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Managing demand and capacity and waiting line strategies
- 1. 1 Managing demand and capacity Waiting line strategies integrated Services Marketing Course Instructor: Sneha Sharma (PhD*, MBA, Dip T & D)
- 2. Fundamental Issue: Lack of Inventory Capability • Lack of inventory Perishability (cannot store up) Simultaneous product and consumption (cannot be transported from one place to another) Services can not be transported from on place to another
- 3. Lack of Inventory Capability Excess Demand TIME CYCLE 1 TIME CYCLE 2 Maximum Available Capacity Optimum Capacity (Demand and Supply Well Balanced) Low Utilization (May Send Bad Signals) Demand exceeds capacity (business is lost) Demand exceeds optimum capacity (quality declines) Excess capacity (wasted resources) CAPACITY UTILIZED Ideal Use
- 4. Types of Fluctuation • From Excess demand to excess capacity 4 Excess demand Demand exceeds optimum capacity Optimum capacity Excess capacity
- 5. From Excess Demand To Excess Capacity
- 6. What is the Nature of Demand Relative to Supply? Extent of demand fluctuations over time Extent to which supply is constrained Wide Narrow Peak demand can usually be met without a major delay 1 Electricity Natural gas Telephone Hospital maternity unit Police and fire emergencies 2 Insurance Legal services Banking Laundry and dry cleaning Peak demand regularly exceeds capacity 4 Accounting and tax preparation Passenger transportation Hotels and motels Restaurants Theaters 3 Services similar to those in 2 but which have insufficient capacity for their base level of business
- 7. Understanding Capacity Constraints Time • Lawyer • Consultant • Counselor Labor • Law Firm • University • Repair and Maintenance Equipment • Delivery services • Health club Facilities • Hotels • Restaurants • Hospitals • Airlines • Schools • Theaters • Churches
- 8. Optimal versus Maximal Use of capacity Optimal Capacity • Resources are fully employed but not overused • Customers are receiving quality service in timely manner Maximal Capacity • Absolute limit of service availability 8
- 9. Understanding Demand Patterns • Chart the level of demand over relevant periods • Daily, weekly, monthly demand levels should be followed Charting demand patterns • Look out for daily, weekly, monthly or yearly variation • Understand the underlying causes for predictive cyclesPredictable cycles • E.g. Health industry fluctuations Random demand fluctuations • Detailed records of customer transactions may be able to disaggregate demand by market segment Demand patterns by market segment 9
- 10. Strategies for Matching Capacity and Demand 10
- 11. Shifting Demand to Match Capacity • Change the nature of service offering based on season Vary the Service Offering • Letting customer know the peak demands and use service at alternative times Communicate with customers • Renting facilities like schools/theatreModify Timing and Location of service delivery • Understand customer price sensitiveness Differentiate on price 11
- 12. Flexing Capacity to Meet Demand • Stretch Time • Stretch Labor • Stretch Facilities • Stretch Equipment Stretch Existing capacity • Use Part-time Employees • Outsourcing • Rent or Share Facilities or equipment • Schedule downtime during Periods of low demands • Cross train employees • Modify or move facilities and equipment Align capacity with demand fluctuations 12
- 14. Why Do Waiting Lines Occur? Number of arrivals exceeds capacity of system Queues are basically a symptom of unresolved capacity management problems Not all queues take form of a physical waiting line in a single location
- 15. Saving Customers from Burdensome Waits Add extra capacity so that demand can be met at most times Rethink design of queuing system to give priority to certain customers or transactions Redesign processes to shorten transaction time Manage customer behavior and perceptions of wait Install a reservation system
- 16. Elements of a Queuing System Customer Population Arrival process Balking Queue Configuration Reneging Customer Selection Policies Service Process
- 17. Elements of a Queuing System Customer Population • From which demand for services originate. Arrival Process • The rate at which customers arrive over time- relative to capacity of the serving process-and the extent to which they arrive individually or in clusters will determine whether or not a queue starts to form. Balking • Decision by an arriving customer not to join queue.
- 18. Alternative Queuing Configurations Single line, single server, single stage Single line, single servers, sequential stages Parallel lines to multiple servers Designated lines to designated servers Single line to multiple servers (“snake”) “Take a number” (single or multiple servers) 28 29 21 20 24 23 30 25 31 26 27 32
- 19. Elements of a Queuing System Reneging • Decision by a customer already in the queue who has yet not been served, to leave the line rather than wait Service Process • Physical design • Role of customers and service personnel Customer Selection Police • Procedure for customer selection during queue
- 20. Criteria for Allocating Different Market Segments to Designated Queues • Emergency or Non EmergencyUrgency of job • Number of items to transact • Complexity of task Duration of service transaction • First class versus economy Payment of premium price • Frequent users/ high volume purchasers versus others Importance of customer
- 21. Minimize Perceptions of Waiting Time
- 22. Ten Propositions on Psychology of Waiting Lines Unoccupied time feels longer than occupied time Pre- and post- process waits feel longer than in- process waits Anxiety makes waits seem longer Uncertain waits are longer than known, finite waits Unexplained waits are longer than explained waits Unfair waits are longer than equitable waiting People will wait longer for more valuable services Waiting alone feels longer than waiting in groups Physically uncomfortable waits feel longer Waits seem longer to new or occasional users
- 24. Characteristics of Well-Designed Reservations System Fast and user-friendly for customers and staff Answers customer questions Offers options for self service (e.g., the Web) Accommodates preferences (e.g., room with view) Deflects demand from unavailable first choices to alternative times and locations Includes strategies for no-shows and overbooking • Requiring deposits to discourage no-shows • Canceling unpaid bookings after designated time • Compensating victims of over-booking
- 25. Setting Hotel Room Sales Targets by Segment and Time Period Out of commission for renovation Loyalty Program Members Transient guests Weekend package Groups and conventions Airline contracts 100% 50% Week 7 (Low Season) MNights: TuTime W Th F S Su Loyalty Program Members Transient guests W/E package Groups (no conventions) Airline contracts Week 36 (High Season) M Tu W Th F S Su Capacity (% rooms)
- 26. Information Needed for Demand and Capacity Management Strategies Historical data on demand level and composition, noting responses to marketing variables Demand forecasts by segment under specified conditions Segment-by-segment data Fixed and variable cost data, profitability of incremental sales Meaningful location-by-location demand variations Customer attitudes toward queuing Customer opinions of quality at different levels of capacity utilization