1. The document outlines various capacity and demand management strategies for service organizations, including smoothing demand through appointment scheduling, offering price incentives, and promoting off-peak demand. 2. It also discusses managing queues, including partitioning demand, establishing price incentives, and developing reservation systems. Common problems with queues like no-shows and strategies to address them are outlined. 3. Different queuing models are presented to aid in capacity planning, including factors like arrival processes, queue configurations, and service times.

2. OUTLINE

3. CAPACITY DEMAND
• Total No. of Seats in • Total No. of seats
an Aircraft booked
• No. of Tables in the • No. of tables
dining hall occupied
• No. of rooms in a • No. of rooms
hotel occupied

4. MANAGING
C
D
A
E
P
M
A
A
C
N
I
D
T
Y

5. SERVICE
CAPACITY
10
EXCESS
CAPACITY
5
DEMAND
5 10
FOR
EXCESS
DEMAND FOR
SERVICE
SERVICE

6. DEMAND SUPPLY
STRATEGIES STRATEGIES
Partitioning Increasing
demand customer
Developing participation
Sharing
complementary
capacity
services
Establishing
Scheduling
price
Developing Cross- work shifts
incentives
reservation training
systems employees
Promoting Creating
off-peak adjustable
Using
demand capacity
part-time
employees
Yield
management

7. 1- Segmenting Demand at a Health Clinic
Smoothing Demand by Appointment
Scheduling
Day Walk-In Appointments
Monday 60-70 84
Tuesday 55-65 89
Wednesday 25-30 124
Thursday 15-25 129
Friday 30-40 114

8. Smoothing Demand
through segmenting
140 • 13.4 % increase in no. of patients;
Before
P e rc en t ag e o f av e ra g e d ai ly
130
smoothing
120 • 5% increase in time physician
p h ys ic ia n v is it s
110 spent with patients because of
100 increased appointments;
90
After
80 smoothing • Average waiting time for patients
70
remained the same;
60
1 2 3 4 5
Day o f w e e k
•Increased morale of physician

9. 2- Offering Price Incentives
Demand can be segmented by offering price
incentives: Price discrimination
Price discrimination: Sale of output units at different
prices.
Objective: Maximization of profit (different customers
are willing to pay different prices) by smoothing
demand.

10. Hotel X with 50 rooms @ Rs.5000
per day.
Peak Season
- Rs. 5000* 50 = Rs. 2,50,000per day
(Average)
Off Season
- Rs. 5000 * 10= Rs. 50,000 per day.
- Rs. 3500* 35= Rs. 1,22,500 per day

11. 3- Promoting Off Peak Demand
Seeking different sources of demand for
creative use of “off-peak capacity”
 Use of hotel resort as retreat location for
business or professional groups.
 Lower rates to encourage long distance dialing
at night or on weekends, when switching
equipments are underutilized.

12. Natural way to expand market and helpful in achieving uniform
aggregate demand.

13. • Taking reservations presells the potential
service.
• And additional demand is deflected to other
time slots at the same facility or to other
facilities within the same organization.
• Benefit consumers by reducing waiting and
guaranteeing service availability.

14. Problem Measures
• Customers may not take the • Nonrefundable tickets
reserved service (“no-shows”) (airlines)
• Service expires: Not storable • Cancellation deadlines, e.g., 6
• No turnover, but high fixed pm (hotel)
costs for company • Overbooking of capacity
E.g., hotel room stays empty
without a guest, but
employees are paid
• Company needs to know some
time in advance if reservation
is cancelled: Empty seats
otherwise

15. Problems Of Overbooking Strategies for overbooking
• Customers with reservation • Minimization of
must be turned away opportunity costs of empty
capacity
• Angry customers: Might • Minimization of costs of
switch to competitor passengers with
• Damaged image of reservation being turned
company away
• Costs of overbooking: • Training of employees
Reimbursement of denied dealing with passengers
customers being turned away

17. 1- Work shift Scheduling
By scheduling work shifts carefully during the day/week, the
profile of service supply can be made to approximate
demand.
An important staffing problem for many service organization
facing cyclical demand, such as telephone companies,
hospitals, banks, and police departments.
Convert to Service
Forecast Demand staffing Requirement
Assign Service
Schedule Shifts
Personnel to Shifts

18. 2- Increasing Customer Participation
For Faster & less-expensive Meals
• Customer
2 • Clears table
acts as a co- • Places order after meals.
producer directly from
limited menu
1 3
Capacity directly varies Requirement Saves cost of the
with the demand. for lesser staff. service provider.
Customer as co-
producer provide labor,
the moment required.

19. 3- Creating Adjustable Capacity

20. 4- Sharing Capacity
A service delivery system often requires a
large investment in equipment and facilities.
During periods of underutilization, it may be
possible to find other uses for this capacity.
Example: Airlines Sharing Baggage handling
equipments, ground staff etc on small
airports.

21. 5- Using Part Time
Employees when
peaks of activities
are persistent and
predictable.

22.  A new approach to
revenue maximization.
 A comprehensive system
incorporating all strategies
relating to demand for &
supply of services.

23. Service firms with following features:
• Relatively fixed capacity. Ex: Airlines and hotels.
• Ability to segment market into different service
classes
• Perishable inventory. Ex: revenue from an
unsold seat is lost forever
• Product sold in advance through reservations
• Fluctuating demand

25. Queuing System
Queue: Line of waiting customers who
require service from one or more servers.
A queue is formed when current demand
exceeds the existing capacity to serve.
Inevitability of Waiting

26. • 1- Customer perception must exceed
customer expectation beacause a happy
customer enables positive trickle-down effect.
• 2- First impression influence the rest of the
service expectation. Make waiting period
pleasant experience.

27. • The Old Empty Feeling: Empty or
unoccupied time feels awful.
Service organization require to
make waiting times productive as
well as pleasurable.
• A foot In The Door: Diversions fill
time so that the waiting doesn’t
seems long. Convey that the
service has began & thus can
tolerate longer waiting time.

28. • The Light At The End Of The
Tunnel: Recognize anxieties
(Did you get my order? Will I
ever get served?) & develop
strategies to alleviate them.
Ex-telling customer how
long will they need to wait..

29. • Excuse me, But I Was
Next: Anxieties created
when a customer sees a
later arrival being served
first. Resolved by Single
queue or take a token
number arrangement
facility to ensure first
come first serve policy..

30. For Awaited Economic cost of For firm, Awaited
external waiting : two way employee
customer perspective ( internal
customer)
Foregone
alternative use Unproductive
of that time Wages
Boredom, anxiety
& other So Make waiting productive or
psychological profitable
distresses

31. Renege
Queue
Departure
Calling Queue discipline Service
population configuration process
Balk No future
need for
service

32. 1. Subpopulation ( Walk-in
patients, patients with
appointments and
emergency patients)
with different waiting
expectations.
2. Homogeneous Groups

33. Arrival Process
Arrival
process
Static Dynamic
Random Random arrival Customer-
Facility- exercised
arrivals with rate varying
controlled control
constant rate with time
Accept/Reject Price Appointments Reneging Balking

34. Classification of Queue
Configuration
Take a
number
Queue
Single queue
Configuration
Multiple
Queue

35. Queue
discipline
Static
Dynamic
(FCFS rule)
selection Selection based
based on status on individual
of queue customer
attributes
Number of Processing time
customers Round robin Priority Preemptive of customers
waiting (SPT rule)

36. CAPACITY PLANNING
QUEUING MODELS

37. Capacity Planning
• Decision involves a Combined
Costs
trade off between
the cost of providing Cost of
service
a service( Cost
determined by no.
of servers on duty)
and the cost or Cost of
inconvenience of waiting
customer
waiting(measured in Capacity to serve
terms of waiting
time)

38. Queuing System Cost Tradeoff
Let: Cw = Cost of one customer waiting in
queue for an hour
Lq = mean number of customers
Cs = Hourly cost per server
C = Number of servers
Total Cost/hour = Hourly Service Cost +
Hourly Customer Waiting Cost
Total Cost/hour = Cs C + Cw Lq

39. • Using long range capacity as a preemptive strike where
market is too small for two competitors (e.g. building a luxury
hotel in a mid-sized city)
• Lack of short-term capacity planning can generate customers
for competition (e.g. restaurant staffing)
• Capacity decisions balance costs of lost sales if capacity is
inadequate against operating losses if demand does not reach
expectations.
• Strategy of building ahead of demand is often taken to avoid
losing customers.

40. Queuing
Model
Standard
Finite
Infinite Queue
Queue
Exponential
Exponential General Service Service
Service Times Times
Times
Single Self Single Multiple
Single Multiple Server Service Server server
Server Server

41. • Excessive waiting lines by customer must result in
some reneging and, thus, in some reduction of
demand
• Excessive waiting if known or observed by potential
customers, will cause them to reconsider their need
for service and, thus reduces demand;
• Under the pressure of waiting lines, server may speed
up;
• Sustained pressure to hurry may result in eliminating
time- consuming features and performing the bare
minimum and, thus, service capacity is increased.

42. Reference
• Capacity Planning: A Tactical Decision with
Strategic Impact by Manager, Business
Solutions, INSIGHT
• Service Management, James A. Fitzsimmons &
Mona J. Fitzsimmons
• Google.com