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8/2/2019 6. Managing Demand Capacity
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Slide2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 1
Balancing Demand
and Capacity
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Slide2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 2
Relating Demand to Capacity:Four Key Concepts
Excess demand: too much demand relative to capacity at agiven time
Excess capacity: too much capacity relative to demand at agiven time
Maximum capacity: upper limit to a firms ability to meetdemand at a given time
Optimum capacity: point beyond which service qualitydeclines as more customers are serviced
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Slide2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 3
Variations in Demand Relative to Capacity(Fig. 9-1)
VOLUME DEMANDED
TIME CYCLE 1 TIME CYCLE 2
Maximum AvailableCapacity
Optimum Capacity(Demand and Supply
Well Balanced
Low Utilization(May Send Bad Signals)
Demand exceeds capacity(business is lost)
Demand exceedsoptimum capacity(quality declines)
Excess capacity(wasted resources)
CAPACITY UTILIZED
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Defining Productive Capacityin Services
Physical facilities to contain customers
Physical facilities to store or process goods
Physical equipment to process people, possessions, orinformation
Labor used for physical or mental work
Public/private infrastructuree.g., highways, airports,electricity
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Slide2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 5
Alternative Capacity Management Strategies
Level capacity (fixed level at all times)
Stretch and shrink offer inferior extra capacity at peaks (e.g. bus/metro standees) vary seated space per customer (e.g. elbow room, leg room)
extend/cut hours of service
Chase demand (adjust capacity to match demand) schedule downtime in low demand periods use part-time employees rent or share extra facilities and equipment cross-train employees
Flexible Capacity (vary mix by segment)
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Slide2004 by Christopher Lovelock and Jochen Wirtz Services Marketing 5/E 9 - 6
Predictable Demand Patterns andTheir Underlying Causes (Table 9-1)
Predictable Cyclesof Demand Levels
dayweekmonthyearother
Underlying Causes ofCyclical Variations
employment
billing or taxpayments/refunds
pay days
school hours/holidays
seasonal climate changes
public/religious holidays
natural cycles(e.g. coastal tides)
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Causes of Seemingly Random Changes inDemand Levels
Weather
Health problems
Accidents, Fires, Crime
Natural disasters
Question:which of theseevents can be predicted?
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Alternative Demand Management Strategies(Table 9-2)
Take no action let customers sort it out
Reduce demand higher prices
communication promoting alternative times
Increase demand lower prices communication, including promotional incentives vary product features to increase desirability
more convenient delivery times and places
Inventory demand by reservation system
Inventory demand by formalized queueing
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Avoiding Burdensome Waits for Customers
Add extra capacity so that demand can be met at mosttimes (problem: may add too many costs)
Rethink design of queuing system to give priority to certaincustomers or transactions
Redesign processes to shorten transaction time
Manage customer behavior and perceptions of wait
Install a reservations system
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Alternative Queuing Configurations (Fig. 9-4)
Single line, single server, single stage
Single line, single servers at sequential stages
Parallel lines to multiple servers
Designated lines to designated servers
Single line to multiple servers (snake)
Take a number (single or multiple servers)28
2921
20
24
23
30 25
3126
2732
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Tailoring Queuing Systems to Market Segments:Criteria for Allocation to Designated Lines
Urgency of job
emergencies vs. non-emergencies
Duration of service transaction
number of items to transact complexity of task
Payment of premium price
First class vs. economy
Importance of customer frequent users/loyal customers vs. others
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Ten Propositions on the Psychology of WaitingLines (Table 9-3)
1. Unoccupied time feels longer2. Preprocess/postprocess waiting feel longer than in-
process
3. Anxiety makes waiting seem longer
4. Uncertain waiting is longer than known, finite waiting5. Unexplained waiting seems longer
6. Unfair waiting is longer than equitable waiting
7. People will wait longer for more valuable services
8. Waiting alone feels longer than in groups
9. Physically uncomfortable waiting feels longer
10. Waiting seems longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt
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Benefits of Effective Reservations Systems
Controls and smoothes demand
Pre-sells service
Informs and educates customers in advance of arrival
Customers avoid waiting in line for service (if service timesare honored)
Data capture helps organizations prepare financialprojections
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Characteristics of Well-designedReservations Systems
Fast and user friendly for customers and staff
Can answer customer questions
Offers options for self service (e.g. Web)
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices toalternative times and locations
Includes strategies for no-shows and overbooking requiring deposits to discourage no-shows canceling unpaid bookings after designated time compensating victims of over-booking
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Information Needed for Demand andCapacity Management Strategies
Historical data on demand level and composition, notingresponses to marketing variables
Demand forecasts by segment under specified conditions
Fixed and variable cost data, profitability of incrementalsales
Site-by-site demand variations
Customer attitudes towards queuing
Customer evaluations of quality at different levels ofcapacity utilization