1. Managing Capacity

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

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

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

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

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

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

8. Controlling Supply 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
Cross training of employees: creates flexible capacity to meet localized peaks
Subcontracting: expand capacity by using the capacity of others.
Subcontractor quality; subcontractor capacity

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

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

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

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

13. Yield Management Using reservation systems Overbooking
Partitioning demand

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

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

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