1. DO NOT COPY Chapter 10 Capacity Management in service operations

2. DO NOT COPY Learning Objective Explain the concept of capacity management. Role of capacity management in services management. Manage capacity with regards to change in demand Learn importance of capacity in services business Art of coping up with the available services.

3. DO NOT COPY Introduction Balancing the business Capacity management is one of the most difficult to tackle in business management and more in services operations; a situation which is aggravated in the majority of services, due to uncertain demand and personalized requirements, which make it difficult to plan and assign productive capacity.

4. DO NOT COPY Capacity Management

5. DO NOT COPY Design Capacity, Effective Capacity and Capacity Planning (CP) Capacity is the throughput or number of units a facility can hold, receive, store, or produce in a period of time. Design capacity is the theoretical maximum output of a system in a given period under ideal conditions. Effective capacity is the capacity a firm expects to achieve given its current operating constraints. It is often lower than design capacity because the facility may have been designed for an earlier version of the product or a different product mix than is currently being produced. Capacity available is the capacity of a system or resource to produce a quantity of output in a given time period.

6. DO NOT COPY Capacity planning variation in manufacturing set up and a service unit Capacity can also be increased by streamlining the workflow, so more work is completed in a given amount of time. There always seems to be a lot of haziness around capacity. Capacity is a measure of the amount of work that can be processed in a given time frame. Capacity can be increased by increasing the resources required to Process the work (machines, people), as well as by extending the time frame (adding shifts, working weekends).

7. 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

8. DO NOT COPY Capacity Levels Strategic Business Unit The branch The team The individual Resources

9. DO NOT COPY What Limits Capacity ? 1. Establish the most appropriate unit for the statement of capacity. 2. List the main elements which make up capacity; included will be statements relating to all or some of the following resources, people, information, facilities, equipment, and materials. 3. List the factors which influence each of the main input elements contributing to the capacity. For example the information element may be used to record time and frequency factors including relevant service times. 4. Identify the resource which is the limiting resource.

10. DO NOT COPY Capacity Management - Creating the Balance There are two polar opposites for managing service capacity, one to hold capacity steady while influencing demand and the other of changing capacity to stay in line with demand (Sasser 1976). In reality most service providers use a mixture, although in the case of service delivery systems which have a clear capacity constraint there is a bias towards level capacity; this is evident at the branch level for hotels and airlines.

11. DO NOT COPY Chase strategy Altering the number of service providers and/or the hours worked, often involving the use of part time staff. Sharing capacity between different parts of the service delivery system. Transferring resources typically between back room and front office. Using outside suppliers through subcontracting or leasing to provide resources. Asking customers to provide more resource by way of self service.

12. DO NOT COPY Level Strategy Price changes. Advertising and promotion. Developing off peak demand. Use of appointment and reservation systems. Making customers queue for the service. Level capacity strategies are increasingly linked to yield management systems where effective capacity is constrained, for example in airlines, hotels, and car rentals.

13. DO NOT COPY Coping Strategy As a precursor to developing a coping strategy it is obvious that any service provider should fine tune their own combination of the chase and level strategies by: Improving their forecasting capabilities Setting clear service quality targets Setting clear resource productivity targets Understanding critical and hygiene dimensions of their service quality Understand the possible failure points in service delivery Understand the bottlenecks in the service delivery system

14. DO NOT COPY The “Coping” Strategy When a chase strategy becomes level in the short term because effective capacity cannot be increased to meet demand, usually because this would lead to under utilization of resources. When a chase strategy becomes level because it is not possible to reduce the level of resources any lower in the short term. When a level strategy fails to stifle demand or overbooks. When a level strategy is unsuccessful at filling effective capacity.