1. Managing Demand & CapacityShwetanshu Gupta (49)Kritika Handoo (18)Tanvi Bhargav (53)

2. Nature of Service Services are deeds, performances and processes producedor co-produced by one person or entity for another personor entity Intangibility Heterogeneous Simultaneous consumption and production Perishability Because of the characteristics that service holds, it cant beinventoried. These shortcomings in services combined with fluctuatingdemand lead to variety of potential outcomes 3. Demand and Capacity Demand is the amount of a particular economic good orservice that a consumer or group of consumers will want topurchase at a given price. Capacity is the amount available atgiven price. Managing Capacity means managing the limits of anorganization's resources, such as its labor force,manufacturing and office space, technology and equipment,raw materials, and inventory . Capacity is usually constant whereas demand usuallyfluctuates. Overuse or underuse of a service results in Gap 3 of the Gapmodel- failure to deliver what was designed and planned i.e.. 4. Optimum vs. Maximum Capacity Maximum capacity on the other hand represent theabsolute limit of service availability. Using capacity at optimum level means the resourcesare fully employed but not overused and customers arereceiving quality services. Example: Theatre- Maximum capacity= Optimumcapacity:University Classroom- not desirable to havemaximum capacity utilization 5. Lack of inventory capability 6. Demand Vs. capacity: 4 scenariosExcess demand: Demand exceeds the maximum capacity. In suchsituation customers will be turned away, as they dont receive qualityservice due to crowding or overtaxing of staff and facilities.Demand exceeds optimum capacity: No one is being turned awaybut quality of service suffer due to overuse, crowding or staff beingpushed beyond their abilities to deliver consistent quality. 7. Demand and supply are balanced at the level of optimumcapacity: Staff and facilities are occupied at an ideal level. No one isoverworked, facilities can be maintained and customers are receivingquality service without undesirable delay.Excess capacity: demand is below optimum capacity. Resources arebeing underutilized , resulting in low productivity and low profits.Customers receive excellent quality, because they have full use ofresources. 8. Contd Service is a sector where all the firms arent challengedequally in terms of managing demand and supply. Seriousness of problem will depend o the extent ofdemand fluctuations over time and the extent to whichcapacity is constrained.Extent to whichsupply is constrainedExtent of Demand Fluctuations over timeWide NarrowPeak demand canusually be met withouta major delay1. ElectricityNatural gasInternet services2. InsuranceBankingPeak demand regularlyexceeds capacity4. Accounting and taxpreparationHotelsRestaurants3. Services similar tothose in cell 2 9. Capacity ConstraintsNature of theconstraintType of servicesTime Legal, Consulting, Accounting,MedicalLabor/ staff Law firm, accounting firm,Consulting firm, Health clinicEquipment Telecomm, Network services,Utilities, Health ClubFacilities Hotels, Restaurants, Hospitals,Schools, theaters, Churches 10. Demand Patterns To manage fluctuating demand in a service business, it isimportant to have a clear understanding of demand patterns,why they vary, and the market segments that comprisedemand at different points in time. Charting of demand patternsFirst, the organization needs to chart the level of demand overrelevant time periods. Organizations that have goodcomputerized customer information systems can do this veryaccurately. The others may need to chart demand patternsmore informally. Daily, weekly and monthly demand levelsshould be tracked. 11. Predictable Cycles When organizations chart down their demand patterns,predictable cycles may be detected. Certain service firms have predictable demand patterns. For example for a tax accountant, it is generally predictedthat demand will be high at times when taxes are due. For hotels it is predicted that demand will be high duringvacations. Similarly for telecomm industry demand will be high atcertain holidays and times of the week and day. 12. Random Demand Fluctuations : Sometimes the patterns of demand appear to berandomthere is no apparent predictable cycle. For example. day to-day changes in the weather mayaffect use of recreational, shopping, or entertainmentfacilities. Although the weather cannot be predicted farin advance, it may be possible to anticipate demand aday or two ahead. Health-related events also cannot be predicted.Accidents, heart attacks, and births all increasedemand for hospital services, but the level of demandcannot generally be determined in advance. Example: Flood in J&K 13. Demand Patterns by Market Segment: If an organization has detailed records on customertransactions, it may be able to disaggregate demandby market segment, revealing patterns within patterns.Or the analysis may reveal that demand from onesegment is predictable while demand from anothersegment is relatively random. For example, many auto service centers experiencemore walk- in- customers on Monday morning thanany other day of the week. Knowing that this pattern exists, some clinics schedulemore future appointments (which they can control) forlater days of the week, leaving more of Mondayavailable for same-day appointments and walk-ins. 14. Strategies for matching Capacity &Demand When an organisation has clear grasp of its capacityconstraints & an understanding of demand patterns, it isin a good position to develop strategies for matchingsupply and demand. 2 general approaches1) To smooth the demand fluctuations by shifting demand tomatch existing supply .2) To adjust capacity to match fluctuations in demand. 15. Shifting Demand to Match Capacity An organisation seeks to shift customers away fromperiods in which demand exceeds capacity, perhaps byconvincing them to use the service during slow demand. During periods of slow demand, the organisation seeksto attract more customers to utilize its productivecapacity. Frequently a firm uses combination of approaches. 16. Strategies for shifting demand to matchcapacity 17. Vary the service offering : This approach is tochange the nature of the service offering, dependingupon the season of the year, day of the week or timeof the day.ExampleCommunicate with customers : Letting them knowthe times of peak demand so they can choose to usethe services at alternative times and avoid crowdingand delays.Example 18. Modify timing & location of service delivery : Somefirms adjust their hours & days of service delivery tomore directly reflect customer demand.Example Differentiate on Price : A common response duringslow demand is to discount the price of the service. Tobe effective however, a price differentiation strategydepends on understanding of customer price sensitivity& demand curves.Example 19. Adjusting Capacity to meetDemand The fundamental idea here is to adjust, stretch & aligncapacity to match customer demand. During periods of peak demand the organisation seek tostretch or expand its capacity as much as possible. During periods of slow demand it tries to shrink capacityso a snot to waste resources. 20. Strategies for adjusting capacity to matchdemand 21. Stretch existing capacity : The existing capacity isexpanded temporarily to match demand. No newresources are added; rather the people, facilities, &equipment are asked to work harder & for longer. Stretch Time : A health clinic may stay open longerduring flu season or retailers are open longer hoursduring the festive season. Stretch Labour : In many service organisations,employees are asked to work longer & harder duringperiod of peak demand. 22. Align capacity with demand fluctuations : thisbasic strategy is sometimes called as a chasedemand strategy. By adjusting service resourcescreatively, organisations can in effect the demandcurves to match capacity with customer demandpatterns.Use part-time employees : In this situation theorganisations labour resource is being aligned withdemand. Retailers hire part-time employees duringholiday rush, restaurants often ask employees to worksplit shifts(work the lunch shift, leave for few hours, &come back for dinner rush) during peak mealtimehours. 23. Outsourcing : firms that find they have a temporarypeak in demand for a service that they cannot performthemselves may choose to outsource the entireservice. Schedule downtime during periods of low demand: if people, equipment,& facilities are being used atmaximum capacity during peak periods, then it isimperative to schedule repair, maintenance &renovation during off-peak season. Cross- train employees : if employees are cross-trained,they can shift among tasks, filling in where theyare most needed. It increases the efficiency of thewhole system & avoids underutilizing employees insome areas while others are being overtaxed. 24. Yield Management It the process of allocating right type of capacity to theright type kind of customer at the right price so as tomaximise revenue or yield. The goal of yield management is to produce the bestpossible financial return from a limited availablecapacity. Using yield management models, organisations find thebest balance at a particular point in time among theprices charged, the segments sold to, and the capacityused. It is the ratio of :yield = actual revenuepotential revenue 25. Implementing a Yield ManagementSystem To implement a yield management system, anorganisation needs detailed data on past demandpatterns by market segment as well as methods ofprojecting current market demand. 26. Challenges & Risks in using YieldManagement Loss of competitive focus : it may cause a firm to overfocus on profit maximisation & inadvertently neglectaspects of the service that provide long-term competitivesuccess.Customer alienation : if customers learn that they arepaying a higher price for service than someone else,they may perceive the pricing as unfair, particularly ifthey do not understand the reasons.Employee morale problems : this system take muchguesswork & judgement in setting prices away fromsales & reservations people. Although some employeesmay appreciate, others may resent the rules &restrictions on their own discretion. 27. Lack of employee training : extensive training isrequired to make a yields system work. Employeesneed to understand its purpose, how it works, howthey should make decisions, and how the system willaffect their jobs. Inappropriate organisation of the yieldmanagement function : to be most effective withyields management, an organisation must havecentralised reservations. Although airlines & somelarge hotel chains do have such centralisation, smallerorganisations may have decentralised reservationsystem & thus find it difficult to operate a yieldmanagement system effectively. 28. Waiting line Strategies : WhenDemand & Capacity cant be matchedSometimes it is not possible to manage capacity tomatch demand or vice versa. It may be too costly - foreg, most health clinics would not find it economicallyfeasible to add additional facilities or physicians tohandle peak in demand. Or demand may be veryunpredictable & the service capacity very inflexible. To deal effectively with the inevitability of waits,organisations can utilize a variety of strategies: 29. Employ Operational Logic : if customer waits arecommon, a first step is to analyse the operationalprocesses to remove any inefficiencies. It may bepossible to redesign the system to move customersalong more quickly. 30. Establish a Reservation Process : when waitingcannot be avoided, a reservation system can help tospread demand. Restaurants, transportationcompanies, & many other use reservation systems toalleviate long waits. 31. Differentiate Waiting Customers : not all customersneed to wait the same length of time for service. On thebasis of need or customer priority, organisationsdifferentiate among customers. It can be based onfollowing factors : Importance of the customer : frequent customers whospend large amount of time with the organisations can begiven priority in service by providing them with a specialwaiting area or segregated lines. Urgency of the job : those customers with the mosturgent need may be served first. This strategy is used inemergency health care. Payment of a premium price : customers who pay extra,for eg: first class on airline, are often given priority via 32. Making waiting fun:All waits need not to be boring to customers.Organizations can make waiting a value received by thecustomers. Customers can be satisfied by making waitingfun or at least tolerable. There are 9 principles aboutwaiting: 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 customerwill wait solo waits feel longer than group waits