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).

This quiz covers strategies for managing demand and capacity in service corporations, including understanding demand and capacity constraints, predictability, and maximizing productivity.