SQ Lecture Eight - Balancing Demand Against Productive Capacity
1. JAN 2013 Semester
1
Service Quality
MKTG 1268
Lecture Eight
• Balancing Demand
Against Productive
Capacity
(Chapter 9)
2. Overview of Chapter 9
2
Fluctuations in Demand Threaten Service
Productivity
Defining Productive Service Capacity
Managing Capacity
Understanding Patterns of Demand
Managing Demand
Inventory Demand through Waiting Lines and
Queuing Systems
Customer Perceptions of Waiting Time
Inventory Demand Through Reservations System
5. Carefully balancing the demands (by customers) and
the available capacity of the service firm’s resources
requires careful planning
5
6. From Excess Demand to Excess Capacity
6
Four conditions potentially faced by fixed-capacity services:
1. Excess demand
Too much demand relative to capacity at a given time
2. Demand exceeds optimum capacity
Upper limit to a firm’s ability to meet demand at a
given time
3. Optimum capacity
Pointbeyond which service quality declines as more
customers are serviced
4. Excess capacity
Too much capacity relative to demand at a given time
15. Alternative Capacity Management Strategies
15
Capacity is fixed, but more people are served at
the same level of capacity
Stretch and shrink:
Offer inferior extra capacity at peaks (e.g. bus/train
standees)
Use facilities for longer/shorter periods
Reduce amount of time spent in process by minimizing
slack time
16. Adjusting Capacity to Match Demand
(Vary amount of capacity to match anticipated demand):
16
• Schedule downtime during periods of low demand
• Cross-train employees
• Use part-time employees
• Invite customers to perform self-service
• Ask customers to share
• Create flexible capacity
• Rent or share extra facilities and equipment
20. Predictable Demand Patterns and
Their Underlying Causes (Table 9.1) (1)
20
Predictable Cycles Underlying Causes of
of Demand Levels Cyclical Variations
day employment
week billing or tax payments/refunds
month pay days
year school hours/holidays
other seasonal climate changes
public/religious holidays
natural cycles
See full details in Table 9.1 on page 272 of the text 20
22. Some service jobs can be regularly scheduled –
example maintenance jobs
22
23. Predictable Demand Patterns and
Their Underlying Causes (Table 9.1) (2)
Underlying causes of randomly changing
demand levels
Weather
Health problems
Accidents, Fires, Crime
Natural disasters
Disaggregate demand by market segment for a particular service over
time
Use patterns by particular type of customer or for a particular purpose
Variations in net profitability for each completed transaction
23
26. Alternative Demand Management Strategies (Table 9.2)
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Take no action
Let customers sort it out
Reduce demand
Higher prices
Communication encouraging use of other time slots
Increase demand
Lower prices
Communication, including promotional incentives
Vary product features to increase desirability
More convenient delivery times and places
Inventory demand by reservation system
Inventory demand by formalized queuing
See full details in Table 9.2 on page 275 of the text
28. Marketing Strategies Can Reshape Some Demand
Patterns
28
Use price and other costs to manage demand.
If the firm understands the shape of demand
curves for different market segments, then
prices may be raised/lowered to
discourage/attract particular segments at
particular times.
Change product elements. Features may be
varied according to the time of day (e.g.,
restaurants) or season of the year (hotels) to
attract different market segments.
30. Marketing Strategies Can Reshape Some Demand
Patterns
30
Modifying time and place of delivery to reflect
changing market needs over the product demand
cycle.
Use promotion and education. Signage,
advertising, and promotion can be used to inform
customers of peak periods (encouraging them to
avoid using the service during these times, if
possible) and promoting off-peak times when the
service facility is less crowded and service faster.
33. 33
INVENTORY DEMAND
THROUGH WAITING LINES
AND RESERVATIONS
34. When Demand Exceeds Supply
34
Steps to take to inventory demand (keep capacity
for use later)
Asking customers to wait in line (queue), usually
on a first-come first-served basis
Offering customers the opportunity to reserve or
book capacity in advance
35. Why do queues exist?
35
Because number of arrivals at a facility
exceeds capacity of system to process them at
a specific point in the process
Queues are basically a symptom of
unresolved capacity management problems
37. Waiting In Line
37
Almost nobody likes to wait
An average person may spend up to 30 minutes/day
waiting in line—equivalent to 20 months in an 80 year
lifetime
It's boring, time-wasting, and sometimes physically
uncomfortable
Not all queues take physical waiting in a single
location
Queues may be physical but geographically
dispersed
Some are virtual
38. Reduce Waiting Time By:
38
Rethinking the design of queuing system
Installing reservations system
Tailoring the queuing system to different market
segments
Managing customer behavior and their
perceptions of wait
Redesign processes to shorten the time of each
transaction
40. Queue Configurations:
40
Single line sequential stage queues are appropriate for small
waiting time and each stage is simple with little chances of
stand-offs.
Single line to multiple servers (snake) is always preferable
over multiple lines to multiple servers, as multiple lines may
not move at the same speed.
Designated lines to designated servers configuration are
suitable for different segments of customers and different
jobs.
Take a number approach saves from the hassles of standing
in the queue, if waiting time is too long. In the meantime
customers can do something else.
42. Virtual Waits
42
One problem of waiting is the waste of customers’
time
Virtual queues can eliminate the need to wait
Customers register their place in line on a
computer, which estimates the time they need to
reach the front of the virtual line, customers then
return later to claim their place
See Service Insights 9.3 (page 283)
43. Queuing Systems can be Tailored to Market
Segments
43
Urgency of job
Emergencies vs. non-emergencies
Duration of service transaction
Number of items to transact
Complexity of task
Payment of premium price
Importance of customer
Frequent users/high volume purchasers vs. others
45. Ten Propositions to Make Waiting More
Bearable (1)
45
1. Unoccupied time feels longer than occupied
time
2. Solo waits feel longer than group waits
3. Physically uncomfortable waits feel longer
than comfortable ones
4. Pre- and post-process waits feel longer than
in-process waits
5. Unexplained waits are longer than explained
waits
Sources: Maister; Davis & Heineke; Jones &
Peppiatt
Cont.
47. Ten Propositions to Make Waiting More
Bearable (2)
47
6. Unfamiliar waits seem longer than familiar
ones
7. Uncertain waits are longer than known, finite
waits
8. Unfair waits are longer than fair waits
9. Anxiety makes waits seem longer
10. People will wait longer for more valuable
services
Sources: Maister; Davis & Heineke; Jones & Peppiatt
50. Benefits of Reservations
50
Avoid customer dissatisfaction due to excessive
waits
Controls and smoothes demand
Allows implementation of revenue management
and preselling of service to different customer
segments
Data captured helps organizations
Prepare financial projections
Plan operations and staffing levels
52. Characteristics of Well-Designed Reservations System
52
Fast and user-friendly for customers and staff
Answers customer questions
Offers options for self service (e.g. Web)
Accommodates preferences (e.g., room with view)
Deflects demand from unavailable first choices to
alternative times and locations
53. Reservations Strategies Should Focus on Yield
53
Yield analysis helps managers recognize
opportunity cost of allocating capacity to one
customer/segment when another segment might
yield a higher rate later
Decisions need to be based on good information
Detailed record of past usage
Supported by current market intelligence and good
marketing sense
Realistic estimate of changes of obtaining higher
rated business
When firms overbook to increase yield,
Victims of over-booking should be compensated to
preserve the relationship
60. Practice Exam Essay Question:
60
In a popular massage parlour, there are often
customers waiting at the reception to get a massage
because all the masseurs are already occupied / busy
serving other customers.
(a) Recommend three demand and capacity
management actions this massage parlour can take to
respond to the above situation.
(b) Drawing on what you have learnt in relation to the
psychology of waiting, how could this massage
parlour make waiting more ‘bearable’ for customers?