encouraging better utilization of existing resources.

Peak-Load Pricing

Charging higher rates during high-demand periods to manage load and increase revenue (e.g., utility companies).

Expected Reservation Accumulation Curve

Graph used in yield management showing booked units over time with control limits to trigger pricing or booking actions.

Opportunity Loss

Economic value lost when capacity is underutilized, central to decisions on overbooking and discounting.