1. Managing Capacity and Demand Chapter - 12

2. Learning Objectives
Describe the strategies for matching capacity and demand for services.
Recommend an overbooking strategy.
Use Linear Programming to prepare a weekly workshift schedule.
Prepare a work schedule for part-time employees.
Use yield management.

3. Strategies for Matching Supply and Demand for Services, fig. 12.1
Partitioning
demand
Developing
complementary
services
Establishing
price
incentives
reservation
systems
Promoting
off-peak
Yield
management
SUPPLY
Cross-
training
employees
Increasing
customer
participation
Sharing
capacity
Scheduling
work shifts
Creating
adjustable
Using
part-time

4. Segmenting Demand Demand often can be grouped into:
random arrivals – ex. Weekday business travelers for airlines; walk-in patients in health clinic
planned arrivals – ex. Weekend pleasure travelers for airlines; appointments for health clinic
Random arrivals are not controllable, but planned arrivals are controllable
Using data you can forecast for random arrivals on any given day and any given time.
Subtracting these walk-in patients from daily (or hourly) physician capacity gives the number of appointment patients needed each day to smooth demand

5. Offering Price Incentives
The price incentives pushes the casual demand and helps in smoothening the demand. For example:
Weekend and night rates for cell-phone plans
Off-season hotel rates at resort locations
Peak-load pricing by utility companies

6. Promoting off-peak demand
Do specials to attract demand during off-peak
Use of resort hotels to do off-season specials, like free breakfast or tickets

7. Reservation System and Overbooking
Taking reservations pre-sells the potential service – allowing better planning.
Reservation allows you to deflect additional demand to other time slots at the same facility or other facility within the same organization – example, Hotel chains
Customer benefits from reservation that they do not have to wait in lines and are guaranteed service availability
What if customer decides not to honor their reservation?
Potential problem for the service provider
Service providers have started overbooking (that is, book more than capacity) to overcome the problem of no-shows.
What if all customers show-up?
Train your frontline workers to handle overbooking problem graciously.

8. Strategies for Managing Capacity
Daily work-shift scheduling
By scheduling work-shifts appropriately, the service capacity can be made available to meet demand
We forecast demand for every hour, which is used to create hourly service staffing requirements
Decide the service level you want to provide – for example, what percentage of calls should be picked within 4 rings will decide the number of operators to schedule.

9. Increasing Customer participation
Design service in such a way that you can involve customers in service delivery – example fast food places
This allows the capacity to vary along with the demand, that is, customers not only increase demand but also increase capacity
Incentive should be built in for customers to participate as a co-producer– example price break, faster check-out
Problems
what if the customers gets hurt
No control on service quality provided by the customer, example table may not be cleaned properly after eating
Contamination and spillage – in bulk stores the customer can use dirty hands or can spill

10. Creating Adjustable Capacity
By design the capacity can be made variable
In Benihana restaurant, they can change the number of tables depending on the number of chefs; because a chef is assigned to a table
Capacity at peak periods can be increased and at off-peak time the workers are used effectively to perform supportive tasks and have higher level of preparedness
Requires cross trained employees
no union problems in job classifications

11. Other Strategies Sharing capacity Cross-trained employees
Airlines cooperate in sharing same gates, ramps, baggage- handling equipment, and ground personnel
Cross-trained employees
Creates flexible capacity and also increases capacity, example Hy-Vee where the workers stock at off-peak time unless called by the manager to operate a register.
Using part-time employees
They can supplement regular employees

12. Yield Management
Yield management model attempts to allocate the fixed capacity of seats on an aircraft to match the potential demand in various market segments in the most profitable manner.

13. Ideal Characteristics for Yield Management
Relatively Fixed Capacity – ex. Hotels and Airlines
Ability to Segment Markets – airlines can discriminate between time-sensitive business traveler and price-sensitive customer
Perishable Inventory – revenue for unsold seat is lost forever
Product Sold in Advance – reservations and booking , sometimes at discount price instead of the uncertainty of selling at higher price later
Fluctuating Demand – you can give price discounts in slow season to increase utilization; and increase price during high season
Low Marginal Sales Cost and High Capacity Change Cost