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Chapter 15: Managing Demand and Capacity. Provider Gap 3 : failure to deliver what was designed and specified The fundamental issue underlying supply and demand management in services is the lack of _________________

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chapter 15 managing demand and capacity
Chapter 15: Managing Demand and Capacity

Provider Gap 3: failure to deliver what was designed and specified

The fundamental issue underlying supply and demand management in services is the lack of _________________

The lack of inventory capability in services is due to the following service characteristics:

_____________________________

______________________________________

managing demand and capacity
Managing Demand and Capacity

Perishability:

An unsold airline seat for a given flight cannot be

Simultaneous production and consumption:

Service cannot be provided in advance of customer demanding the service; cannot be from one place to another

Ex: _______________________________

managing demand and capacity3
Managing Demand and Capacity

Exercise:

Compare a car repair service with an automobile dealer in terms of inventory capability

Which service business is least likely to experience wide fluctuations in demand?

4 scenarios involving capacity and demand
4 Scenarios Involving Capacity and Demand
  • Demand exceeds maximum capacity (excess demand):
  • Demand exceeds optimum capacity: service quality declines;
  • Supply and demand are balanced at the level of optimum capacity:
  • Demand is below optimum capacity (excess capacity):
capacity constraints for service firms table 15 2
Capacity Constraints for Service Firms(Table 15.2)

Time: businesses that sell time, advice, counsel, personal services, etc. Lawyers, consultants, doctors, accountants; more timecannot be produced,

Labor: law firms, consulting firms, health clinics - constrained by number of people available to serve at a point in time

capacity constraints for service firms
Capacity Constraints for Service Firms

Equipment: trucks, aircraft, utility; unless equipment is used to capacity, revenue is severely affected

EX: ________________________________

Facilities: hotels, restaurants, hospitals, airlines, schools, theaters, churches; facility has capacity, beyond which service cannot be provided.

capacity constraints for service firms8
Capacity Constraints for Service Firms

: organization’s resources employed at some ideal level; service quality consistently delivered; customers are happy; employees are happy; demand and supply are balanced

: organization’s resources are used to their absolute maximum; every seat is full, every minute and hour is used; cannot be supported over long periods of time

manage fluctuating demand for service firms
Manage Fluctuating Demand for Service Firms

Services (e.g., restaurants) face fluctuating demand. What is the likely pattern of demand (season, week, day, hour, etc)?

When is demand predictable? When is demand random?

strategies for matching capacity and demand
Strategies for Matching Capacity and Demand

Shifting demand to match capacity:

Shift customers away from periods in which demand exceeds capacity

Flexing (adjusting) capacity to meet demand

shift demand to match capacity
Shift Demand to Match Capacity

Vary the service offering: ski resorts in winter - executivetraining facility in

Communicate with customers:

Modify timing and delivery of service: changing banking hours to include

Differentiate on price:

flexing capacity to meet demand
Flexing Capacity to Meet Demand

Stretch existing capacity: people, facilities, and equipment are asked to work longer to meet demand: EX:

Align capacity with demand fluctuations: use part-time employees, outsource, rent or share facilities, etc.

managing demand and capacity13
Managing Demand and Capacity

Yield Management:

Process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize capacity

yield management
Yield Management

Yield = actual revenue

potential revenue

= actual capacity used x average actual price

total capacity x maximum price

yield management15
Yield Management

Hotel: (Friday – Sunday)

Total capacity: 300 rooms

Maximum price: $150 per room

Actual capacity used: 100 rooms

Average actual price: $125 per room

Yield: 100 x $125 = 27.8%

300 x $150

yield management improving yield for friday to sunday
Yield Management: Improving Yield for Friday to Sunday

Hotel: (Friday – Sunday)

Total capacity: 300 rooms

Maximum price: $100 per room

Actual capacity used: 250 rooms

Average actual price: $90 per room

Yield: 250 x 90 = 75%

300 x 100

waiting line strategies when demand and capacity cannot be aligned
Waiting Line Strategies: When Demand and Capacity Cannot be Aligned

Employ : analyze operational processes to remove any efficiencies

Installing ticket vending machines in train stations to expedite the purchase of train tickets

Establish a : spread demand; reduce long waits

waiting line strategies when demand and capacity cannot be aligned18
Waiting Line Strategies: When Demand and Capacity Cannot be Aligned

Differentiate : 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

Make waiting fun, or : it is not the actual time waiting that impacts customer satisfaction - it is how customers feel about the wait and their perceptions of it;