1. DIMPLE UDANIBALANCING DEMAND ANDPRODUCTIVE CAPACITY

2. Fluctuations in Demand Threaten ServiceProductivity 3. Productive Capacity and ServiceSuccess Services cannot be stockpiled This is problematic for people orphysical possession services due towide swings in demand Goal is to utilize staff, equipment, andfacilities as productively as possible 4. Service Decision Framework:Decisions on Matching Demand andCapacityWhat Business Are We In?What Service Processes Can Be Used inOur Operation? (PROCESS)Who Are Our Customers and How Should WeRelate to Them?What Price Should We Charge?(PRICE AND OTHER USER OUTLAYS)How to Communicate? (PROMOTION &EDUCATION, PHYSICAL EVIDENCE)Options for Delivery? (PLACE, CYBERSPACE& TIME, PHYSICAL EVIDENCE)How Can We Balance?PRODUCTIVITY AND QUALITYWhat Should be the Core and Supplementary Elementsof Our Service Product? (PRODUCT ELEMENTS)HOW SHOULD WE MATCH DEMAND AND PRODUCTIVE CAPACITY?What Are Appropriate Roles for People and Technology? (PEOPLE)How Can Our Firm Achieve Service Leadership? 5. How Should We Match Demand andProductive Capacity? How do we define our productive capacity?(e.g., buildings, physicalspace, machines, brawn, brains?) What are demand levels for our service and do theyexceed capacity at any time? What explains variations in demand? What strategies can we employ to match demand andcapacity? How should we design waiting lines and reservationssystems? 6. From Excess Demand to ExcessCapacityFour conditions potentiallyfaced by fixed-capacityservices: Excess demand Too much demand relativeto capacity at a given time Demand exceeds optimumcapacity MaximumCapacity Upper limit to a firmsability to meet demand at agiven time Optimum capacity Point beyond whichservice quality declines asmore customers areserviced Excess capacity 7. Addressing the Problem ofFluctuating DemandTwo basicapproaches: Adjust level ofcapacity to meetdemand Need tounderstandproductivecapacity andhow it varies onan incremental 8. Variations in Demand Relative toCapacityVOLUME DEMANDEDTIME CYCLE 1 TIME CYCLE 2Maximum AvailableCapacityOptimum Capacity(Demand and SupplyWell Balanced)Low Utilization(May Send Bad Signals)Demand exceeds capacity(business is lost)Demand exceedsoptimum capacity(quality declines)Excess capacity(wasted resources)CAPACITY UTILIZED Use marketing strategies tosmooth out peaks, fill invalleys Many firms use a mix of bothapproaches 9. Many Service Organizations Are CapacityConstrained 10. Defining Productive Capacity inServices Physical facilities to contain customers Physical facilities to store or process goods Physical equipment to process people, possessions, orinformation Labor used for physical or mental work Public/private infrastructure 11. Alternative Capacity ManagementStrategies Level capacity (fixed level at all times) Stretch and shrink Offer inferior extra capacity at peaks (e.g., bus/trainstandees) Vary seated space per customer (e.g., elbow room, legroom) Extend/cut hours of service Chase demand (adjust capacity to match demand) Flexible capacity (vary mix by segment) 12. 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 13. Patterns and Determinants of Demand 14. Predictable Demand Patterns andTheir Underlying Causes day week month year other employment billing or taxpayments/refunds pay days school hours/holidays seasonal climate changes public/religious holidays natural cycles(e.g., coastal tides)Predictable Cyclesof Demand LevelsUnderlying Causes ofCyclical Variations 15. Causes of SeeminglyRandom Changes in DemandLevels Weather Health problems Accidents, Fires, Crime Natural disastersQuestion: Which of these events can be predicted? 16. Analyzing Drivers of Demand Understand why customers from specificmarket segments select this service Keep good records of transactions toanalyze demand patterns Sophisticated software can help to trackcustomer consumption patterns Record weather conditions and otherspecial factors that might influencedemand 17. Overall Usage Levels CompriseDemand from Different Segments Not all demand is desirable Keep peak demand levels within service capacity oforganization Marketing cannot smooth out random fluctuations indemand Fluctuations caused by factors beyond organizationscontrol (for example: weather) Detailed market analysis may reveal that one segmentsdemand cycle is concealed within a broader, randompattern 18. Analyzing Demand by MarketSegment Different customers have different demandpatterns by day or by season (e.g., businesstravelers vs. tourists) Some users have little choice in timing ofdemand, others are flexible (e.g. commuters vs.shoppers) Some demand is undesirable and should bediscouraged (e.g., inappropriate calls toemergency services) 19. Identifying Variations in Demandby Time PeriodSeason of YearOff-peak Shoulder PeakWeekdayWeekendMorningpeakMiddayAfternoonpeakEvening/nightTime of DayDay of Week 20. Demand Levels Can Be Managed 21. Alternative Demand-ManagementStrategies Take no action Let customers sort it out Reduce demand Higher prices Communication promotingalternative times Increase demand Lower prices Communication, includingpromotional incentives Vary product features toincrease desirability More convenient deliverytimes and places Inventory demand by reservationsystem Inventory demand by formalizedqueuing 22. Marketing Strategies CanReshape 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 23. Hotel Room Demand Curves bySegment and SeasonBh = business travelers in high seasonBl = business travelers in low seasonTh = tourist in high seasonTl = tourist in low seasonBhBhBlBlThThTlTlPrice perroom nightQuantity of rooms demanded at each priceby travelers in each segment in each seasonNote: hypothetical example 24. Inventory Demand through Waiting Linesand Reservations 25. Waiting Is a Universal Phenomenon! An average person may spend up to 30 minutes/daywaiting in lineequivalent to over a week per year! Almost nobody likes to wait Its boring, time-wasting, and sometimes physicallyuncomfortable 26. Why Do Waiting Lines Occur? Because the number of arrivals at a facilityexceeds capacity of system to process them at aspecific point in the process Queues are basically a symptom of unresolvedcapacity management problems Not all queues take form of a physical waitingline in a single location 27. Saving Customers fromBurdensome Waits Add extra capacity so that demand can be met at mosttimes (problem: may increase costs too much) Rethink design of queuing system to give priority tocertain customers or transactions Redesign processes to shorten transaction time Manage customer behaviour and perceptions of wait Install a reservations system 28. Alternative Queue ConfigurationsSingle line, single server, single stageSingle line, single servers, sequential stagesParallel lines to multiple serversDesignated lines to designated serversSingle line to multiple servers (snake)Take a number (single or multiple servers)28292120242330 2531262732 29. Criteria for Allocating DifferentMarket Segments to DesignatedLines 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 volumepurchasers versus others 30. Minimize Perceptions of Waiting Time 31. Ten Propositions on Psychology ofWaiting Lines1.Unoccupied time feels longer than occupied time2. Pre- and post-process waits feel longer than in-process waits3. Anxiety makes waits seem longer4. Uncertain waits are longer than known, finite waits5. Unexplained waits are longer than explained waits 32. 6. Unfair waits are longer than equitable waiting7. People will wait longer for more valuable services8. Waiting alone feels longer than waiting in groups9. Physically uncomfortable waits feel longer10. Waits seem longer to new or occasional usersTen Propositions on Psychology ofWaiting Lines 33. Create an Effective Reservation System 34. 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 35. Characteristics of Well-DesignedReservations 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 toalternative 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 36. Setting Hotel Room Sales Targets bySegment and Time PeriodOut of commission for renovationLoyalty ProgramMembersTransient guestsWeekendpackageGroups and conventionsAirline contracts100%50%Week 7(Low Season)MNights: TuTime W Th F S SuLoyalty Program MembersTransient guestsW/EpackageGroups (no conventions)Airline contractsWeek 36(High Season)M Tu W Th F S SuCapacity(% rooms) 37. Information Needed for Demandand Capacity ManagementStrategies Historical data on demand level and composition, noting responses tomarketing variables Demand forecasts by segment under specified conditions Segment-by-segment data Fixed and variable cost data, profitability of incremental sales Meaningful location-by-location demand variations Customer attitudes toward queuing Customer opinions of quality at different levels of capacity utilization 38. DIMPLE UDANITHANK YOU