1. Balancing Demand and Capacity
Chapter 11
Balancing Demand
and Capacity

2. Relating Demand to Capacity: Four Key Concepts
Excess demand: too much demand relative to capacity at a given time
Excess capacity: too much capacity relative to demand at a given time
Maximum capacity: upper limit to a firm’s ability to meet demand at a given time
Optimum capacity: point beyond which service quality declines as more customers are serviced

3. Variations in Demand Relative to Capacity (Fig. 9-1)
VOLUME DEMANDED
Demand exceeds capacity
(business is lost)
CAPACITY UTILIZED
Maximum Available
Demand exceeds
optimum capacity
Capacity
(quality declines)
Optimum Capacity
(Demand and Supply
Well Balanced
Excess capacity
Low Utilization
(wasted resources)
(May Send Bad Signals)
TIME CYCLE 1
TIME CYCLE 2

4. Defining Productive Capacity in Services
Physical facilities to contain customers
Physical facilities to store or process goods
Physical equipment to process people, possessions, or information
Labor used for physical or mental work
Public/private infrastructure—e.g., highways, airports, electricity

5. Alternative Capacity Management Strategies
Level capacity (fixed level at all times)
Stretch and shrink
offer inferior extra capacity at peaks (e.g. bus/metro standees)
vary seated space per customer (e.g. elbow room, leg room)
extend/cut hours of service
Chase demand (adjust capacity to match demand)
schedule downtime in low demand periods
use part-time employees
rent or share extra facilities and equipment
cross-train employees
Flexible Capacity (vary mix by segment)

6. Predictable Demand Patterns and Their Underlying Causes (Table 9-1)
Predictable Cycles
of Demand Levels
day
week
month
year
other
Underlying Causes of
Cyclical Variations
employment
billing or tax payments/refunds
pay days
school hours/holidays
seasonal climate changes
public/religious holidays
natural cycles
(e.g. coastal tides)

7. Causes of Seemingly Random Changes in Demand Levels
Weather
Health problems
Accidents, Fires, Crime
Natural disasters
Question: which of these
events can be predicted?

8. Alternative Demand Management Strategies (Table 9-2)
Take no action
let customers sort it out
Reduce demand
higher prices
communication promoting alternative times
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 queueing

9. Hotel Room Demand Curves by Segment and by Season (Fig. 9-2)
Price per
Room Night Bl Bh
Bh = business travelers in high season Th
Bl = business travelers in low season Tl
Th = tourist in high season
Tl = tourist in low season Th Bh Bl Tl
Quantity of Rooms Demanded at Each Price
by Travelers in Each Segment in Each Season
Note: hypothetical example

10. Avoiding Burdensome Waits for Customers
Add extra capacity so that demand can be met at most times (problem: may add too many costs)
Rethink design of queuing system to give priority to certain customers or transactions
Redesign processes to shorten transaction time
Manage customer behavior and perceptions of wait
Install a reservations system

11. Alternative Queuing Configurations (Fig. 9-4)
Single line, single server, single stage
Single line, single servers at sequential stages
Parallel lines to multiple servers
Designated lines to designated servers
Single line to multiple servers (“snake”) 21
“Take a number” (single or multiple servers) 28 29 20 30 25 26 24 31 27 32 23

12. Tailoring Queuing Systems to Market Segments: Criteria for Allocation to Designated Lines
Urgency of job
emergencies vs. non-emergencies
Duration of service transaction
number of items to transact
complexity of task
Payment of premium price
First class vs. economy
Importance of customer
frequent users/loyal customers vs. others

13. Ten Propositions on the Psychology of Waiting Lines (Table 9-3)
1. Unoccupied time feels longer
2. Preprocess/postprocess waiting feel longer than in-process
3. Anxiety makes waiting seem longer
4. Uncertain waiting is longer than known, finite waiting
5. Unexplained waiting seems longer
6. Unfair waiting is longer than equitable waiting
7. People will wait longer for more valuable services
8. Waiting alone feels longer than in groups
9. Physically uncomfortable waiting feels longer
10. Waiting seems longer to new or occasional users
Sources: Maister; Davis & Heineke; Jones & Peppiatt

14. Benefits of Effective Reservations Systems
Controls and smoothes demand
Pre-sells service
Informs and educates customers in advance of arrival
Customers avoid waiting in line for service (if service times are honored)
Data capture helps organizations prepare financial projections

15. Characteristics of Well-designed Reservations Systems
Fast and user friendly for customers and staff
Can answer 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
Includes strategies for no-shows and overbooking
requiring deposits to discourage no-shows
canceling unpaid bookings after designated time
compensating victims of over-booking

16. Setting Capacity Allocation Sales Targets for a Hotel by Segment and Time Period (Fig. 9-5)
Week 7
Week 36
Capacity (% rooms)
(Low Season)
(High Season)
100%
Out of commission for renovation
Executive service guests
Executive service
guests
Transient guests
Weekend
package
50%
W/E
package
Transient guests
Groups and conventions
Groups (no conventions)
Airline contracts
Airline contracts
Nights: M Tu W Th F S Sn M Tu W Th F S Sn
Time

17. Information Needed for Demand and Capacity Management Strategies
Historical data on demand level and composition, noting responses to marketing variables
Demand forecasts by segment under specified conditions
Fixed and variable cost data, profitability of incremental sales
Site-by-site demand variations
Customer attitudes towards queuing
Customer evaluations of quality at different levels of capacity utilization