5. Balancing Demand and Productive Capacity
Chapter 9
Lovelock
Chapter 9
Balancing Demand and Productive Capacity

6. Fluctuations in Demand Threaten Service Productivity

7. From Excess Demand to Excess Capacity
Four conditions potentially faced by fixed-capacity services:
Excess demand
Too much demand relative to capacity at a given time
Demand exceeds optimum capacity
Upper limit to a firm’s ability to meet demand at a given time
Optimum capacity
Point beyond which service quality declines as more customers are serviced
Excess capacity
Too much capacity relative to demand at a given time

8. Versus

9. Addressing Problem of Fluctuating Demand
Two basic approaches:
Adjust level of capacity to meet demand
Need to understand productive capacity and how it varies on an incremental basis
Manage level of demand

10. Variations in Demand Relative to Capacity (Fig 9.1)
Use marketing strategies to smooth out peaks, fill in valleys
Many firms use a mix of both approaches
VOLUME DEMANDED
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED
Maximum Available
Demand exceeds
optimum capacity
Capacity
(quality declines)
Optimum Capacity
(Demand and Supply
Well Balanced)
Excess capacity
Low Utilization
(wasted resources)
(May Send Bad Signals)
TIME CYCLE 1
TIME CYCLE 2

11. Many Service Organizations Are Capacity Constrained

12. Defining Productive Capacity in Services
Physical facilities to contain customers
Physical facilities to store or process goods
Physical equipment to process people, possessions, or information
Labor used for physical or mental work
Public/private infrastructure

13. Alternative Capacity Management Strategies
Level capacity (fixed level at all times)
Stretch and shrink
Offer inferior extra capacity at peaks (e.g., bus/train standees)
Vary seated space per customer (e.g., elbow room, leg room)
Extend/cut hours of service
Chase demand (adjust capacity to match demand)

14. Adjusting Capacity to Match Demand
Schedule downtime during periods of low demand
Use part-time employees
Rent or share extra facilities and equipment
Ask customers to share
Invite customers to perform self-service
Cross-train employees

15. Patterns and Determinants of Demand

16. Predictable Demand Patterns and Their Underlying Causes (Table 9.1)
Predictable Cycles
of Demand Levels
Underlying Causes of
Cyclical Variations
day
week
month
year
other
employment
billing or tax payments/refunds
pay days
school hours/holidays
seasonal climate changes
public/religious holidays
natural cycles
(e.g., coastal tides)

17. Causes of Seemingly Random Changes in Demand Levels
Weather
Health problems
Accidents, Fires, Crime
Natural disasters
Question: Which of these events can be predicted?

18. Demand Levels Can Be Managed

19. Alternative Demand Management Strategies (Table 9.2)
Take no action
Let customers sort it out
Reduce demand
Higher prices
Communication promoting alternative times
Increase demand
Lower prices
Communication, including promotional incentives
Vary product features to increase desirability
More convenient delivery times and places
Inventory demand by reservation system
Inventory demand by formalized queuing

20. Marketing Strategies Can Reshape Some Demand Patterns
Use price and other costs to manage demand
Change product elements
Modify place and time of delivery
No change
Vary times when service is available
Offer service to customers at a new location
Promotion and education

21. Inventory Demand through Waiting Lines and Reservations

22. Waiting Is a Universal Phenomenon!
An average person may spend up to 30 minutes/day waiting in line—equivalent to over a week per year!
Almost nobody likes to wait
It's boring, time-wasting, and sometimes physically uncomfortable

23. Why Do Waiting Lines Occur?
Because the number of arrivals at a facility exceeds capacity of system to process them at a specific point in the process
Queues are basically a symptom of unresolved capacity management problems

24. Saving Customers from Burdensome Waits
Add extra capacity so that demand can be met at most times (problem: may increase costs too much)
Rethink design of queueing system to give priority to certain customers or transactions
Redesign processes to shorten transaction time
Manage customer behavior and perceptions of wait
Install a reservations system

25. Alternative Queuing Configurations
Single line, single server, single stage 28 29 21 20 24 23 30 25 31 26 27 32
Single line, single servers, sequential stages
Parallel lines to multiple servers
Designated lines to designated servers
Single line to multiple servers (“snake”)
“Take a number” (single or multiple servers)

26. Criteria for Allocating Different Market Segments to Designated Lines
Urgency of job
Emergencies versus non-emergencies
Duration of service transaction
Number of items to transact
Complexity of task
Payment of premium price
First class versus economy
Importance of customer
Frequent users/high volume purchasers versus others

27. Minimize Perceptions of Waiting Time

28. Ten Propositions on Psychology of Waiting Lines
Unoccupied time feels longer than occupied time
Pre- and post-process waits feel longer than in-process waits
Anxiety makes waits seem longer
Uncertain waits are longer than known, finite waits
Unexplained waits are longer than explained waits
Unfair waits are longer than equitable waiting
People will wait longer for more valuable services
Waiting alone feels longer than waiting in groups
Physically uncomfortable waits feel longer
Waits seem longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt

29. Create An Effective Reservation System

30. Benefits of Reservations
Controls and smoothes demand
Pre-sells service
Informs and educates customers in advance of arrival
Saves customers from having to wait in line for service (if reservation times are honored)
Data captured helps organizations
Prepare financial projections
Plan operations and staffing levels

31. Characteristics of Well-Designed Reservations System
Fast and user-friendly for customers and staff
Answers customer questions
Offers options for self service (e.g., the Web)
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices to alternative times and locations
Includes strategies for no-shows and overbooking
Requiring deposits to discourage no-shows
Canceling unpaid bookings after designated time
Compensating victims of over-booking