15 chapter managing demand and capacity the underlying issue: lack of inventory capability ...
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15ChapterChapter
Managing Demand and CapacityManaging Demand and Capacity
The Underlying Issue: Lack of Inventory Capability
Capacity Constraints Demand Patterns Strategies for Matching Capacity and Demand Yield Management: Balancing Capacity
Utilization, Pricing, Market Segmentation, and Financial Return
Waiting Line Strategies: When Demand and Capacity Cannot Be Matched
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
PerceivedService
Expected Service
CUSTOMER
COMPANY
CustomerGap
Gap 1
Gap 2
Gap 3
External Communications
to CustomersGap 4ServiceDelivery
Customer-Driven Service Designs and
Standards
Company Perceptions of Consumer Expectations
Figure 2.6
Gaps Model of Service QualityFigure 2.6
Gaps Model of Service Quality
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 15.1
Variations in Demand Relative to CapacityFigure 15.1
Variations in Demand Relative to Capacity
Source: C. Lovelock, “Getting the Most Out of Your Productive Capacity,” in Product Plus (Boston: McGraw Hill, 1994), chap. 16, p. 241.
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Understanding Capacity Constraintsand Demand Patterns
Understanding Capacity Constraintsand Demand Patterns
Time, labor, equipment, and facilities
Optimal versus maximum use of capacity
Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market
segment
Capacity Constraints Demand Patterns
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Table 15.1
Demand versus SupplyTable 15.1
Demand versus Supply
Source: C. H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing 47, (Summer 1983): 17.
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Table 15.2
Constraints on CapacityTable 15.2
Constraints on CapacityNature of the Constraint Type of Service Time Legal
Consulting Accounting Medical
Labor Law firm Accounting firm Consulting firm Health clinic
Equipment Delivery services Telecommunication Network services Utilities Health club
Facilities Hotels Restaurants Hospitals Airlines Schools Theaters Churches
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 15.3
Strategies for Shifting Demand to Match Capacity
Figure 15.3
Strategies for Shifting Demand to Match Capacity
• Use signage to communicate busy days and times.
• Offer incentives to customers for usage during nonpeak times.
• Take care of loyal or “regular” customers first.
• Advertise peak usage times and benefits of nonpeak use.
• Charge full price for the service—no discounts.
• Use sales and advertising to increase business from current market segments.
• Modify the service offering to appeal to new market segments.
• Offer discounts or price reductions.
• Modify hours of operation.• Bring the service to the
customer.
Demand Too High Demand Too LowShift Demand
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 15.4
Strategies for Adjusting Capacity to Match Demand
Figure 15.4
Strategies for Adjusting Capacity to Match Demand
• Stretch time, labor, facilities and equipment.
• Cross-train employees.• Hire part-time employees.• Request overtime work from employees.• Rent or share facilities.• Rent or share equipment.• Subcontract or outsource activities.
• Perform maintenance, renovations.
• Schedule vacations.• Schedule employee training.• Lay off employees.
Demand Too High Demand Too LowAdjust Capacity
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Challenges and Risks in UsingYield Management
Challenges and Risks in UsingYield 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
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Waiting Line StrategiesWaiting 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
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Issues to Consider in Making WaitingMore Tolerable
Issues to Consider in Making WaitingMore 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
© 2006 The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
Figure 15.6
Waiting Line ConfigurationsFigure 15.6
Waiting Line Configurations
Source: J. A. Fitzsimmons and M. J. Fitzsimmons, Service Management, 4th ed. (New York: Irwin/McGraw-Hill, 2004), chap. 11, p. 296.