Managing Demand and Supply


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In this presentation, we will discuss about forecasting a demand, understanding a demand pattern with respect to time, managing capacity constraints and capacity planning. We will understand the strategies for matching supply and demand for a service through flow charts. We will also talk about the strategies for managing demand to match capacity.
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  • In any economy management of demand and supply of any product depends on its quality and how much is the efforts of the sales team to bring the matter on the forefront. Demand and supply management in relation to any product should be properly correlated. Meaning hereby to say that supply of the product should be in equal proportion to demand.
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Managing Demand and Supply

  1. 1. Chapter - 4 MANAGINGDEMAND & SUPPLY 1
  2. 2. IntroductionForecasting DemandUnderstanding Demand PatternsManaging Capacity ConstraintsCapacity PlanningStrategies for Managing Capacityto Match Demand 2
  3. 3. Strategies for ManagingDemand to Match CapacityStrategies When Demandand Capacity can not beMatchedYield ManagementSummary 3
  4. 4. INTRODUCTIONService capacity is aperishable commodity. Thelack of inventory capabilityleads to four possiblescenarios at any given time. 4
  5. 5. Excess DemandDemand Exceeds OptimumCapacityDemand and Supply areBalanced at the level ofOptimum CapacityExcess capacity 5
  6. 6. FORECASTING DEMANDForecasting Demand is a veryimp. activity as the better theassessment, the better thequality of the planning. A fewsituations that differ widelyfrom manufacturing companiesThey are: 6
  7. 7. Fixed Capacity withWidely FluctuatingDemandService Systems thatCannot Carry InventoriesSharing Capacity 7
  8. 8. UNDERSTANDING DEMAND PATTERNSMatching capacity to demandover a period of time requiresthe consideration of demandcurves commonly faced. Wecan then seek ways to adjustservice output along suchcurves, some them are: 8
  9. 9. Typical Curves Representing Forecasts of Demand: Demand vs Time (Fig. 4.1) -------------------- (a) STABLE, CONSTANT DEMAND (b) STABLE, CYCLICAL DEMAND (c) INCREASING DEMAND : LINEAR AND ACCELERATING 9
  10. 10. Typical Curves Representing Forecasts of Demand: Demand vs Time (Fig. 4.1) (d) INCREASING DEMAND: (e) DECREASING DEMAND: SATURATING LINEAR & DECELETRATING (f) DECREASING DEMAND: VANISHING 10
  11. 11. Typical Curves Representing Forecasts of Demand: Demand vs Time (Fig. 4.1) (g) LOGISTICAL DEMAND (h) LIFE – CYCLE DEMAND 11
  12. 12. MANAGING CAPACITY CONSTRAINTSThere are the four majorconstraints depending uponthe type of service that servicefirms face in order to fullycontrol the demand. They are: 12
  13. 13. Time - Legal, Consulting,Accounting, MedicalLabour - Law firm, Accountingfirm, Consulting firmEquipment – Utilities, Helathclubs, TelecommunicationFacilities – Hotels, Restaurants,Hospitals, Schools. 13
  14. 14. CAPACITY PLANNING Capacity planning involvesdetermining the resourcecapacity that a firm will needto meet its demand. In generalterms, capacity is measured bythe maximum output level in aperiod of time. There are twotypes of Capacity Planning: 14
  15. 15. Long-term Capacity Planning: These decisions aregenerally strategic in nature,normally involving investmentsin buildings and equipmentprimarily, and to a lesserextent in human resources. 15
  16. 16. Fig. 4.2 Long-term Capacity Management Decisions MARKETS COMPETITORS - Growth -Markets served - Competitive criteria - Services offered POLITICAL ECONOMY- Taxation changes - Rate of growth -International - Interest rates relations LONG TERM CAPCTIY SOCIAL TECHNICAL DECISIONS -Trends in employment -New technology - Green issues - Impact of IT INCREASE REDUCE Single Large Several Close Consolidate Step Small Steps Centers Centers 16
  17. 17. Short-term Capacity Planning: Decisions in this area relate to attempting to match supply of resources and demand with two broad options being to try and adjust resources to meet demand or to try to manage demand so that resources do not need to be adjusted. 17
  18. 18. Strategies for Matching Supply of and Demand for Services (Fig. 4.3) Managing Service Capacity Managing Managing Demand Supply Partitioning Sharing Increasing Developing Demand CapacityComplementary Customer Services Participation Establishing price Cross-Training Developing Scheduling work Reservation Incentives Employees Shifts system Creating Promoting Using Part-time Adjustable Off-peak Demand Employees capacity Yield Management 18
  19. 19. Strategies for Managing Capacity to Match Demand (Fig. 4.4) DEMAND DEMAND ALTER CAPACITY Too Low Too High• Stretch time, labour, facilities • Performance• Cross train employees maintenance,• Hire part-time employees renovations• Request overtime work from • Schedule employee employees training• Rent or share facilities • Lay off employees• Rent or share equipment 19
  20. 20. STRATAGIES FOR MANAGINGDEMAND TO MATCH CAPACITY Partitioning Demand Vary the Service Offering Developing Complementary Services Promoting off Peak Demand 20
  21. 21. Pricing IncentivesCommunicate with CustomersModify Timing of Service DeliveryModify location of ServiceDeliveryAdvertising and Sales Promotion 21
  22. 22. STRATEGIES WHEN DEMAND &SUPPLY CANNOT BE MATCHED Reservations Waiting Lines Queuing Situations Triage Delaying Service Delivery 22
  23. 23. YIELD MANAGEMENTRelatively Fixed CapacityAbility to segment MarketsPerishable InventoryProduct Sold in AdvanceFluctuating DemandLow Marginal Sales Costs and HighMarginal Capacity change costs 23
  24. 24. SUMMARYThus, this chapter provides deepinsight of how to match servicesupply with customer demand. Tocut a long story short, using thisstrategies the manager maymatch the supply and demand, ifnot fully but effectively. 24
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