DEMAND MANAGEMENT IN SERVICES At the end of this module the learning outcomes are: • What is demand management? • What are the capacity constraints? • What strategies can be used to manage demand? • Understand the concept of waiting in services
DEMAND MANAGEMENT IN SERVICES Suggested readings Services Marketing by Zeithmal and Bitner, 2nd edition Chapter 14
DEMAND MANAGEMENT IN SERVICES Demand management • Services • Cannot be stored • Perishable • Simultaneous production and consumption.
DEMAND MANAGEMENT IN SERVICES COMMON SITUATIONS • Vacant seat in • Airlines • Hotel • Restaurant • Lawyer sitting idle. Loss of billing
DEMAND MANAGEMENT IN SERVICES Lack of inventory means: • Excess demand • Demand exceeds optimum capacity • Demand and supply are balanced at the level of optimum capacity • Excess capacity.
DEMAND MANAGEMENT IN SERVICES Excess demand. • Demand exceeds supply • Loss of customers • Existing customers. • Deterioration in services • Overcrowding • Overuse of facilities Example: Saturday movie at 8.00 p.m. in PVR multiplex. Going to Sagar restaurant in Delhi at 8.00 p.m.
DEMAND MANAGEMENT IN SERVICES Demand exceeds optimum capacity. • Supply not created according to demand. • Constant overuse. • Cannot deliver consistent quality.
DEMAND MANAGEMENT IN SERVICES Demand and supply are balanced at the level of optimum capacity • All facilities • Used at optimum level • Customers • Receive optimum services • No delays Ideal Situation
DEMAND MANAGEMENT IN SERVICES Excess Capacity • Demand less than the capacity • All resources under-utilised • Customers receive excellent services • No waiting Examples • Morning show at PVR multiplex • Going to bar at 4 p.m.
DEMAND MANAGEMENT IN SERVICES Demand Fluctuation • Different Type Wide Fluctuation • Telecommunications Heavy traffic during day Low traffic during night • Hospital Sometimes no patient Many patients Lack of bed Disaster Earthquake
DEMAND MANAGEMENT IN SERVICES Narrower Fluctuation • Insurance • Banking
DEMAND MANAGEMENT IN SERVICES Understanding capacity constraints • Restaurant • No. of Seats: 50 • Customers waiting: 200 • Can we increase seats to 200 • Unfortunately not always possible
DEMAND MANAGEMENT IN SERVICES CONSTRAINTS Depending on the service, constraints can be • Time • Labour • Equipment • Facilities • Combination of the above.
DEMAND MANAGEMENT IN SERVICES Time Constraint • Staff operating at peak capacity • Demand exceeds supply Income tax consultant • People pay income tax • File return • Last day of return • Seek advice of a consultant • Many customers are waiting on the last day Time constraint of handling so many customers on the last day
DEMAND MANAGEMENT IN SERVICES Equipment constraint Federal Express • Delivery of mail Greeting Cards Christmas New Year day • Huge demand Availability of trucks is a constraint
DEMAND MANAGEMENT IN SERVICES STRATEGIES FOR MATCHING CAPACITY AND DEMAND Two Strategies • Shifting demand to match capacity • Flexing capacity to meet demand
DEMAND MANAGEMENT IN SERVICES Shifting Demand to Match Capacity • Capacity (Supply) is fixed • Shift /Change demand to match supply • Shift demand to lean seasons • Not always possible • How can we do this?
DEMAND MANAGEMENT IN SERVICES Various methods to shift demand • Vary the service offering • Communicate with customers • Modify timing and location of service delivery • Differentiate on price
DEMAND MANAGEMENT IN SERVICES Vary the service offering Whistler Mountain, Canada • Snow Skiing facilities • Only in winter? • What do you do in summer? • Skiing not possible • Development and training programs • For various people category • Corporate executives • Professionals
DEMAND MANAGEMENT IN SERVICES Vary the service offering Airlines • Change plane configuration • Depending on situation- • No first class • Only economy class
DEMAND MANAGEMENT IN SERVICES Los Angeles Hospital • Lean season • Movie productions allowed • Featuring on hospitals • Is it always possible? • Can you change hospitals into movie theatres • What are the implications • Is image at stake • Many organisations refrain from this? Handle with care
DEMAND MANAGEMENT IN SERVICES Communicate with customers • How to shift demand • Inform peak demand period • Customers can choose some other time • Off peak times • Benefits Happy customers More satisfied
DEMAND MANAGEMENT IN SERVICES . Modify Timing and Location of Service Delivery • Organizations adjust their timings / days of service delivery Banking industry • Earlier banking hours • Working hours 10.00 am to 2.00 pm • Now banking hours Afternoon hours Evening hours • Banks open on Sunday
DEMAND MANAGEMENT IN SERVICES Differentiate on Price • Low demand • Use price • Customer sensitivity of demand is critical Example • Business travellers are less price sensitive compared to leisure travellers
DEMAND MANAGEMENT IN SERVICES What is the objective • High capacity utilization without sacrificing profits • Use of Price • Every situation Hotels Restaurants Movie halls • Happy hours Is lowering price always the right strategy
DEMAND MANAGEMENT IN SERVICES Dangers of lowering price • Price wars • Competitors also lower prices • Customers getting used to lower prices • Airlines Industry • Overused • Many airlines have used this • Very few airlines are profitable
DEMAND MANAGEMENT IN SERVICES Flexing capacity to meet demand • How can you change/flex capacity? • Adjust • Stretch • Align capacity to meet demand • What are organizational resources • Time • People • Equipment • Facilities
DEMAND MANAGEMENT IN SERVICES Various strategies to flex capacity • Stretch existing capacities • Stretch Time • Stretch Labour • Stretch facilities • Stretch equipment • Align capacity with demand fluctuations • Use part - time employees • Outsourcing • Rent or share facilities or equipment • Schedule downtime during periods of low demand • Cross-train employees • Modify or move facilities and equipment.
DEMAND MANAGEMENT IN SERVICES Stretch time • Extend hours of services on a temporary basis Archie's Greeting shop • Christmas, New Year, Valentines day • Open for longer time Doctor clinic • Winters 9.30 to 12.30, 6 to 8.p.m. • Summer 8.30 to 1.00 , 5 to 9 p.m. • Why • More patients. • More diseases in summer Stretch capacity by Stretching time
DEMAND MANAGEMENT IN SERVICES Stretch Labour • Employees work for longer hours • Peak demand Banks • Peak demand • Additional people deployed at front counters/cashier • Redeployed from back offices
DEMAND MANAGEMENT IN SERVICES Stretch facilities • How can Theatres Restaurants Classrooms • Can be expanded on temporary basis.
DEMAND MANAGEMENT IN SERVICES Stretch facilities Railways • Summer rush • Peak demand • What does railways do? • Run additional trains “Holiday Special” Increase frequency of existing trains • II tier AC to III tier AC • Increase capacity
DEMAND MANAGEMENT IN SERVICES Stretch Equipment • Stretch beyond the maximum capacity • To accommodate peak demand Power generation utilities • Peak Season • Extreme winter • Extreme summer • Run additional generators
DEMAND MANAGEMENT IN SERVICES ALIGN CAPACITY WITH DEMAND FLUCTUATIONS • Chase demand strategy • Match capacity with demand patterns • Use of the resources Time, labour, equipment, facilities
DEMAND MANAGEMENT IN SERVICES Use part – time employees • Peak demand • Align labour resources with demand • Hire part – time employees Hotels in Goa • Dec – Jan peak season • Huge demand • Hotels hire part – time employees • Meet demand • Slack season • Lay off part time employees
DEMAND MANAGEMENT IN SERVICES Rent or Share facilities or equipment • Sharing facilities • Renting Hotels in Goa • Hotels own buses • Drop and pick – up passengers • Peak Season • Huge demand for short period • Renting buses • To meet peak demand?
DEMAND MANAGEMENT IN SERVICES Schedule down time during periods of low demand • Facilities used at peak • Need maintenance • Conducted during off – season Carrier Air conditioners • Summer peak season • Winter slack season • Maintenance during winter season • People are occupied • Use peak season to attend complaints
DEMAND MANAGEMENT IN SERVICES Cross–train employees • Ability to perform more than one activity • Need less employees Dominos • Peak demand • Home delivery • Packing employees convert into delivery boys • Vice – versa • Can handle various types of activities • Training imparted for various skills Used in Banks, Airlines
DEMAND MANAGEMENT IN SERVICES . Modify or move facilities and equipment • Modification of capacities Budget Hotels • Peak season • Big room converted into two smaller rooms • Create additional capacity • Slack season • Remove partition • Create bigger room • Charge higher Prices
DEMAND MANAGEMENT IN SERVICES If Supply and Demand cannot be matched or aligned, what would you do? Look at waiting line strategies
DEMAND MANAGEMENT IN SERVICES Waiting line strategies • Inspite of best efforts • Demand may exceed supply • Not economical to increase supply • Very costly • Customers have to wait How to make WAITING a better experience
DEMAND MANAGEMENT IN SERVICES WHERE WAITING HAPPENS • At a doctor’s clinic • On telephone assistance • Customer care help lines • In a bank • At ATM • At petrol pumps
DEMAND MANAGEMENT IN SERVICES WAITING – IS IT A PROBLEM • Fast – paced society • People do not tolerate • People work for longer hours • Increasing stress in jobs • Tolerance level are low • Customers expect Want efficient service Less or no waiting How to reduce / manage waiting?
DEMAND MANAGEMENT IN SERVICES WAITING LINE STRATEGIES • Employ operational logic • Establish a reservation process • Differentiate waiting customers • Make waiting fun, or at least tolerable
DEMAND MANAGEMENT IN SERVICES Employ operational logic • If waiting common, then operations need improvements Marriot Hotel • Loyal customers • Check-in • Go straight to their allotted room • Complete formalities in room • No waiting
DEMAND MANAGEMENT IN SERVICES Standard Chartered Bank • Earlier • Deposit and withdrawal counters were separate • Heavy waiting at withdrawal counters • Now single counter for withdrawal and deposit • Less number of counters required ABN AMRO Bank • Cash delivery at residence • Customers who do not want to wait
DEMAND MANAGEMENT IN SERVICES Establish a reservation process • Waiting cannot be avoided • Reservation System • Spread demand • Purpose • Guarantee that when customer arrives • Reduces waiting time • Shifts demand • What if “no – show” • Depends on analysis • Is the percentage high or low?
DEMAND MANAGEMENT IN SERVICES Airlines • No-show quite frequent • Accurate prediction • Over-booking common • What do you do when all booked customers land up? • Compensated for not taking flight • Incentives to get offloaded • Some companies do not refund for no-show/ cancellation
DEMAND MANAGEMENT IN SERVICES Differentiate waiting customers • Would you accord priority • First-come, first served • Differentiation depends on • Importance of the customer • Urgency of the job. • Duration of the service transaction • Payment of a premium price
DEMAND MANAGEMENT IN SERVICES Customer importance • Old customers • Loyal customers • Given priority