SQ Lecture Eight - Balancing Demand Against Productive Capacity


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SQ Lecture Eight - Balancing Demand Against Productive Capacity

  1. 1. JAN 2013 Semester 1 Service Quality MKTG 1268 Lecture Eight • Balancing Demand Against Productive Capacity (Chapter 9)
  2. 2. Overview of Chapter 92  Fluctuations in Demand Threaten Service Productivity  Defining Productive Service Capacity  Managing Capacity  Understanding Patterns of Demand  Managing Demand  Inventory Demand through Waiting Lines and Queuing Systems  Customer Perceptions of Waiting Time  Inventory Demand Through Reservations System
  3. 3. Managing Resorts Requires Effective Management of Demand and Capacity3
  5. 5. Carefully balancing the demands (by customers) and the available capacity of the service firm’s resources requires careful planning5
  6. 6. From Excess Demand to Excess Capacity6 Four conditions potentially faced by fixed-capacity services: 1. Excess demand  Too much demand relative to capacity at a given time 2. Demand exceeds optimum capacity  Upper limit to a firm’s ability to meet demand at a given time 3. Optimum capacity  Pointbeyond which service quality declines as more customers are serviced 4. Excess capacity  Too much capacity relative to demand at a given time
  7. 7. Variations in Demand Relative to Capacity (Fig. 9.3)7 7
  8. 8. Managing Capacity and Demand • Define productive capacity • Manage capacity  Stretch capacity ― squeeze more people into a given capacity  Adjust capacity to more closely match demand • Understand demand  Understand patterns of demand and determine demand drivers • Manage demand  Use marketing strategies to smooth out peaks, fill in valleys8 © Pearson Education South Asia Pte Ltd 2013. All rights reserved
  9. 9. Building blocks for managing capacity and demand9
  10. 10. What is Productive Capacity? • Productive capacity can take several forms in services  Physical facilities designed to contain customers  Physical facilities designed for storing or processing goods  Physical equipment used to process people, possessions, or information  Labor  Infrastructure • Financial success in businesses that are limited in capacity depends largely on how capacity is used1 © Pearson Education South Asia Pte Ltd 2013. All rights reserved0
  11. 11. Defining – specifically – the productive capacity of a service11
  12. 12. Examples of the importance of defining productive capacity12
  14. 14. Managing Capacity – Rush Hour Crowd in the Subway Train14
  15. 15. Alternative Capacity Management Strategies15  Capacity is fixed, but more people are served at the same level of capacity  Stretch and shrink:  Offer inferior extra capacity at peaks (e.g. bus/train standees)  Use facilities for longer/shorter periods  Reduce amount of time spent in process by minimizing slack time
  16. 16. Adjusting Capacity to Match Demand (Vary amount of capacity to match anticipated demand):16 • Schedule downtime during periods of low demand • Cross-train employees • Use part-time employees • Invite customers to perform self-service • Ask customers to share • Create flexible capacity • Rent or share extra facilities and equipment
  17. 17. Cross-training staff as a means of adjusting capacity to meet demand17
  19. 19. Demand Varies by Market Segment• Demand may seem random, but analysis may reveal a predictable demand cycle for different segments• Keep good records of transactions to analyze demand patterns  Sophisticated software can help to track customer consumption patterns• Record weather conditions and other special factors that might influence demand1 © Pearson Education South Asia Pte Ltd 2013. All rights reserved9
  20. 20. Predictable Demand Patterns and Their Underlying Causes (Table 9.1) (1)20 Predictable Cycles Underlying Causes of of Demand Levels Cyclical Variations  day  employment  week  billing or tax payments/refunds  month  pay days  year  school hours/holidays  other  seasonal climate changes  public/religious holidays  natural cycles See full details in Table 9.1 on page 272 of the text 20
  21. 21. 21
  22. 22. Some service jobs can be regularly scheduled – example maintenance jobs22
  23. 23. Predictable Demand Patterns andTheir Underlying Causes (Table 9.1) (2)  Underlying causes of randomly changing demand levels  Weather  Health problems  Accidents, Fires, Crime  Natural disasters Disaggregate demand by market segment for a particular service over time  Use patterns by particular type of customer or for a particular purpose  Variations in net profitability for each completed transaction 23
  24. 24. Understanding patterns of demand – seasonal trends in tourist arrivals24
  26. 26. Alternative Demand Management Strategies (Table 9.2)26  Take no action  Let customers sort it out  Reduce demand  Higher prices  Communication encouraging use of other time slots  Increase demand  Lower prices  Communication, including promotional incentives  Vary product features to increase desirability  More convenient delivery times and places  Inventory demand by reservation system  Inventory demand by formalized queuing See full details in Table 9.2 on page 275 of the text
  27. 27. Alternative Demand Management Strategies27
  28. 28. Marketing Strategies Can Reshape Some Demand Patterns28  Use price and other costs to manage demand. If the firm understands the shape of demand curves for different market segments, then prices may be raised/lowered to discourage/attract particular segments at particular times.  Change product elements. Features may be varied according to the time of day (e.g., restaurants) or season of the year (hotels) to attract different market segments.
  29. 29. Marketing Mix Elements Can Be Used To Shape Demand Patterns (Pricing)29
  30. 30. Marketing Strategies Can Reshape Some Demand Patterns30  Modifying time and place of delivery to reflect changing market needs over the product demand cycle.  Use promotion and education. Signage, advertising, and promotion can be used to inform customers of peak periods (encouraging them to avoid using the service during these times, if possible) and promoting off-peak times when the service facility is less crowded and service faster.
  31. 31. Seasonal demand for a service31
  32. 32. Service Insight 9.1 : Discouraging Demand for Non-Emergency Calls32
  34. 34. When Demand Exceeds Supply34  Steps to take to inventory demand (keep capacity for use later)  Asking customers to wait in line (queue), usually on a first-come first-served basis  Offering customers the opportunity to reserve or book capacity in advance
  35. 35. Why do queues exist?35  Because number of arrivals at a facility exceeds capacity of system to process them at a specific point in the process  Queues are basically a symptom of unresolved capacity management problems
  36. 36. Helping customers avoid the hassle of waiting lines36
  37. 37. Waiting In Line37  Almost nobody likes to wait  An average person may spend up to 30 minutes/day waiting in line—equivalent to 20 months in an 80 year lifetime  Its boring, time-wasting, and sometimes physically uncomfortable  Not all queues take physical waiting in a single location  Queues may be physical but geographically dispersed  Some are virtual
  38. 38. Reduce Waiting Time By:38  Rethinking the design of queuing system  Installing reservations system  Tailoring the queuing system to different market segments  Managing customer behavior and their perceptions of wait  Redesign processes to shorten the time of each transaction
  39. 39. Alternative Queuing Configurations (Fig. 9.15)39 39
  40. 40. Queue Configurations:40  Single line sequential stage queues are appropriate for small waiting time and each stage is simple with little chances of stand-offs.  Single line to multiple servers (snake) is always preferable over multiple lines to multiple servers, as multiple lines may not move at the same speed.  Designated lines to designated servers configuration are suitable for different segments of customers and different jobs.  Take a number approach saves from the hassles of standing in the queue, if waiting time is too long. In the meantime customers can do something else.
  41. 41. Different versions of queuing systems41
  42. 42. Virtual Waits42  One problem of waiting is the waste of customers’ time  Virtual queues can eliminate the need to wait  Customers register their place in line on a computer, which estimates the time they need to reach the front of the virtual line, customers then return later to claim their place  See Service Insights 9.3 (page 283)
  43. 43. Queuing Systems can be Tailored to Market Segments43  Urgency of job  Emergencies vs. non-emergencies  Duration of service transaction  Number of items to transact  Complexity of task  Payment of premium price  Importance of customer  Frequent users/high volume purchasers vs. others
  45. 45. Ten Propositions to Make Waiting More Bearable (1)45 1. Unoccupied time feels longer than occupied time 2. Solo waits feel longer than group waits 3. Physically uncomfortable waits feel longer than comfortable ones 4. Pre- and post-process waits feel longer than in-process waits 5. Unexplained waits are longer than explained waits Sources: Maister; Davis & Heineke; Jones & Peppiatt Cont.
  46. 46. Occupying customers during waits46
  47. 47. Ten Propositions to Make Waiting More Bearable (2)47 6. Unfamiliar waits seem longer than familiar ones 7. Uncertain waits are longer than known, finite waits 8. Unfair waits are longer than fair waits 9. Anxiety makes waits seem longer 10. People will wait longer for more valuable services Sources: Maister; Davis & Heineke; Jones & Peppiatt
  48. 48. Uncertain waits create customer anxiety and stress48
  50. 50. Benefits of Reservations50  Avoid customer dissatisfaction due to excessive waits  Controls and smoothes demand  Allows implementation of revenue management and preselling of service to different customer segments  Data captured helps organizations  Prepare financial projections  Plan operations and staffing levels
  51. 51. Reservation systems in a library51
  52. 52. Characteristics of Well-Designed Reservations System52  Fast and user-friendly for customers and staff  Answers customer questions  Offers options for self service (e.g. Web)  Accommodates preferences (e.g., room with view)  Deflects demand from unavailable first choices to alternative times and locations
  53. 53. Reservations Strategies Should Focus on Yield53  Yield analysis helps managers recognize opportunity cost of allocating capacity to one customer/segment when another segment might yield a higher rate later  Decisions need to be based on good information  Detailed record of past usage  Supported by current market intelligence and good marketing sense  Realistic estimate of changes of obtaining higher rated business  When firms overbook to increase yield,  Victims of over-booking should be compensated to preserve the relationship
  54. 54. Setting Hotel Room Sales Targets by Segment and Time Period54
  55. 55. Developing Loyalty Programs55
  56. 56. Summary of Chapter 9 ― Balancing Demand and Productive Capacity (1)• At any moment in time, a fixed-capacity service may face  Excess demand  Demand exceeding optimum capacity  Demand and supply well-balanced at the level of optimum capacity  Excess capacity• Managing capacity and demand  Define productive capacity  Manage capacity  Understand and manage demand  Stretching or shrinking capacity levels  Adjusting capacity to match demand5 © Pearson Education South Asia Pte Ltd 2013. All rights reserved6
  57. 57. Summary of Chapter 9 ― Balancing Demand and Productive Capacity (2) • Five basic ways to manage demand  Take no action  Reduce demand in peak periods  Increase demand in low periods  Inventory demand using a queuing system  Inventory demand using a reservations system5 © Pearson Education South Asia Pte Ltd 2013. All rights reserved7
  58. 58. Summary of Chapter 9 ― Balancing Demand and Productive Capacity (3) • Demand levels can be reshaped by marketing strategies  Use price and other costs to manage demand  Change product elements  Modify place and time of delivery  Use promotion and education5 © Pearson Education South Asia Pte Ltd 2013. All rights reserved8
  59. 59. Summary of Chapter 9 ― Balancing Demand and Productive Capacity (4)• Waiting is a universal phenomenon. Waits can be reduced by  Rethinking the design of the queuing system  Installing a reservation system  Tailoring queuing system to different market segments  Managing customers’ behavior and their perceptions of the wait  Redesigning the processes to shorten the time of each transaction• An effective reservations system  Enables demand to be controlled and smoothed in manageable way  Should focus on yield  Requires information5 © Pearson Education South Asia Pte Ltd 2013. All rights reserved9
  60. 60. Practice Exam Essay Question:60 In a popular massage parlour, there are often customers waiting at the reception to get a massage because all the masseurs are already occupied / busy serving other customers. (a) Recommend three demand and capacity management actions this massage parlour can take to respond to the above situation. (b) Drawing on what you have learnt in relation to the psychology of waiting, how could this massage parlour make waiting more ‘bearable’ for customers?