Week 12 BOM - Capacity and Demand Management PDF

MANAGING CAPACITY AND DEMAND WEEK 12 - BOM At the end of this lesson, you are expected to: 1. Describe the strategies for matching capacity and demand for services; 2. Determine the overbooking strategy for a service that minimizes expected loss; 3. Explain what yield management is. ...

MANAGING CAPACITY AND DEMAND WEEK 12 - BOM At the end of this lesson, you are expected to: 1. Describe the strategies for matching capacity and demand for services; 2. Determine the overbooking strategy for a service that minimizes expected loss; 3. Explain what yield management is.  CAPACITY PLANNING Capacity planning is a crucial process in operations management that involves determining the production capacity needed to meet changing demands for a company's products or services. The primary goal is to ensure that an organization can meet current and future demand without overcommitting resources or incurring unnecessary costs. Key Aspects of Capacity Planning Capacity refers to the maximum output that an organization can produce in a given period under normal conditions. It can be expressed in terms of units produced per time period, or it can relate to the utilization of resources (e.g., machines, labor).  Key Aspects of Capacity Planning Types of Capacity 1. Design Capacity The maximum output that a facility is designed to achieve. 2. Effective Capacity The maximum output that can be realistically achieved, considering factors like maintenance, breakdowns, and employee absenteeism. 3. Actual Output The actual production achieved in a given period. CAPACITY PLANNING STRATEGIES 1. Level Capacity Strategy (Level Production) This strategy maintains a consistent level of production output, regardless of demand fluctuations. It focuses on producing at a constant rate, leading to inventory accumulation during periods of low demand and depletion during high- demand periods. CAPACITY PLANNING STRATEGIES 1. Level Capacity Strategy (Level Production) Key Features: Consistent production rate The company produces the same amount of goods or services each period. Inventory management Surplus products are stored during low-demand periods to meet future higher demand. Labor stability Workforce and production schedules remain stable, which minimizes hiring and training costs. Capacity utilization Even during low-demand periods, the organization keeps its facilities and resources operating at a steady level. CAPACITY PLANNING STRATEGIES 1. Level Capacity Strategy (Level Production) Advantages: Stable workforce and lower hiring/firing costs. Predictable production scheduling. Better utilization of fixed resources (like machines and facilities). Disadvantages: Requires high inventory storage costs. Risk of overproduction during periods of low demand. Inventory obsolescence or spoilage for perishable products. CAPACITY PLANNING STRATEGIES 2. Chase Demand Strategy This strategy matches production capacity closely with customer demand. Production output is adjusted to meet the exact level of demand in each period, minimizing inventory. CAPACITY PLANNING STRATEGIES 2. Chase Demand Strategy Key Features: Fluctuating production rate Production levels are adjusted to follow demand trends, increasing during high demand and decreasing during low demand. Flexible labor and production Workforce levels and production schedules vary to match changes in demand. Minimal inventory The company tries to produce just enough to meet immediate demand, reducing inventory storage. CAPACITY PLANNING STRATEGIES 2. Chase Demand Strategy Advantages: Lower inventory holding costs. Better alignment of production with actual market demand, reducing waste. More flexibility in meeting fluctuating demand. Disadvantages: Frequent changes in workforce levels (hiring, layoffs, overtime) can be costly and disruptive. Risk of underproduction during unexpected demand surges. Strain on supply chain and production resources during high-demand periods. CAPACITY PLANNING STRATEGIES Choosing Between the Two Strategies: Level Capacity Strategy is typically better when demand is predictable, or when the costs of changing production levels (e.g., hiring or training workers) are high. Chase Demand Strategy works well when demand is highly variable or unpredictable, or when carrying inventory is expensive or impossible (e.g., perishable goods). ***Many companies use a combination of both strategies to balance operational efficiency and responsiveness to demand.  Strategies for Managing Capacity 1. Flexible Workforce Hire Temporary or Part-Time Staff Utilize temporary workers during peak demand periods to adjust capacity without permanent commitments. Cross-Training Employees Train staff to perform multiple roles, allowing flexibility in reallocating resources based on production needs.  Strategies for Managing Capacity 2. Outsourcing and Partnerships Contracting Third-Party Services Collaborate with external manufacturers or service providers to manage excess demand without investing in additional in-house capacity. Offshoring Production Move production to regions with lower labor costs to increase capacity and reduce expenses.  Strategies for Managing Capacity 3. Inventory Management Just-In-Time (JIT) Adopt a JIT approach to minimize inventory holding costs, producing only what is needed when it is needed. Maintain Safety Stock Keep a buffer of inventory to meet unexpected demand surges while avoiding immediate capacity increases.  Strategies for Managing Capacity 4. Capacity Forecasting and Planning Data-Driven Demand Forecasting Use historical data and advanced forecasting techniques to accurately predict demand and plan capacity accordingly. Scenario Planning Prepare for different demand scenarios to ensure flexibility and responsiveness in capacity management. Yield Management It is a pricing strategy that aims to maximize revenue by controlling inventory and pricing based on fluctuating demand. It is commonly used in industries with fixed capacity and perishable inventory, such as airlines, hotels, car rentals, and entertainment. Yield management involves analyzing consumer behavior and market conditions to set prices that optimize revenue generation. Yield Management Key Concepts of Yield Management 1. Dynamic Pricing Prices are adjusted based on real-time demand and supply conditions. For example, an airline may increase ticket prices as the departure date approaches and fewer seats remain available. Yield Management Key Concepts of Yield Management 2. Segmented Pricing Different prices are set for different customer segments based on their willingness to pay. For instance, business travelers may pay more for flexibility, while leisure travelers may seek lower fares. Yield Management Key Concepts of Yield Management 3. Inventory Control Managing the available inventory (e.g., seats on a flight or hotel rooms) to maximize revenue. This includes decisions about how many units to sell at various price points. Yield Management Key Concepts of Yield Management 4. Forecasting Demand Analyzing historical data and market trends to predict future demand. This helps businesses make informed pricing and inventory decisions. Yield Management Key Concepts of Yield Management 5. Time Sensitivity Recognizing that customers may value products differently based on timing. For example, hotel rates may be higher during peak seasons and lower during off-peak times. Yield Management Key Concepts of Yield Management 6. Perishable Inventory Understanding that certain products (like airline seats or hotel rooms) cannot be stored or sold later once the date has passed. Effective yield management ensures that such inventory is sold at the best possible price before it becomes unsellable. Key Strategies in Yield Management Early Booking Discounts Offering lower prices to customers who book in 1. Dynamic advance to fill capacity early. Pricing Strategies Last-Minute Pricing Reducing prices close to the date to encourage purchases for remaining inventory. 2. Length of Stay Setting minimum or maximum stay requirements (e.g., requiring a two-night minimum on weekends) to Controls optimize occupancy rates and revenue. Key Strategies in Yield Management Selling more reservations than available capacity, anticipating that a certain percentage of customers will 3. Overbooking cancel or not show up. This practice helps maximize revenue but requires careful management to avoid customer dissatisfaction. 4. Upselling and Encouraging customers to purchase higher-priced options or add-on services (e.g., room upgrades or Cross-Selling premium seats) to increase overall revenue. Benefits of Yield Management Revenue Optimization Maximizes revenue from available inventory by adjusting prices based on demand. Improved Decision-Making Data-driven insights help businesses make informed pricing and inventory decisions. Increased Competitive Advantage By responding quickly to market conditions, companies can stay ahead of competitors. Challenges of Yield Management Complexity Implementing yield management systems can be complex and require sophisticated technology and analytics. Customer Perception Dynamic pricing can lead to customer dissatisfaction if perceived as unfair or overly opportunistic. Data Dependency Effective yield management relies heavily on accurate data and forecasting, which can be challenging to obtain.  SEATWORK Questions: 1. What is the main difference between the level capacity strategy and the chase demand strategy? 2. What is the advantage of using the level capacity strategy for a business? 3. What is a potential drawback of the chase-demand strategy? 4. Provide one example of an industry that might benefit from using a level capacity strategy, and explain why. 5. Give one example of how a business could use the chase-demand strategy during a peak season.  REFLECTIVE JOURNAL Answer the following questions based on your understanding about the recent discussion. Explain your answer in detail. 1. What were the two or three main idea/concepts I found useful in today’s session, and why? 2. What beliefs of mine have changed about teaching and learning as a result of this session? 3. One thing I learned in this session that I may be able to use in the future is… 4. Issues that interested me a lot, and that I would like to study in more detail 5. I am still unsure about...? 6. What did we not cover that I expected we should? 7. What strategies have I used in the past were reinforced by this session; Have I been discouraged from any others? 8. Miscellaneous interesting facts I learned in this session…  ASSIGNMENT Research on the following topic: Managing Waiting Lines Please include the reference/s of your research  QUIZ 10 ITEMS MULTIPLE CHOICE 10 ITEMS MATCHING TYPE  SOURCES Suggested Readings and References A. Books/eBooks: 1. Dr. Yanga’s Colleges, Inc. Student Handbook 2. DYCIBOM313 Course Syllabus 3. Matias, A. R; Magpantay, Don M; Vizconde A.M. L. (2021) Operations Management in Tourism and Hospitality Industry. 4. Hodge, R. (2021). How Efficiency Changes the Game: Developing Lean Operations for Competitive Advantage (1st ed.). Business Expert Press. 5. Sheppardson, C., & Drozdz, I. (2021). Hospitality: A New Dawn in Sustainability and Service (1st ed.). Studien Zum Physik- und Chemielernen Series. Business Expert Press. 6. Field, J. M. (2020). Designing Service Processes to Unlock Value, Third Edition (1st ed.). 7. Liberatore, M. J., & Miller, T. (2021). Supply Chain Planning: Practical Frameworks for Superior Performance (2nd ed.). 8. Boussard, S. (2021). Food and Beverage Management in the Luxury Hotel Industry (1st ed.). Business Expert Press. 9. Tuominen, K., Kai, L., & Moisio, J. (2021). Managing Processes in Your Professional Service Enterprise: Improvement Guide (1st ed.). 10. Liberatore, M. J., & Miller, T. (2021). Supply Chain Planning: Practical Frameworks for Superior Performance (2nd ed.) 11. Cornelis, A. de Kluyver, & Pearce II, J. A. (2021). Global Business Strategy (2nd ed.). 12. Procurement and Supply Chain Management by Kenneth Lysons and Brian Farrington (2020) B. Web Page: 1. Service Economy: Definition, Characteristics, Pros and Cons (February 8, 2023) Article Retrieved from: https://www.masterclass.com/articles/service-economy 2. Mirarchi, C., Pavan, A., De Marco, F., Wang, X., & Song, Y. (2018). Supporting Facility Management Processes through End-Users’ Integration and Coordinated BIM-GIS Technologies. retrieved from https://www.researchgate.net/publication/325200794_Supporting_Facility_Management_Processes_through_End-Users'_Integration_and_Coordinated_BIM-GIS_Technologies 3. Capacity Planning Strategies (2024) https://www.xola.com/articles/3-types-of-capacity-planning-strategies-with-examples/ C. Media: 1. Strategy Management – Service Strategy (2024) retrieved from https://www.youtube.com/watch?v=0OrhyH4Q9Ko 2. Services Marketing – New Service Development (2021) retrieved from https://www.youtube.com/watch?v=7kkv47NjZpk 3. Operations & Supply Chain Management: Facility & Work Design (2021) retrieved from https://www.youtube.com/watch?v=hLRfrkX-SYw 4. Service Quality (2022) retrieved from https://www.youtube.com/watch?v=VJigYkC4aSo 5. PROCESS IMPROVEMENT TIPS: from a business operations specialist (2021) retrieved from https://www.youtube.com/watch?v=g3-6Ua7ee-c 6. Capacity Management (2021) retrieved from https://www.youtube.com/watch?v=BW-kGwrp-PE 7. Queuing Theory (2022) retrieved from https://www.youtube.com/watch?v=-Kza-8JmqHU 8. Operations & Supply Chain Management: Forecasting & Demand Planning (2021) retrieved from https://www.youtube.com/watch?v=gKG50ePysQQ MANAGING CAPACITY AND DEMAND PREPARED BY: NOEL M. MUNSAYAC, CHMP PRINCESS CONCORDIA V. DE JESUS, MBA, LPT, CHMP