Balancing Demand and Capacity

Balancing Demand and Capacity

• Firms with limited capacity face different demand-supply situations

• These situations include excess demand, demand that exceeds optimum capacity, and well-balanced demand and capacity

• An imbalance between demand and supply causes firms to experience idle capacity during low periods, and turn away customers during peak periods

• This reduces efficiency and profitability

• Firms should balance demand and supply by adjusting one or both

Building Blocks for Effective Capacity and Demand Management

• Define productive capacity
• Use capacity-management tools
• Understand demand patterns and drivers by customer segment
• Use demand-management tools
• Productive capacity includes facilities, equipment, labor and infrastructure

Forms of Productive Capacity

• Physical facilities for processing customers
• Physical facilities for processing goods
• Physical equipment for processing people, possessions, or information
• Labor
• Infrastructure

Stretching Capacity

• Some capacity is elastic and serve more people
• Examples include crowding in a subway car, extended operating hours, or faster customers processing

Adjusted Capacity Methods

• Scheduling downtime during low periods
• Cross-training employees
• Using part-time employees
• Inviting customers to perform self-service
• Asking customers to share capacity
• Designing capacity to be flexible
• Renting or sharing extra facilities and equipment

Managing Demand

• Understanding the patterns and drivers of demand requires targeting by market segment because different segments exhibit different patterns
• Managing demand also entails understanding the demand patterns

Ways to Manage Demand

• Taking no action, and letting demand find its own level
• Reduce demand during peak periods
• Increase demand during low periods
• Inventory demand using a queuing system
• Inventory demand using a reservations system

Marketing Mix Elements

• Use price and non-monetary customer costs to manage demand
• Change product elements to attract different segments at different times
• Modify the place and time of delivery, such as through extended opening hours
• Use communication efforts for promotion and education

Queuing Systems

• Waiting lines and queuing systems help firms inventory demand
• Queuing systems include single line with sequential stages, parallel lines to multiple servers, single line to multiple servers, designated lines, taking a number, and wait lists

Segmenting Waiting Customers

• Urgency of the job, such as in hospital emergency units
• Duration of the service transaction, such as express lanes
• Premium service based on a premium price, such as first-class check-in counters
• Importance of the customer, such as frequent travelers

Improving Customer Wait Times

• Keeping customers occupied or entertained while waiting
• Informing customers about how long the wait is likely to be
• Providing them with an explanation of why they have to wait
• Avoiding perceptions of unfair waits

Benefits of Effective Reservation Systems

• Help customers avoid queues, thereby reducing dissatisfaction
• Allow the firm to control and smooth demand
• Enable the use of revenue management to increase yield

Strategic Approach to Using Surplus Capacity

• Use capacity for service differentiation
• Reward best customers and build loyalty
• Offer customer and channel development such as free or heavily discounted trials
• Reward employees such as with excess capacity
• Barter free capacity, such as by bartering excess capacity for advertising space airline seats, and hotel rooms