service demand & supply

8/6/2019 Service Demand & Supply

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SERVICE

DEMAND &

SUPPLY



Management of customer demand

� The task of managing markets&ensuring a good fit between demand& supply is usually very much complex

for services than for goods.

� Because goods manufacturers are able to separate production fromconsumption,the y have the ability tohold stock of goods that can be moved to even out regional imbalancesin supply & demand.



Eight different demand situations

� Negativ e DemandOccurs when most or all segments in amarket possess negative feelings towards aservice.Example-Medical services are

perceived as unpleasant & are purchasedonly in distress.

� No DemandOccurs where a product is perceived bycertain segment as being of novalue.Example- In the financial service sector,young people often see savings &pension policies as being of no value to

them.



� Latent DemandOccurs when an underlying need or service

exists but there is no product that cansatisfy need at an affordable prices tocustomers.Example- within the travelmarket, a latent demand for leisure travelto Australia exists,prevented from beingactual demand by high costs of airfares.

� Faltering Demand

Is characterized by a steady fall in saleswhich is more than a temporarydownturn.Example-Corner shops have oftenfound themselves facing a faltering

demand.



� Irregular DemandIs characterized by a very uneven

distribution of demand through time.� Full Demand

Exists where demand is currently at a

desirable level & one which allows the organization to meet its objectives.� Ov erfull Demand

Occurs where there is excess demandfor a service on a permanentbasis.Example-A pop group may findthat tickets for all its concerts are

sold out very quickly.



4 basic scenarios that can result fromdifferent combinations of capacity &

demand1. Excess demand.

2. Demand

exc

eeds optimum capacity.

3. Demand & supply are balanced at the

lev

el of optimum capacity.

4. Excess capacity.



Capacity Constraints� T ime

For some service business,time is primaryconstraint.Example-Lawyer,Consultant,Hairdresser

� LaborThe firm that employs a large no.of service providers,labor or staffing level can be aconstraint.Example-A law firm,A universitydept.,consulting firm.

� EquipmentIt can be a critical constraint.Example-fortrucking or air-freight delivery services,the trucks or airplanes needed to service demandmay be a capacity location.



Understanding demand patterns

� Charting demand patterns

� Predictable cycles

� Random demand fluctuations

� Demand patterns by management



Strategies for matching capacity &demand

1. Shifting demand to match capacity.it tells to match demand fluctuationsthemselves by shifting demand to match existing supply.Example-Many business travelers

are not able to shift their needs for airline,carrental & hotel services but the y can shift the timings of trip.

2. Vary the service offering.

This general strategy is to adjust capacity tomatch fluctuations in demand.Example-WhistlerMountain,a ski resort in Vancouver,Canadaoffers its facilities for executive development& training programs during summer when snowskiing is not possible.



3. Shift demand

� Offer incentives to customers for usage during non peak times.

� Advertise peak usage time & benefits ofnon peak use.

� T ake care of loyal or ´regular customersfirst.

� Offer discounts or price-reductions.

� Modify service offering to appeal newmarket segment.

� Bring service to customers.



4.Communicate with customers

�L

et t

hecustom

ers know about t

hetim

es ofpeak demand periods so the y can choose to

use service at alternative times & avoidcrowding or delays.

� Example-signs in banks & post offices thatlet customers know their busiest hours &

busiest days of t

hew

eek can s

erv

eas awarning,allowing customers to shift their

demand to another time,if possible.



5. Modify timing & location ofservice deliv ery

� Some firms adjust their hours & days ofservice delivery to more directly reflectcustomer demand.Example-historically,U.SBanks were open only during ´bankers·hoursµ from 10a.m to 3p.m everyweekday.obviously these hours did notmatch the times when most people preferred to do their personal banking.

� Example- Theaters also accommodate customers schedules by offering matineeson weekends & holidays· when people are free during the day for entertainment



6. Differentiation on price� A common response during periods of slow

demand is to discount the price of the service.

� Example- business travelers are far lessprice sensitive than are families traveling

for pleasure.7. Flexing capacity to meet demand� Stretch existing capacity� Stretch time

� Stretch labor� Stretch time labor,facilities & equipments-

cross train employees,hire part time employees,request overtime work fromemployees.



� 8. Stretch facilities� Stretch equipment-Computers, telephone

lines & maintenance equipment can often be stretched be yond what would be consideredthe maximum capacity for short periods toaccommodate peak demand.

� 9. Align capacity &demand fluctuations� The basic strategy us sometimes known as

´chase demandµ strategy.

� B y adjusting service resources creatively,organizations can in effect chase the demandcurves to match capacity with customerdemand patterns.



� Specific actions can be taken:-

�Us

epart tim

e employ

ees

� Rent or share facilities or equipments.

� Schedule down periods of low demand.

� Cross-train employees� Modify or move facilities or equipments



Yield Management

� Yield management is a term that has been

attached to a variety of methods, matchingdemand & supply in capacity constrainedservices.

� Using yield management models, organizationscan find the best balance at a particular pointin time among the prices charged, the segmentssold to, & the capacity used.

�Its goal is to produc

eb

est possibl

efinancialreturn from a limited available capacity.

� It·s a process of allocating the right type ofcapacity to the right customer at right price so

as to maximize revenue or yield.

service demand & supply

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