1 Chapter 14 Managing Capacity and Demand 1 Chapter 14 MANAGING CAPACITY AND DEMAND...
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1 1 Chapter 14 Managing Capacity and Demand Chapter 14 Chapter 14 MANAGING CAPACITY AND MANAGING CAPACITY AND DEMAND DEMAND McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Transcript of 1 Chapter 14 Managing Capacity and Demand 1 Chapter 14 MANAGING CAPACITY AND DEMAND...
1 1
Chapter 14
Managing Capacity and Demand
Chapter 14Chapter 14
MANAGING CAPACITY MANAGING CAPACITY AND DEMANDAND DEMAND
McGraw-Hill/Irwin © 2003 The McGraw-Hill Companies, Inc., All Rights Reserved.
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Chapter 14
Managing Capacity and Demand
LEARNING OBJECTIVES
• Introduce different strategies for managing service capacity.
• Introduce the concept of yield management as a tool for increasing revenues and profits for service operations.
• Identify the characteristics of services that can take maximum advantage of yield management.
• Illustrate how services control capacity and manage customer demand to maximize capacity utilization.
• Identify additional approaches for maximizing capacity utilization that improves the overall long-term performance of the film.
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Chapter 14
Managing Capacity and Demand
TYPES OF CAPACITY
1. Fixed or Long-Term Capacity
2. Variable or Short-Term Capacity
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Chapter 14
Managing Capacity and Demand
Exhibit 14.1EXAMPLES OF FIXED CAPACITY
Service
Airline
Hotel
Restaurant
Hospital
College
Call Center
Examples of Fixed Capacity
Airplanes, Ticket Counters, Gates
Guest Rooms, Meeting Rooms, Parking
Tables, Seats, Kitchen Equipment
Beds, Operating Rooms
Classrooms, Dormitory Rooms
Telephone Lines, Work Stations
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Chapter 14
Managing Capacity and Demand
CAPACITY STRATEGIES
Managing Capacity to Address Variation
1. Maintain Level Capacity
2. Chase Demand
Source: Sasser, W.Earl, “Match Supply and Demand in Service Industries,” Harvard Business Review, November-December 1976, p. 134.
Managing Capacity for Growth
1. Add Capacity in Anticipation of Demand
2. Add Capacity when Demand Levels have Exceeded Current Capacity
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Chapter 14
Managing Capacity and Demand
Source: Adapted from Christopher Lovelock, “Strategies for Managing Capacity-Constrained Services,” Managing Services: Marketing, Operations Management and Human Resources, 2nd ed., Prentice-Hall, Englewood Cliffs, NJ, 1992.
Demand
100%
0%
Cap
acit
y U
tili
zati
on
customers turned away
poor service
Demand
100% Maximum Capacity
Breakfast Midmorning Lunch
Time
poor service
excessidle capacity
Optimal Capacity Utilization
Low
Exhibit 14.2COMPARING CAPACITY AND DEMAND FOR A FOODSERVICE FACILITY
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Chapter 14
Managing Capacity and Demand
COMMON APPROACHES USED TO MANAGE DEMAND IN SERVICES
• Pricing
• Advertising and Promotion
• Reservations
• Creating New Demand
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Chapter 14
Managing Capacity and Demand
Exhibit 14.3FRAMEWORK FOR APPLYING YIELD MANAGEMENT FOR DIFFERENT SERVICE INDUSTRIES
Source: Kimes, Sheryl E., and Richard B. Chase, “The Strategic Levers of Yield Management,” Journal of Service Research, Vol. 1 No 2, 1998, pp. 298-308
PricingFixed Variable
Movies HotelsPredictable Stadiums/ Arenas Airlines
Convention Centers Rental CarsCruises
Duration
Restaurants Continuing CareUnpredictable Golf Course Hospitals
Internet Service Providers
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Chapter 14
Managing Capacity and Demand
SERVICES THAT ARE APPROPRIATE FOR YIELD MANAGEMENT
• Market Segmentation
• High-Fixed and Low-Variable Costs
• Product Perishability
• Presell Capacity
Characteristics of Services Appropriate for Yield Management
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Chapter 14
Managing Capacity and Demand
Exhibit 14.5EXAMPLES OF SERVICES AND MARKET SEGMENTATION STRATEGIES
Service
Airline
Hotel
Restaurant
Toll Roads
Parking Garages
Casinos
Examples of Market Segmentation
Weekday vs. Weekends, Advance Purchase
Weekday vs. Weekends; High vs. Low Season
Early Bird Menu vs. Regular Menu
Peak vs. Non-Peak Hours
Hourly vs. Daily vs. Monthly
High Minimum Tables vs. Low Minimum Tables
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Chapter 14
Managing Capacity and Demand
Exhibit 14.6EXAMPLE OF A BOOKING CURVE
Number of Days Before Service is Provided
Cap
acit
y U
tili
zati
on
10 20 30 40 50
100%
75%
50%
25%
Upper Control Limit
Lower Control Limit
Forecasted Seats Sold
AB
Actual Seats Sold
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Chapter 14
Managing Capacity and Demand
Exhibit 14.7EXAMPLE OF OVERBOOKING
Number of Days Before Arrival
Num
ber
of
Room
s
10 20 30 40 50
400
350
300
250
Maximum Capacity
Number of Rooms Overbooked
Number of Rooms Booked
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Chapter 14
Managing Capacity and Demand
Exhibit 14.9DEMAND CURVES FOR VARIOUS AIRFARES
Demand
Unit
Co
st
Low
Low
High
High
Inelastic Demand Curve (Business Traveler)
Elastic Demand Curve (Leisure Traveler)
A
D
C
B
E
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Chapter 14
Managing Capacity and Demand
KEY TERMS
• Booking Curve• Bundling• Dynamic Pricing• Overbooking• Yield Management
