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S. M. Chapter 14. MANAGING DEMAND AND CAPACITY. © 2000 The McGraw-Hill Companies. McGraw-Hill. Objectives for Chapter 14: Managing Demand and Capacity. Explain: the underlying issue for capacity-constrained services the implications of capacity constraints

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Chapter 14


© 2000 The McGraw-Hill Companies


objectives for chapter 14 managing demand and capacity
Objectives for Chapter 14:Managing Demand and Capacity
  • Explain:
    • the underlying issue for capacity-constrained services
    • the implications of capacity constraints
    • the implications of different types of demand patterns on matching supply and demand
  • Lay out strategies for matching supply and demand through:
    • shifting demand to match capacity or
    • flexing capacity to meet demand
  • Demonstrate the benefits and risks of yield management strategies
  • Provide strategies for managing waiting lines
understanding capacity constraints and demand patterns
Time, labor, equipment and facilities

Optimal versus maximal use of capacity

Understanding Capacity Constraints and Demand Patterns

Demand Patterns

Capacity Constraints

  • Charting demand patterns
  • Predictable cycles
  • Random demand fluctuations
  • Demand patterns by market segment
figure 14 3 strategies for shifting demand to match capacity
Use signage to communicate busy days and times

Offer incentives to customers for usage during non-peak times

Take care of loyal or regular customers first

Advertise peak usage times and benefits of non-peak use

Charge full price for the service--no discounts

Figure 14-3Strategies for Shifting Demand to Match Capacity

Demand Too High

Demand Too Low

Shift Demand

  • 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
figure 14 4 strategies for flexing 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

Figure 14-4 Strategies for Flexing Capacity to Match Demand

Demand Too High

Demand Too Low

Flex Capacity

  • Perform maintenance renovations
  • Schedule vacations
  • Schedule employee training
  • Lay off employees
table 14 1 what is the nature of demand relative to supply
Table 14-1 What is the Nature of Demand Relative to Supply?

Source: Christopher H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing, 47, 3 (Summer 1983): 17.

waiting line issues and strategies
Waiting Line Issues and Strategies
  • unoccupied time feels longer
  • preprocess waits feel longer
  • anxiety makes waits seem longer
  • uncertain waits seem longer than finite waits
  • unexplained waits seem longer
  • unfair waits feel longer
  • longer waits are more acceptable for “valuable” services
  • solo waits feel longer