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Managing Capacity.

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Presentation on theme: "Managing Capacity."— Presentation transcript:

1 Managing Capacity

2 Service capacity Objective: match the level of operations with the level of demand, finding the best balance between cost and service levels. Capacity is perishable Non- inventoriable High contact brings uncertainty (time, quality) intangibility brings difficulty into the measurement of capacity

3 Bad capacity decisions
Increasing the wrong kind of capacity (airlines) Not increasing all round capacity (hotel) Not considering competitive reaction (Disney) Undercutting one’s own service (package delivery)

4 Strategies for capacity management
Control supply: ‘Chase strategy’ vary capacity to follow changes in demand Low skill, training, high turnover Seasonal fluctuations Level capacity: peak demand Skilled employees, long term success Alter demand: proactive

5 Strategies for Matching Supply and Demand for Services
Partitioning demand Increasing customer participation Developing complementary services Sharing capacity Establishing price incentives Scheduling work shifts Cross- training employees Developing reservation systems Creating adjustable capacity Promoting off-peak demand Using part-time employees Queuing Yield management

6 Hotel Overbooking Decision Matrix
Number of Reservations Overbooked No Prob- shows ability Expected loss, $

7 Controlling Supply Customer participation: capacity just when it is needed. Lower price, faster service Less control over quality of service Creating adjustable capacity: through design (i.e. Layout)

8 Controlling Supply Maximizing efficiency:
only essential tasks at peak demand periods; shift some processes to slack periods increase the use of effective capacity: identify tasks done by people with higher skills Cross training of employees: creates flexible capacity to meet localized peaks Subcontracting: expand capacity by using the capacity of others. Subcontractor quality; subcontractor capacity

9 Controlling Supply Expansion in ante Sharing capacity
Lease underutilized capacity to others Share capacity for ancillary services (ground personnel) Share capacity of equipment (dialysis machine, ambulance, police, fire)

10 Controlling Supply Using part-time employees Alternatively
Minimal skill (training) requirements Ready pool of labor availability Back-room operations; least customer contact Alternatively Place off-duty personnel on standby Longer working hours for full time employees

11 Controlling Supply Scheduling Staggered overlapping shifts
Daily workshift scheduling Weekly workforce scheduling with 2 consecutive days-off constraint

12 Strategies for Matching Supply and Demand for Services
Partitioning demand Increasing customer participation Developing complementary services Sharing capacity Establishing price incentives Scheduling work shifts Cross- training employees Developing reservation systems Creating adjustable capacity Promoting off-peak demand Using part-time employees Queuing Yield management

13 Yield Management Using reservation systems Overbooking
Partitioning demand

14 Ideal Characteristics for Yield Management
Relatively Fixed Capacity Ability to Segment Markets Perishable Inventory Product Sold in Advance Fluctuating Demand Low Marginal Sales Cost and High Capacity Change Cost

15 Seasonal Allocation of Rooms by Service Class for Resort Hotel
First class Standard Budget 20% 20% 20% 30% 50% 30% 50% 60% Percentage of capacity allocated to different service classes 50% 30% 30% 10% Peak Shoulder Off-peak Shoulder (30%) (20%) (40%) (10%) Summer Fall Winter Spring Percentage of capacity allocated to different seasons

16 Demand Control Chart for a Hotel
Expected Reservation Accumulation 2 standard deviation control limits


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