Managing Demand and Capacity Chapter 14

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Managing Demand and Capacity (Chapter 14)

• Gap 3 - Not Delivering to Service Standards
• Lack of Inventory Capacity
• Capacity Constraints/Demand Patterns
• Strategies for Matching Capacity and Demand
• Waiting Issues/Strategies

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Key Factors Leading to Provider Gap 3
Service Delivery
GAP 3

• Key Factors Related to Demand and
  Capacity

Customer-Driven Service Designs and Standards
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Lack of Inventory Capacity

• leads to four possible scenarios
• (at the level of optimum capacity)

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Service Supply and Demand
Source Christopher H. Lovelock, Classifying
Services to Gain Strategic Marketing Insights,
Journal of Marketing, 47, 3 (Summer 1983) 17.
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Service Capacity Constraints

• Constraint

• Examples

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Service Demand Patterns

• predictable cycles
• random demand fluctuations
• demand patterns by market segment

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Summary of Capacity Constraints and Demand
Patterns
Capacity Constraints
Demand Patterns

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Strategies for Matching Capacity and Demand

• Shifting Demand to Match Capacity
• Flexing Capacity to Meet Demand

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Strategies for Shifting Demand to Match Capacity
Demand Too High
Demand Too Low
Shift Demand

• Use signage to communicate busy days and times
• Offer incentives to customers for usage during
  non-peak times
• Take care of loyal or regular customers first
• Advertise peak usage times and benefits of
  non-peak use
• Charge full price for the service--no discounts

• Use sales and advertising to increase business
  from current market segments
• Modify the service offering to appeal to new
  market segments
• Offer discounts or price reductions
• Modify hours of operation
• Bring the service to the customer

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Strategies for Flexing Capacity to Match Demand
Demand Too High
Demand Too Low
Flex Capacity

• Stretch time, labor, facilities and equipment
• Cross-train employees
• Hire part-time employees
• Request overtime work from employees
• Rent or share facilities
• Rent or share equipment
• Subcontract or outsource activities

• Perform maintenance renovations
• Schedule vacations
• Schedule employee training
• Lay off employees

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Waiting Issues/Strategies

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Strategies to Address Waiting

• importance of customer
• urgency of job
• duration of the service transaction
• payment of a premium price