Week 5 DB Service
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Chapter_13.pptx
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 13-‹#›
Managing Demand and Capacity
The Underlying Issue: Lack of Inventory Capability
Capacity Constraints
Demand Patterns
Strategies for Matching Capacity and Demand
Yield Management: Balancing Capacity Utilization, Pricing, Market Segmentation, and Financial Return
Waiting Line Strategies: When Demand and Capacity Cannot Be Matched
Chapter
13
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Chapter 13-‹#›
Objectives for Chapter 13: Managing Demand and Capacity
Explain the underlying issue for capacity-constrained services: lack of inventory capability.
Present the implications of time, labor, equipment, and facilities constraints combined with variations in demand patterns.
Lay out strategies for matching supply and demand through (a) shifting demand to match capacity or (b) adjusting capacity to meet demand.
Demonstrate the benefits and risks of yield management strategies in forging a balance among capacity utilization, pricing, market segmentation, and financial return.
Provide strategies for managing waiting lines for times when capacity and demand cannot be aligned.
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Chapter 13-‹#›
Variations in Demand Relative to Capacity (Figure 13.1)
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 13-‹#›
Variations in Demand Relative to Capacity
Excess demand: the level of demand exceeds max capacity.
Some customers will be turned away, resulting in lost business opportunities.
For customers who do receive service, quality may be lacking because of crowding or overtaxing of staff and facilities.
Demand exceeds optimum capacity.
No one is turned away, but quality may still suffer because of overuse, crowding, or staff being pushed beyond their abilities to deliver consistent quality.
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Chapter 13-‹#›
Variations in Demand Relative to Capacity
Demand and supply are balanced at optimum capacity.
Staff and facilities are occupied at ideal level.
No one is overworked, facilities can be maintained, customers are receiving quality.
Excess capacity: demand is below optimum.
Resources are underutilized resulting in lower profits.
Some customers may receive high quality service, but if quality depends on the presence of other customers, customers may be disappointed or worry that they have chosen an inferior service provider.
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 13-‹#›
Demand and Capacity for Service Providers (Table 13.1)
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 13-‹#›
Constraints on Capacity (Table 13.2)
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 13-‹#›
Understanding Capacity Constraints and Demand Patterns
Capacity Constraints
Time, labor, equipment, and facilities
Knowing the difference between optimal versus maximum use of capacity
Demand Patterns
Charting demand patterns
Predictable cycles
Random demand fluctuations
Demand patterns by market segment
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Chapter 13-‹#›
Maximum and Optimal Capacity
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Chapter 13-‹#›
Strategies for Shifting Demand to Match Capacity (Figure 13.2)
McGraw-Hill/Irwin © 2018 The McGraw-Hill Companies, All Rights Reserved
Chapter 13-‹#›
Strategies for Adjusting Capacity to Match Demand (Figure 13.3)
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Chapter 13-‹#›
Yield Management
Yield management (also revenue management) attempts to allocate the fixed capacity of a service provider to match the potential demand in various market segments so as to maximize revenue or yield.
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Chapter 13-‹#›
Yield Management
Actual revenue
Potential revenue
Where: Actual revenue = actual capacity x average actual price
Potential revenue = total capacity x maximum price
Most effective when:
different segments make reservations at different times and
customers who arrive/reserve early are more price sensitive than those who arrive/reserve late.
YIELD =
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Chapter 13-‹#›
14
Yield Management Example
200-room Hotel
Max room rate = $200/night
Potential Revenue = $200 x 200 = $40,000
Scenarios
All rooms sold at discounted rate ($100/night)
Yield = $100 x 200/$40,000 = $20,000= 50%
Full rate charged, but only 80 rooms sold
Yield = $200 x 80/$40,000 = $16,000 = 40%
Full rate charged for 80 rooms, discount for remaining 120 rooms
Yield = [($200 x 80) + ($100 x 120)]/$40,000 = $28,000 = 70%
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Chapter 13-‹#›
Challenges and Risks in Using Yield Management
Loss of competitive focus
Customer alienation
Overbooking
Incompatible incentive and reward systems
Inappropriate organization of the yield management function
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Chapter 13-‹#›
Waiting Line Strategies
Employ operational logic to reduce wait
How to configure the queue?
Multiple Queue
Single Queue
Take a Number
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Chapter 13-‹#›
17
Waiting Line Configurations (Figure 13.4)
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Chapter 13-‹#›
Waiting Line Strategies
Establish a reservation process
Differentiate waiting customers
Importance of the customer
Urgency of the job
Duration of the service transaction
Payment of a premium price
Make waiting more pleasurable
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Chapter 13-‹#›
Issues to Consider in Making Waiting More Pleasurable
Unoccupied time feels longer than occupied time.
Preprocess waits feel longer than in-process waits.
Anxiety makes waits seem longer.
Uncertain waits seem longer than known, finite waits.
Unexplained waits seem longer than explained waits.
Unfair waits feel longer than equitable waits.
The more valuable the service, the longer the customer will wait.
Solo waits feel longer than group waits.
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Chapter 13-‹#›
