HM8 Chapter 6: Managing Demand and Capacity

Strategies for Managing Demand and Capacity

• Managing demand and capacity helps companies gain a competitive edge over others.
• Services involving tangible actions on customers are more likely to be subject to capacity constraints than information-based services.
• Demand refers to the level of consumer interest and needs.
• Types of demand include:
  • Predictable cycles: periodic increase and decrease in demand.
  • Random demand fluctuations: appear to be random but have a cause and demand patterns by market segment.
• Approaches to manage demand include:
  • Take no action: reduce demand or increase capacity.
  • Increase demand: marketing strategies, price and other user outlays, changing product elements, modifying place and time of delivery, and promotion and education.
  • Inventory demand: by reservation system, formalized queuing, or segments.
  • Not applicable: not applicable.
• Capacity refers to the resources and needs to be adjusted and managed to satisfy the demand of the consumer and meet the objectives of the operation.
• Discrepancies between capacity and demand result in inefficiency, either underutilized resources or dissatisfied customers.

Adjusting Capacity

• Strategies to adjust capacity include:
  • Stretch time: extend the hours of service temporarily to accommodate demand.
  • Stretch labor: employees are asked to work longer during peak demand.
  • Stretch facilities: addition of tables, chairs, or other equipment.
  • Stretch equipment: computers, telephone lines, and maintenance equipment.
• Capacity constraints include:
  • Staff/skill levels.
  • TI facilities/technology.
  • Materials availability.
  • Product/service mix.
  • Storage.
  • Working schedules and access to facilities.

Capacity Planning Methods

• Capacity planning methods include:
  • Capacity leads demand: have capacity ready to wait for an increase in demand.
  • Capacity matches demand: provision of capacity in line with demand.
  • Capacity lags demand: increments of capacity are only added after the demand has increased.

Capacity Management

• Capacity management refers to the management of productive capacity, including equipment, facilities, infrastructure, and labor.
• Capacity planning involves short-term, medium-term, and long-term planning.
• Short-term planning involves a reactive time scale and immediate response.
• Medium-term planning involves a time scale beyond the immediate and managing of the operation.
• Long-term planning involves a time scale beyond 1-2 years and involves significant decisions.

Queuing Strategies

• Queuing strategies include:
  • Employ operational logic.
  • Establish a reservation process.
  • Yield management: produce the best return from a limited available capacity.
  • Differentiate waiting customers.
  • Make waiting more pleasurable or at least tolerable.

Psychology of Queuing

• Time spent in a queue is seen as idle or wasted time.
• Customers are prepared to pay a premium to avoid or reduce queuing time.
• Perception of the queue depends on the type of queue and whether the end is worth waiting for.
• Customers have higher expectations, and queues are often seen as a negative thing.
• Customers dislike uncertainty.

Service Recovery

• Service failure refers to any type of error, mistake, deficiency, or problem occurring during the provision of service.
• Service failure occurs due to gaps in the service quality model (SERVQUAL).
• Types of service failures include:
  • Failures on service-product.
  • Failures on customer request delivery.
  • Failures on customer service.
  • Failures caused by other organizational key players.
• Guest responses to service failure include:
  • Never return.
  • Complaints.
  • Negative word of mouth.
  • Strike back and get even.
• Service recovery strategies include:
  • Urge and monitor complaints.
  • Learning from solutions made.
  • Learning from lost opportunities (guests).
  • Introducing a service fail-safe.

Service Excellence and Leadership

• Relationship between profitability, productivity, and service quality is direct and simple.
• Measuring service quality involves soft standards (non-quantifiable processes) and hard standards (collected based on outcomes).
• Dimensions of service quality include:
  • Assurance.
  • Empathy.
  • Reliability.
  • Responsiveness.
  • Tangibility.
• Objectives of customer feedback include:
  • Performance appraisal.
  • Customer-focused organization.
  • Customer-driven growth.

Classification of Service Organizations

• Classification of service organizations includes:
  • 4th Class Firms: Suleservient Firms (exist under minimum compliance, avail of services if there is no alternative, focused on minimizing cost, insensitive to customers' needs and wants).
  • 3rd Class Firms: Traditional Firms (adhere to standardized form, productivity is to follow procedures, keep costs below budget).
  • 2nd Class Firms: Maven Firms (display no-nonsense professionalism, recognize the importance of customers' values, balance between productivity and service quality, continuous innovation and improvement).
  • 1st Class Firms: Innovator Firms (innovativeness and excellence, seamless service, continuous innovation, improvement, experimentation, and consultation, collaborate with customers).