Chapter 9: Balancing Demand and Capacity

Perishability

The most basic problem in the service sector when it comes to demand and capacity is the _____ of service product

demand far exceeds capacity

If a ____, it cannot be met as in manufacturing, by taking goods from a warehouse.

capacity far exceed demand

If ____, the potential revenue from that service is lost.

Excess Demand

the level of demand exceed maximum available capacity

Demand Exceed Optimum Capacity

the service is less than adequate

Demand and Capacity are Well Balanced

this is the level of optimum capacity

Excess Capacity

demand is below optimum capacity.

Managing Capacity or Product Capacity

refers to the resources or assets that a firm can use to create goods and services that are typically key cost components and therefore need to be managed carefully.

Facilities

that are critical to capacity management can related to those that are designed to “hold” customers and those that hold good.

Equipment

used to process people, possessions, or information

Labor

is a key element of productive capacity in all high-contact services and many low-contact ones.

Infrastructure

Access to sufficient capacity in the public or private infrastructure to be able to deliver quality service to their own customers.

Stretching Capacity Levels

• Some capacity is elastic in its ability to absorb extra demand

• Actual level of capacity remains unchanged, and more people are being served with the same level of capacity

• Ex. Subway, Theater, stadium, banks

• However, staff would quickly tire and begin to provide poor service

• Stretch capacity by extending operating hours, reduce waiting time through service redesign, faster service

Adjusting Capacity to Match Demand

Involves tailoring the overall level of capacity to match variations in demand – a strategy also known as chasing demand.

Actions managers can take to adjust capacity:

1. Schedule downtime during period of low demand

2. Cross-train employees

3. Use part-time employees

4. Invite customers to perform self-service

5. Asks customers to share

6. Create flexible capacity

7. Rent or share extra facilities and equipment

marketing mix variables can be used to stimulate demand

Several ____during periods of excess capacity and decrease or shift demand during periods of insufficient capacity.

Use Price and Nonmonetary Costs to Manage Demand

• The lure of lower prices may encourage at least some people to change the timing of their behavior, whether for shopping, traveling, or sending in equipment for repair.

• Managers must understand the shape of the demand curve of the service product.

Change Product Elements

• New service product targeted at different segments is needed to encourage demand • Ex. Winter Ski sports offer bike trail in the summer season, Summer classes in Universities, lunch menu designed to contain only dishes that can be prepared quickly during the busy lunch period.

Modify Place and Time of Delivery

• Vary the times when the service is available.

✓ Extended operating hours

✓ Create demand when it is low

• Offer the service to customers at a new location

✓ Provide mobile services

✓ Free pick-up and delivery of goods

Promotion and Education

• Communication efforts may be able to help facilitate smooth demand.

• Signage, advertising, publicity, and sales messages can be used to educate customers about peak periods and encourage them to make use of the service at off-peak times

• Encourage customer with flexible schedules to consider off-peak travel periods

• Changes in prices, product characteristics, and distribution must be communicated clearly.

Asking customers to wait in line

often on a first-come,first serve basis, or by offering customers more advance queuing systems (based on urgency, price, or importance of the customer)

reserving or booking service capacity in advance

Offering customers the opportunity of

Waiting Lines

known to operation researchers as “queues” – occur whenever the number of arrivals at a facility exceeds capacity of the system to process them.

Queues

are basically a symptom of unresolved capacity management problems

Managing Waiting Lines

The problem of reducing customer waiting time often requires a multipronged approach. Increasing capacity by simply adding more space or staff is not always the best solution in situations where customer satisfaction must be balanced against cost considerations.

Managers should consider a variety of ways, including:

1. Rethinking the design of the queuing system

2. Tailoring the queuing system to different market segments

3. Managing customers’ behavior and their perceptions of the wait

4. Installing a reservation system

5. Redesigning processes to shorten the time of each transaction

Single line, single servers at sequential stages

customers proceed through several serving operations as in a cafeteria. Bottlenecks may occur at any stage where the process takes longer to execute than at previous stages.

Parallel lines to multiple servers

offer more than one serving station, allowing customers to select one of several lines in which to wait.

Designated lines to designated servers

involve assigning different lines to specific categories of customers

Single line to multiple servers

commonly known as snake. Solves the problem of parallel lines to multiple servers moving at different speeds.

Taking a number

saves customers the need to stand in a queue. Allows customers to sit down and relax, or to guess how long the wait will be and do something else in the meantime.

Wait lists

is where people put their names down and wait until their name is announced.

designing and managing service processes

central to creating the service product and significantly shaping the customer experience.

Blueprinting

is a powerful tool to understand, document, analyze, and improve service processes. It helps to identify and reduce service fail points and provides important insights for service process redesign

process design

is to define the roles customers should play in the production of services. Their participation should be determined, and customers need to be motivated and taught to play their part in the service delivery to ensure customer satisfaction and firm productivity