Service Management: Balancing Demand Against Productive Capacity

Topics: Supply and demand, Capacity management, Aggregate demand Pages: 11 (2450 words) Published: December 31, 2010

• A major challenge for many types of capacity-constrained service organizations • Play havoc with efficient use of productive assets, thus eroding profitability • 2 basic approaches: (1) adjust the level of capacity to meet variations in demand (2)manage the level of demand using marketing strategies

➢ Services are perishable;
➢ Most acute among services are process people or physical possessions ➢ These services affects labor-intensive, information-processing, services that face cyclical shifts in demand ➢ Effective use of productive capacity is one of the secrets of success in such businesses ➢ The search for productivity must not be allowed to undermine service quality and degrade the customer experience

1. Excess Demand
- Level of demand exceeds maximum available capacity
- Customers are denied and business is lost
2. Demand Exceeds Optimum Capacity
- Conditions are crowded
- Customers are likely to perceive a deterioration in service quality and may feel dissatisfied 3. Demand and Supply are well-balanced at the level of optimum - Staff and facilities are busy without being overworked - Customers receive good service without delays

4. Excess Capacity
- Demand is below optimum capacity;
- Productive resources are underutilized
- Low usage; customers may find the experience disappointing

• Organizations that engage in physical processes such as people or possession processing are more likely to face capacity constraints than those engage in information-based processes Defining Productive Capacity:

a) Physical facilities designed to contain customers- used for delivering people processing services or mental stimulus-processing services b) Physical facilities designed for storing or processing goods- either belong to customers or are being offered to them for sale c) Physical equipment used to process people, possessions or information- may embrace a huge range of items and may be very situation- specific d) Labor – key element of productive capacity in all high-contact services and many low contact ones e) Infrastructure – may include congested airways that lead to air traffic restrictions on flights, traffic jams on major highways and power failures Adjusting Capacity to Match Demand:

(Chasing Demand – tailoring the overall level of capacity to match variations in demand) a) Schedule downtime during periods of low demand (repairs and renovations when demand is low) b) Use part-time employees (hiring extra workers during the busiest periods) c) Rent or share extra facilities and equipment

d) Ask customers to share
e) Invite customers to perform self-service (involving customers in co-production by adding self-service technologies) f) Cross-train employees (performing a variety of tasks)
Creating Flexible Capacity:
• Allocating it in advance to build relationships with customers, suppliers, employees and intermediaries • Applications such free trials for prospective customers and for intermediaries who sell to end customers

Understanding Patterns of Demand:
• Impact of seasonal cycles
• Low demand in the off-season for tourism promoters
Analyzing Drivers of Demand
• By keeping good records of each transaction will help when it comes to analyzing demand patterns based on past experience Dividing up Demand by Market Segment
• Random fluctuations are usually caused by factors beyond management’s control • Not all demand is desirable
• The ease with which total demand can be broken down into smaller components depends on the nature of the records kept by the management 5 BASIC APPROACHES TO MANAGING DEMAND:
- Unorganized capacity
- Capacity is wasted; take no action
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