1. McGraw-Hill © 2000 The McGraw-Hill Companies 1 S M S M McGraw-Hill © 2000 The McGraw-Hill Companies Chapter 14 MANAGING DEMAND AND CAPACITY

2. McGraw-Hill © 2000 The McGraw-Hill Companies 2 S M 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

3. McGraw-Hill © 2000 The McGraw-Hill Companies 3 S M Understanding Capacity Constraints and Demand Patterns Understanding Capacity Constraints and Demand Patterns Time, labor, equipment and facilities Optimal versus maximal use of capacity Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment Capacity Constraints Demand Patterns

4. McGraw-Hill © 2000 The McGraw-Hill Companies 4 S M Figure 14-3 Strategies for Shifting Demand to Match Capacity 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 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 Demand Too HighDemand Too Low Shift Demand

5. McGraw-Hill © 2000 The McGraw-Hill Companies 5 S M 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 Perform maintenance renovations Schedule vacations Schedule employee training Lay off employees Demand Too HighDemand Too Low Flex Capacity

6. McGraw-Hill © 2000 The McGraw-Hill Companies 6 S M 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.

7. McGraw-Hill © 2000 The McGraw-Hill Companies 7 S M Table 14-2 What is the Constraint on Capacity?

8. McGraw-Hill © 2000 The McGraw-Hill Companies 8 S M 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