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Chapter. Managing Demand and Capacity. 14. The Underlying Issue: Lack of Inventory Capability Understanding Capacity Constraints Understanding Demand Patterns Strategies for Matching Capacity and Demand Yield Management Waiting Line Strategies.

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  1. Chapter Managing Demand and Capacity 14 • The Underlying Issue: Lack of Inventory Capability • Understanding Capacity Constraints • Understanding Demand Patterns • Strategies for Matching Capacity and Demand • Yield Management • Waiting Line Strategies

  2. Objectives for Chapter 14:Managing Demand and Capacity • Explain the underlying issue for capacity-constrained services: lack of inventory capacity. • 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) flexing capacity to meet demand. • Demonstrate the benefits and risks of yield management strategies. • Provide strategies for managing waiting lines.

  3. Figure 14.1Variations in DemandRelative to Capacity

  4. Time, labor, equipment, and facilities Optimal versus maximal use of capacity Charting demand patterns Predictable cycles Random demand fluctuations Demand patterns by market segment Understanding Capacity Constraints and Demand Patterns Demand Patterns Capacity Constraints

  5. Table 14.1 Demand vs. Supply

  6. Table 14.2 Constraints on Capacity

  7. Use signage to communicate busy days and times. Offer incentives to customers for usage during non-peak times. Take care of loyal or “regular” customers first. Advertise peak usage times and benefits of non-peak use. Charge full price for the service--no discounts. Figure 14.3Strategies for Shifting Demand to Match Capacity Demand Too High Demand Too Low Shift Demand • Use sales and advertising to increase business from current market segments. • Modify the service offering to appeal to new market segments. • Offer discounts or price reductions. • Modify hours of operation. • Bring the service to the customer.

  8. Stretch time, labor, facilities and equipment. Cross-train employees. Hire part-time employees. Request overtime work from employees. Rent or share facilities. Rent or share equipment. Subcontract or outsource activities. Outsource. Figure 14.4Strategies for Flexing Capacity to Match Demand Demand Too High Demand Too Low Flex Capacity • Perform maintenance, renovations. • Schedule vacations. • Schedule employee training. • Lay off employees.

  9. Waiting Issues • unoccupied time feels longer • preprocess waits feel longer • anxiety makes waits seem longer • uncertain waits seem longer than finite waits • unexplained waits seem longer • unfair waits feel longer • longer waits are more acceptable for “valuable” services • solo waits feel longer

  10. Waiting Strategies • Employ operational logic to reduce wait • Establish a reservation process • Differentiate waiting customers • Make waiting fun, or at least tolerable

  11. Figure 14.5Waiting Line Strategies

  12. Figure 14.6Waiting Line Configurations

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