Demand Capacity
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Transcript of Demand Capacity
BALANCING DEMAND AND PRODUCTIVE CAPACITY
Fluctuations in Demand Threaten Service Productivity
Productive Capacity and Service Success
Services cannot be stockpiled This is problematic for people or
physical possession services due to wide swings in demand
Goal is to utilize staff, equipment, and facilities as productively as possible
Service Decision Framework:Decisions on Matching Demand and Capacity
W ha t Busin ess A re W e In?
W ha t Service Pro cesses C a n Be U sed in O ur O pera tio n? (PRO CESS)
W ho A re O ur C usto m ers a nd H o w Sho u ld W e Rela te to Th em ?
W ha t Price Sho u ld W e C h arge? (PRICE AN D O TH ER U SER O U TLAYS)
H o w to C o m m u nica te? (PRO M O TIO N & EDU CATIO N , PH YSICAL EV IDEN CE)
O ptio ns fo r D e livery? (PLACE, CYBERSPACE & TIM E, PH YSICAL EVIDEN CE)
H o w C a n W e Ba la nce ?PRO DU CTIV ITY AN D Q U ALITY
W ha t Sh o u ld be the C o re a nd Supp lem en ta ry Elem en ts o f O u r Service Pro duct? (PRO DU CT ELEM EN TS)
H O W SH O U LD W E M ATCH D EM AN D AN D PRO DU CTIVE CAPACITY?
W ha t A re A ppro pria te Ro les fo r Peo p le a nd Techno lo gy? (PEO PLE)
H o w C a n O ur F irm A ch ieve Service Lea dersh ip?
How Should We Match Demand and Productive Capacity?
How do we define our productive capacity? (e.g., buildings,
physical space, machines, brawn, brains?)
What are demand levels for our service and do they exceed
capacity at any time?
What explains variations in demand?
What strategies can we employ to match demand and
capacity?
How should we design waiting lines and reservations systems?
From Excess Demand to Excess Capacity
Four conditions potentially faced by fixed-capacity services:
Excess demandToo much demand relative to
capacity at a given timeDemand exceeds optimum
capacity – Maximum CapacityUpper limit to a firm’s ability
to meet demand at a given time
Optimum capacityPoint beyond which service
quality declines as more customers are serviced
Excess capacity Too much capacity relative to
demand at a given time
Addressing the Problem of Fluctuating Demand
Two basic approaches:
Adjust level of capacity to meet demandNeed to understand productive capacity and how it varies on an incremental basis
Manage level of demand
Many Service Organizations Are Capacity Constrained
Defining Productive Capacity in Services
Physical facilities to contain customers
Physical facilities to store or process goods
Physical equipment to process people, possessions, or information
Labor used for physical or mental work
Public/private infrastructure
Alternative Capacity Management Strategies
Level capacity (fixed level at all times)
Stretch and shrink
Offer inferior extra capacity at peaks (e.g., bus/train standees)
Vary seated space per customer (e.g., elbow room, leg room)
Extend/cut hours of service
Chase demand (adjust capacity to match demand)
Flexible capacity (vary mix by segment)
Adjusting Capacity to Match Demand
Schedule downtime during periods of low demand
Use part-time employeesRent or share extra facilities and equipmentAsk customers to shareInvite customers to perform self-serviceCross-train employees
Patterns and Determinants of Demand
Predictable Demand Patterns and Their Underlying Causes
dayweekmonth yearother
employmentbilling or tax
payments/refundspay daysschool hours/holidaysseasonal climate
changespublic/religious holidaysnatural cycles (e.g., coastal tides)
Predictable Cycles
of Demand Levels
Underlying Causes of
Cyclical Variations
Causes of Seemingly Random Changes in Demand Levels
WeatherHealth problemsAccidents, Fires,
CrimeNatural disasters
Demand Levels Can Be Managed
Inventory Demand through Waiting Lines and Reservations
Criteria for Allocating Different Market Segments to Designated Lines
Urgency of jobEmergencies versus non-
emergenciesDuration of service transaction
Number of items to transactComplexity of task
Payment of premium priceFirst class versus economy
Importance of customerFrequent users/high volume
purchasers versus others
Minimize Perceptions of Waiting Time
Create an Effective Reservation System
Benefits of ReservationsControls and smoothes demandPre-sells serviceInforms and educates customers in advance of
arrivalSaves customers from having to wait in line for
service (if reservation times are honored)Data captured helps organizations
Prepare financial projectionsPlan operations and staffing levels
DISTRIBUTION CHANNELS IN SERVICES
Direct Organizations that supply products,
rather than services, use distribution channels as intermediaries to deliver products to customers. This system creates an indirect relationship between manufacturer and customer. In the services sector, the relationship is direct. The services firm delivers the service directly to the customer. In the consultancy sector, for example, the customer deals directly with the person who delivers the service.
Agents In some service markets, an indirect
marketing relationship exists. Firms selling services, such as insurance, financial services, labor, travel or entertainment, may use agents as well as selling directly to customers. However, many established insurance companies transformed their distribution model of agents and direct sales force when they faced competition from new entrants that used the Internet to sell directly to customers. The new entrants, with no field sales infrastructure to support, were able to offer customers lower premiums and win business.
Multichannel Using the Internet as an additional distribution channel enables service businesses to offer their customers greater choice. In retail banking, for example, customers can carry out transactions by telephone, online banking or by visiting their branch.
Internet The Internet enables service firms to change their business model, as well as their distribution model. On its website, marketing firm Moderandi Inc. describes a graphic design firm that created a virtual business with no physical offices and a pool of freelance designers to offer its services globally. Clients placed orders and used Internet services, such as conferencing, to interact with the consultancy throughout a project. The low-cost Internet distribution model enabled the consultancy to offer competitive prices and bring the most appropriate design team to the project.
Partnership Partnership with organizations
operating in a firm's target market provides a distribution channel that can accelerate growth.
A firm offering computer maintenance services, for example, could expand its customer base by partnering with a computer manufacturer or distributor and providing services to its partners' customers.