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Managing demand and capacity

  2. 2. INTRODUCTION • Demand is the amount of a particular economic good or service that a consumer or group of consumers will want to purchase at a given price • Managing Capacity means managing the limits of an organization's resources, such as its labor force, manufacturing and office space, technology and equipment, raw materials, and inventory • Capacity is usually constant whereas demand usually fluctuates • Overuse or underuse of a service results in Gap 3 of the Gap model- failure to deliver what was designed and planned
  3. 3. THE UNDERLYING ISSUE: LACK OF INVENTORY CAPABILITY • Lack of Inventory capability is the main constraint in services marketing. • Fluctuations lead to : (a)excess demand: the level of demand exceeds max capacity (b)excess capacity: demand is below optimum (c)demand exceeds optimum capacity: No one is turned away, but quality may still suffer (d)demand and supply are balanced at the level of optimum capacity: Staff and facilities are occupied at ideal level
  4. 4. UNDERSTANDING CAPACITY CONTRAINTS • Time: Medical, legal, accounting, consulting • Labor: Medical firm, legal firm, accounting firm, consulting firm, health clinic • Equipment: Courier services, travel services, health clubs, network services • Facilities: Hospitals, hotels, restaurants, airlines, schools, theatres
  5. 5. UNDERSTANDING DEMAND PATTERNS • Charting demand patterns: Those organisations which have computerized customer information systems can do the charting demand over relevant periods. If seasonality is a suspected problem then graphing should be done for data from the past year. • Predictable cycles: Variations in demand can be caused by many factors. Some are predictable -while some are not. Tourism services have peak periods at certain holidays and at weekend days. Generally one or more causes can be identified when there exist a predictable pattern.
  6. 6. • Random demand fluctuations: Random variations in demand are there in every kind of services. There is no predictable cycle. For example Medical Service facilities in case of occurrence of a Natural Calamity • Demand patterns by market segment: Disaggregation of demand by market segmentation is possible if an organisation has detailed records on customer transactions or the analysis may reveal that the demand from one segment is predictable whereas the demand is relatively random from another segment. For example, for a bank, the visits from its commercial accounts may occur daily at a predictable time whereas personal account holders may visit the bank at random intervals.
  7. 7. STRATEGIES FOR MATCHING CAPACITY Shifting demand to match capacity When the demand is too high: a) Communicate busy hours to the customers b) Offer incentives for non-peak usage c) Focus on loyal customers d) Communicate advantages of non-peak usage e) Do not offer discounts
  8. 8. CONTD.. When the demand is too low: a) Attract current market segments by focusing on sales and advertising b) Attract new segments with promotional schemes c) Offer discounts d) Bring the service to the customer e) Modify hours of operation
  9. 9. STRATEGIES FOR MATCHING DEMAND Adjusting capacity to match demand When the demand is too high: a) Stretch time, labor, facilities and equipment b) Train employees for multiple skills c) Hire part-time employees d) Pay the employees to work overtime e) Rent facilities and equipments f) Outsource activities
  10. 10. CONTD.. When the demand is too low: (a) Carry out maintenance, repairs and renovations (b) Conduct training for employees (c) Offer leave to employees (d) Retrench employees
  11. 11. EXAMPLES • Whistler Mountain a SKI- resort in Vancouver, Canada offers its facilities for executive development and training programs during the summer when snow-skiing is not possible. • Airlines change the configuration of their plane seating to match the demand from different market segments. In some planes, there may be no first class section at all. On routes with a large demand for first class seating, a significant proportion of seats may be placed in first class.