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1 Managing Capacity. 2 Service capacity u Objective: match the level of operations with the level of demand, finding the best balance between cost and.

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Presentation on theme: "1 Managing Capacity. 2 Service capacity u Objective: match the level of operations with the level of demand, finding the best balance between cost and."— Presentation transcript:

1 1 Managing Capacity

2 2 Service capacity u Objective: match the level of operations with the level of demand, finding the best balance between cost and service levels. u Capacity is perishable –Non- inventoriable –High contact brings uncertainty (time, quality) –intangibility brings difficulty into the measurement of capacity

3 3 Bad capacity decisions u Increasing the wrong kind of capacity (airlines) u Not increasing all round capacity (hotel) u Not considering competitive reaction (Disney) u Undercutting ones own service (package delivery)

4 4 Strategies for capacity management u Control supply: Chase strategy vary capacity to follow changes in demand –Low skill, training, high turnover –Seasonal fluctuations u Level capacity: peak demand –Skilled employees, long term success u Alter demand: proactive

5 5 Strategies for Matching Supply and Demand for Services DEMAND STRATEGIES Queuing Developing complementary services Establishing price incentives Developing reservation systems Promoting off-peak demand Yield management SUPPLY STRATEGIES Cross- training employees Increasing customer participation Sharing capacity Scheduling work shifts Creating adjustable capacity Using part-time employees Partitioning demand

6 6 Hotel Overbooking Decision Matrix Number of Reservations Overbooked No- Prob- shows ability Expected loss, $

7 7 Controlling Supply u Customer participation: capacity just when it is needed. –Lower price, faster service –Less control over quality of service u Creating adjustable capacity: through design (i.e. Layout)

8 8 Controlling Supply u Maximizing efficiency: –only essential tasks at peak demand periods; shift some processes to slack periods –increase the use of effective capacity: identify tasks done by people with higher skills u Cross training of employees: creates flexible capacity to meet localized peaks u Subcontracting: expand capacity by using the capacity of others. –Subcontractor quality; subcontractor capacity

9 9 Controlling Supply u Expansion in ante u Sharing capacity –Lease underutilized capacity to others –Share capacity for ancillary services (ground personnel) –Share capacity of equipment (dialysis machine, ambulance, police, fire)

10 10 Controlling Supply u Using part-time employees –Minimal skill (training) requirements –Ready pool of labor availability –Back-room operations; least customer contact u Alternatively –Place off-duty personnel on standby –Longer working hours for full time employees

11 11 Controlling Supply u Scheduling –Staggered overlapping shifts –Daily workshift scheduling –Weekly workforce scheduling with 2 consecutive days-off constraint

12 12 Strategies for Matching Supply and Demand for Services DEMAND STRATEGIES Queuing Developing complementary services Establishing price incentives Developing reservation systems Promoting off-peak demand Yield management SUPPLY STRATEGIES Cross- training employees Increasing customer participation Sharing capacity Scheduling work shifts Creating adjustable capacity Using part-time employees Partitioning demand

13 13 Yield Management u Using reservation systems u Overbooking u Partitioning demand

14 14 Ideal Characteristics for Yield Management u Relatively Fixed Capacity u Ability to Segment Markets u Perishable Inventory u Product Sold in Advance u Fluctuating Demand u Low Marginal Sales Cost and High Capacity Change Cost

15 15 Seasonal Allocation of Rooms by Service Class for Resort Hotel First class Standard Budget Percentage of capacity allocated to different service classes 60% 50% 30% 20% 50% Peak Shoulder Off-peak Shoulder (30%) (20%) (40%) (10%) Summer Fall Winter Spring Percentage of capacity allocated to different seasons 30% 20% 10% 30% 50% 30%

16 16 Demand Control Chart for a Hotel Expected Reservation Accumulation 2 standard deviation control limits


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