4362ch14 Sp10

Copyright © Houghton Mifflin Company. All rights reserved. 14 | 1

Chap. 14 – Coping with Fluctuating Demand for Services

Services Demand Problem: Two circumstances

• Demand cycles – Services face fluctuating demand.

• Perishability – Services usually exist only for the time during which they are performed.


Balance Capacity and Demand

Successful service organizations must strike a balance between capacity and demand.

There must be enough capacity to accommodate customers when demand is high, yet not so much that it goes to waste when demand is low.


Variations in Demand Relative to Capacity


The Nature of Service Demand

Random fluctuation occurs without warning and is hard to accommodate.

• Severe Weather

Predictable fluctuation occurs when customer demand follows a pattern that repeats itself over time.


Predictable Fluctuation

See Table 14.1Hotel: day of the week and calendar year

(holidays, events)

Restaurants: time of day, day of the week

Movie Theaters: time of day, day of the week


Predictable FluctuationSometimes it is nearly impossible to shift customer

demand because of factors beyond the customers’ and organizations’ control.

• Business travelers in the U.S. most often conduct business between 8:00 am and 5:00 pm, Monday through Friday. Airlines and hotels that cater to businesspeople can do little to change their demand cycle.

• A service’s demand cycle can be more flexible in other cases: restaurants


Service Capacity

Most service organizations are capacity constrained

Service capacity has three aspects: • The physical facility in which the service is

performed or rendered.• The personnel whose labor and skill level

create the service.• The equipment that enables the service to

occur.


Capacity Constraints for Service Firms

Physical facility: number of rooms in a hotel; number of seats on a flight.

Personnel: number of people available to serve at a point in time: health clinic, car repair

• Services sell time; more time cannot be produced, nor saved in inventory: Lawyers, consultants, doctors, accountants


Capacity Constraints for Service Firms

Equipment: computer hardware and software; equipment at the health club.

Unless equipment is used to capacity, revenue is severely affected.


Chasing Demand

Chase demand is stretching or shrinking the organization’s productive capacity to meet fluctuating demand;

• In other words, adjusting capacity to meet demand.


Adjusting Capacity to Meet Demand

Stretch Existing Capacity: people, facilities, and equipment are asked to work longer to meet demand:

• library hours during finals; standing room only

Align Capacity with Demand Fluctuations: use part-time employees, outsource, rent or share facilities, etc.


Smoothing Demand toFill Service Capacity

Smoothing demand means shifting patronage to times when a service's productive capacity is underused and deflecting or discouraging patronage when it is oversubscribed.


Smoothing Demand

Increase Demand to Match Capacity

• Reduce prices during slow demand• Vary How the Facility is Used: ski

resorts in winter - executive training facility in summer

• Promotion: sales promotions: coupons, sweepstakes, contests, ads, to increase demand


Smoothing Demand

Reduce Demand during Peak Times

• Charge higher prices• Communicate with customers to use

service at other times• Modify timing and location of service

delivery: longer banking hours; online banking; restrict hours of operation

• Set priorities: emergency centers


Inventory Demand

Establish a Reservation Process: spread demand; reduce long waits

Formal queuing system: • First come, first served• Accommodate most desirable customers

first


Maximum VersusOptimum Capacity

• Optimum capacity is the number of customers that can be effectively handled under ideal conditions

• Sometimes maximum capacity is not optimum capacity

• Creating demand greater than maximum capacity may result in negative experiences

• Maximum capacity does not always mean maximum profits


Waiting Line Strategies: When Demand and Capacity Cannot be Matched

Employ operational logic: analyze operational processes to remove any efficiencies

Installing ticket vending machines in train stations to expedite the purchase of train tickets


Queuing Configuration

Queuing Configuration: refers to the number of queues, their locations, spatial requirement, and their effect on customer behavior



• Multiple Queue: customer must decide which queue to join and whether to switch later if the wait appears to be shorter in another line



• Single Queue: fairness of waiting time is ensured in that the first come, first-served rule applies to everyone; the system can also reduce the average time customers spend overall.



• Take-a-number option: arriving customers take a number to indicate line position


Differentiate Waiting Customers

Differentiate waiting customers: not all customers need to wait the same length of time for the service. EX: Express checkout lanes for customers purchasing 10 items or less



Payment of a premium price: Customers who pay extra (eg, first-class on an airline) given priority via separate check-in lines or express systems.

Urgency of the job: Those with the most urgent need may be served first.

• EX: emergency healthcare; air-conditioning service: priority for repair vs. routine maintenance.



Duration of the service transaction: shorter service jobs get priority through “express lanes.”

• If service requires extra time, customer is referred to designated provider dealing with special cases.


Make Waiting Pleasurable, or at Least Tolerable

Make waiting fun, or at least tolerable: it is not the actual time waiting that impacts customer satisfaction - it is how customers feel about the wait and their perceptions of it.

Unoccupied Time Feels Longer Than Occupied Time

Give customers menus to look at while waiting in the restaurant; reading material in the dentist’s office; music over the phone



• Unoccupied Time Feels Longer Than Occupied Time

Give customers menus to look at while waiting in the restaurant.



• Preprocess Waits Feel Longer Than In-Process WaitsIf wait time is occupied with activities that relate to the upcoming service, customers may perceive that the service has already started and they are no longer actually waiting.Filling out medical information while waiting to see a physician; watching a videotape of the upcoming service event can educate the customer and reduce the perception of waiting



• Uncertain Waits are Longer than Known, Finite WaitsAnxiety is heightened when customers do not know how long they have to wait.

Appointment Syndrome: customers who arrive early for an appointment will wait patiently until the scheduled time, even if they arrive very early. However once the expected appointment has passed, customers grow increasingly anxious.



• Unexplained Waits Are Longer Than Explained Waits

When people understand the causes of waiting, they frequently have greater patience and are less anxious, particularly when the wait is justifiable



• Unfair Waits Are Longer Than Equitable WaitsWhen customers perceive that they are waiting while others who arrived after them have already been served, the apparent wait will make the wait seem even longer.

May occur when there is no apparent waiting in the waiting area and many customers are trying to be served.



• The More Valuable the Service, the Longer the Customer Will Wait

15 minute wait: Lawyer vs. Convenience StoreFull cart of groceries vs. Few itemsExpensive restaurant vs. Fast Food

• Solo Waits Feel Longer Than Group WaitsPeople are more accepting of a longer wait in a group because of distractions provided by other members of the group.

4362ch14 Sp10

Business

Transcript of 4362ch14 Sp10