This document discusses strategies for managing fluctuating demand in service organizations. It explains that services face unpredictable random fluctuations as well as predictable patterns in demand. To balance capacity and demand, organizations can adjust capacity by stretching existing resources or aligning with predictable cycles. They can also smooth demand by increasing it during underutilized times or reducing it during peaks. Specific tactics include flexible staffing, pricing changes, promotions, reservations, differentiated waiting experiences, and making waits more tolerable. The goal is to match capacity with demand as closely as possible to optimize operations and customer satisfaction.

1. Chap. 14 – Coping with Fluctuating Demand for Services Services Demand Problem: Two circumstances Demand cycles – Services face fluctuating demand. Perishability – Services usually exist only for the time during which they are performed.

2. Balance Capacity and Demand Successful service organizations must strike a balance between capacity and demand. There must be enough capacity to accommodate customers when demand is high, yet not so much that it goes to waste when demand is low.

3. Variations in Demand Relative to Capacity

4. The Nature of Service Demand Random fluctuation occurs without warning and is hard to accommodate. Severe Weather Predictable fluctuation occurs when customer demand follows a pattern that repeats itself over time.

5. Predictable Fluctuation See Table 14.1 Hotel: day of the week and calendar year (holidays, events) Restaurants: time of day, day of the week Movie Theaters: time of day, day of the week

6. Predictable Fluctuation Sometimes it is nearly impossible to shift customer demand because of factors beyond the customers’ and organizations’ control. Business travelers in the U.S. most often conduct business between 8:00 am and 5:00 pm, Monday through Friday. Airlines and hotels that cater to businesspeople can do little to change their demand cycle. A service’s demand cycle can be more flexible in other cases: restaurants

7. Service Capacity Most service organizations are capacity constrained Service capacity has three aspects: The physical facility in which the service is performed or rendered. The personnel whose labor and skill level create the service. The equipment that enables the service to occur.

8. Capacity Constraints for Service Firms Physical facility: number of rooms in a hotel; number of seats on a flight. Personnel: number of people available to serve at a point in time: health clinic, car repair Services sell time; more time cannot be produced, nor saved in inventory: Lawyers, consultants, doctors, accountants

9. Capacity Constraints for Service Firms Equipment: computer hardware and software; equipment at the health club. Unless equipment is used to capacity, revenue is severely affected.

10. Chasing Demand Chase demand is stretching or shrinking the organization’s productive capacity to meet fluctuating demand; In other words, adjusting capacity to meet demand.

11. Adjusting Capacity to Meet Demand Stretch Existing Capacity: people, facilities, and equipment are asked to work longer to meet demand: library hours during finals; standing room only Align Capacity with Demand Fluctuations: use part-time employees, outsource, rent or share facilities, etc.

12. Smoothing Demand toFill Service Capacity Smoothing demand means shifting patronage to times when a service's productive capacity is underused and deflecting or discouraging patronage when it is oversubscribed.

13. Smoothing Demand Increase Demand to Match Capacity Reduce prices during slow demand Vary How the Facility is Used: ski resorts in winter - executivetraining facility insummer Promotion: sales promotions: coupons, sweepstakes, contests, ads, to increase demand

14. Smoothing Demand Reduce Demand during Peak Times Charge higher prices Communicate with customers to use service at other times Modify timing and location of service delivery: longer banking hours; online banking; restrict hours of operation Set priorities: emergency centers

15. Inventory Demand Establish a Reservation Process: spread demand; reduce long waits Formal queuing system: First come, first served Accommodate most desirable customers first

16. Maximum VersusOptimum Capacity Optimum capacity is the number of customers that can be effectively handled under ideal conditions Sometimes maximum capacity is not optimum capacity Creating demand greater than maximum capacity may result in negative experiences Maximum capacity does not always mean maximum profits

17. Waiting Line Strategies: When Demand and Capacity Cannot be Matched Employ operational logic: analyze operational processes to remove any efficiencies Installing ticket vending machines in train stations to expedite the purchase of train tickets

18. Queuing Configuration Queuing Configuration: refers to the number of queues, their locations, spatial requirement, and their effect on customer behavior

19. Queuing Configuration Multiple Queue: customer must decide which queue to join and whether to switch later if the wait appears to be shorter in another line

20. Queuing Configuration Single Queue: fairness of waiting time is ensured in that the first come, first-served rule applies to everyone; the system can also reduce the average time customers spend overall.

21. Queuing Configuration Take-a-number option: arriving customers take a number to indicate line position

22. Differentiate Waiting Customers Differentiate waiting customers: not all customers need to wait the same length of time for the service. EX: Express checkout lanes for customers purchasing 10 items or less

23. Differentiate Waiting Customers Payment of a premium price: Customers who pay extra (eg, first-class on an airline) given priority via separate check-in lines or express systems. Urgency of the job: Those with the most urgent need may be served first. EX: emergency healthcare; air-conditioning service: priority for repair vs. routine maintenance.

24. Differentiate Waiting Customers Duration of the service transaction: shorter service jobs get priority through “express lanes.” If service requires extra time, customer is referred to designated provider dealing with special cases.

25. Make Waiting Pleasurable, or at Least Tolerable Make waiting fun, or at least tolerable: it is not the actual time waiting that impacts customer satisfaction - it is how customers feel about the wait and their perceptions of it. Unoccupied Time Feels Longer Than Occupied Time Give customers menus to look at while waiting in the restaurant; reading material in the dentist’s office; music over the phone

26. Make Waiting Pleasurable, or at Least Tolerable Unoccupied Time Feels Longer Than Occupied Time Give customers menus to look at while waiting in the restaurant.

27. Make Waiting Pleasurable, or at Least Tolerable Preprocess Waits Feel Longer Than In-Process Waits If wait time is occupied with activities that relate to the upcoming service, customers may perceive that the service has already started and they are no longer actually waiting. Filling out medical information while waiting to see a physician; watching a videotape of the upcoming service event can educate the customer and reduce the perception of waiting

28. Make Waiting Pleasurable, or at Least Tolerable Uncertain Waits are Longer than Known, Finite Waits Anxiety is heightened when customers do not know how long they have to wait. Appointment Syndrome: customers who arrive early for an appointment will wait patiently until the scheduled time, even if they arrive very early. However once the expected appointment has passed, customers grow increasingly anxious.

29. Make Waiting Pleasurable, or at Least Tolerable Unexplained Waits Are Longer Than Explained Waits When people understand the causes of waiting, they frequently have greater patience and are less anxious, particularly when the wait is justifiable

30. Make Waiting Pleasurable, or at Least Tolerable Unfair Waits Are Longer Than Equitable Waits When customers perceive that they are waiting while others who arrived after them have already been served, the apparent wait will make the wait seem even longer. May occur when there is no apparent waiting in the waiting area and many customers are trying to be served.

31. Make Waiting Pleasurable, or at Least Tolerable The More Valuable the Service, the Longer the Customer Will Wait 15 minute wait: Lawyer vs. Convenience Store Full cart of groceries vs. Few items Expensive restaurant vs. Fast Food Solo Waits Feel Longer Than Group Waits People are more accepting of a longer wait in a group because of distractions provided by other members of the group.