4362ch14 sp10
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Chap. 14 – Coping with Fluctuating Demand for Services
Services Demand Problem: Two circumstances
• Demand cycles – Services face fluctuating demand.
• Perishability – Services usually exist only for the time during which they are performed.
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Balance Capacity and Demand
Successful service organizations must strike a balance between capacity and demand.
There must be enough capacity to accommodate customers when demand is high, yet not so much that it goes to waste when demand is low.
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Variations in Demand Relative to Capacity
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The Nature of Service Demand
Random fluctuation occurs without warning and is hard to accommodate.
• Severe Weather
Predictable fluctuation occurs when customer demand follows a pattern that repeats itself over time.
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Predictable Fluctuation
See Table 14.1Hotel: day of the week and calendar year
(holidays, events)
Restaurants: time of day, day of the week
Movie Theaters: time of day, day of the week
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Predictable FluctuationSometimes it is nearly impossible to shift customer
demand because of factors beyond the customers’ and organizations’ control.
• Business travelers in the U.S. most often conduct business between 8:00 am and 5:00 pm, Monday through Friday. Airlines and hotels that cater to businesspeople can do little to change their demand cycle.
• A service’s demand cycle can be more flexible in other cases: restaurants
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Service Capacity
Most service organizations are capacity constrained
Service capacity has three aspects: • The physical facility in which the service is
performed or rendered.• The personnel whose labor and skill level
create the service.• The equipment that enables the service to
occur.
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Capacity Constraints for Service Firms
Physical facility: number of rooms in a hotel; number of seats on a flight.
Personnel: number of people available to serve at a point in time: health clinic, car repair
• Services sell time; more time cannot be produced, nor saved in inventory: Lawyers, consultants, doctors, accountants
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Capacity Constraints for Service Firms
Equipment: computer hardware and software; equipment at the health club.
Unless equipment is used to capacity, revenue is severely affected.
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Chasing Demand
Chase demand is stretching or shrinking the organization’s productive capacity to meet fluctuating demand;
• In other words, adjusting capacity to meet demand.
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Adjusting Capacity to Meet Demand
Stretch Existing Capacity: people, facilities, and equipment are asked to work longer to meet demand:
• library hours during finals; standing room only
Align Capacity with Demand Fluctuations: use part-time employees, outsource, rent or share facilities, etc.
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Smoothing Demand toFill Service Capacity
Smoothing demand means shifting patronage to times when a service's productive capacity is underused and deflecting or discouraging patronage when it is oversubscribed.
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Smoothing Demand
Increase Demand to Match Capacity
• Reduce prices during slow demand• Vary How the Facility is Used: ski
resorts in winter - executive training facility in summer
• Promotion: sales promotions: coupons, sweepstakes, contests, ads, to increase demand
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Smoothing Demand
Reduce Demand during Peak Times
• Charge higher prices• Communicate with customers to use
service at other times• Modify timing and location of service
delivery: longer banking hours; online banking; restrict hours of operation
• Set priorities: emergency centers
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Inventory Demand
Establish a Reservation Process: spread demand; reduce long waits
Formal queuing system: • First come, first served• Accommodate most desirable customers
first
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Maximum VersusOptimum Capacity
• Optimum capacity is the number of customers that can be effectively handled under ideal conditions
• Sometimes maximum capacity is not optimum capacity
• Creating demand greater than maximum capacity may result in negative experiences
• Maximum capacity does not always mean maximum profits
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Waiting Line Strategies: When Demand and Capacity Cannot be Matched
Employ operational logic: analyze operational processes to remove any efficiencies
Installing ticket vending machines in train stations to expedite the purchase of train tickets
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Queuing Configuration
Queuing Configuration: refers to the number of queues, their locations, spatial requirement, and their effect on customer behavior
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Queuing Configuration
• Multiple Queue: customer must decide which queue to join and whether to switch later if the wait appears to be shorter in another line
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Queuing Configuration
• Single Queue: fairness of waiting time is ensured in that the first come, first-served rule applies to everyone; the system can also reduce the average time customers spend overall.
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Queuing Configuration
• Take-a-number option: arriving customers take a number to indicate line position
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Differentiate Waiting Customers
Differentiate waiting customers: not all customers need to wait the same length of time for the service. EX: Express checkout lanes for customers purchasing 10 items or less
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Differentiate Waiting Customers
Payment of a premium price: Customers who pay extra (eg, first-class on an airline) given priority via separate check-in lines or express systems.
Urgency of the job: Those with the most urgent need may be served first.
• EX: emergency healthcare; air-conditioning service: priority for repair vs. routine maintenance.
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Differentiate Waiting Customers
Duration of the service transaction: shorter service jobs get priority through “express lanes.”
• If service requires extra time, customer is referred to designated provider dealing with special cases.
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Make Waiting Pleasurable, or at Least Tolerable
Make waiting fun, or at least tolerable: it is not the actual time waiting that impacts customer satisfaction - it is how customers feel about the wait and their perceptions of it.
Unoccupied Time Feels Longer Than Occupied Time
Give customers menus to look at while waiting in the restaurant; reading material in the dentist’s office; music over the phone
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Make Waiting Pleasurable, or at Least Tolerable
• Unoccupied Time Feels Longer Than Occupied Time
Give customers menus to look at while waiting in the restaurant.
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Make Waiting Pleasurable, or at Least Tolerable
• Preprocess Waits Feel Longer Than In-Process WaitsIf wait time is occupied with activities that relate to the upcoming service, customers may perceive that the service has already started and they are no longer actually waiting.Filling out medical information while waiting to see a physician; watching a videotape of the upcoming service event can educate the customer and reduce the perception of waiting
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Make Waiting Pleasurable, or at Least Tolerable
• Uncertain Waits are Longer than Known, Finite WaitsAnxiety is heightened when customers do not know how long they have to wait.
Appointment Syndrome: customers who arrive early for an appointment will wait patiently until the scheduled time, even if they arrive very early. However once the expected appointment has passed, customers grow increasingly anxious.
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Make Waiting Pleasurable, or at Least Tolerable
• Unexplained Waits Are Longer Than Explained Waits
When people understand the causes of waiting, they frequently have greater patience and are less anxious, particularly when the wait is justifiable
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Make Waiting Pleasurable, or at Least Tolerable
• Unfair Waits Are Longer Than Equitable WaitsWhen customers perceive that they are waiting while others who arrived after them have already been served, the apparent wait will make the wait seem even longer.
May occur when there is no apparent waiting in the waiting area and many customers are trying to be served.
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Make Waiting Pleasurable, or at Least Tolerable
• The More Valuable the Service, the Longer the Customer Will Wait
15 minute wait: Lawyer vs. Convenience StoreFull cart of groceries vs. Few itemsExpensive restaurant vs. Fast Food
• Solo Waits Feel Longer Than Group WaitsPeople are more accepting of a longer wait in a group because of distractions provided by other members of the group.