MANAGING DEMAND AND CAPACITY. Capacity is usually constant whereas demand usually fluctuates. Fluctuations could be due to various reasons, predictable.

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Presentation transcript:

MANAGING DEMAND AND CAPACITY

Capacity is usually constant whereas demand usually fluctuates. Fluctuations could be due to various reasons, predictable or unpredictable. Overuse or underuse of a service results in Gap 3 of the Gap model- failure to deliver what was designed and planned.

Lack of Inventory capability is the main constraint in services marketing. Fluctuations lead to : (a) excess demand (b) excess capacity (c) demand exceeds optimum capacity (d) demand and supply are balanced at the level of optimum capacity.

Capacity constraints Time: e.g Medical, legal, fitness Labour: e.g Hospital, maintenance, education Equipment: e.g Courier servcies, telecommunication, travel services Facilities: e.g hospitality, educational institutions, airlines.

Understanding Demand Patterns Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment.

Strategies for matching capacity and demand Shifting demand to match capacity : When the demand is too high; (a) Communicate busy hours to the customers. (b) Offer incentives for lean time usage (c) Focus on loyal customers (d) Communicate advantages of lean time usage. (e) Do not offer discounts.

When the demand is too low; (a) Attract current market segments by focusing on sales and advertising. (b) Attract new segments with promotional schemes. (c) Offer discounts. (d) Bring the service to the customer (e) Modify hours of operation.

Adjusting capacity to match demand When the demand is too high; (a) Stretch time, labour, facilities and equipment (b) Train employees for multiple skills (c) Hire part-time employees. (d) Pay the employees to work overtime. (e) Rent facilities and equipments. (f) Outsource activities.

When the demand is too low; (a) carry out maintenance, repairs and renovations. (b) Conduct training for employees. (c) Offer leave to employees. (d) Retrench employees.

When demand and capacity cannot be controlled; (a) Employ operational logic. (b) Have a reservation procedure. (c) Follow Queue discipline depending on; - Importance of the customer -Urgency of the job -Duration of the service transaction -Payment of a premium price. (d) Make waiting tolerable.

Yield Management Used in capacity constrained services. Objective of yield management is to produce the best possible revenue from a limited available capacity. It involves allocating the right type of capacity, to the right type of customer, at the right price in order to earn maximum revenue.

Continued…. Yield = Actual revenue potential revenue Where, Actual revenue = Actual capacity used X Average actual price Potential revenue = Total capacity X maximum price