MARK270 Lecture Notes - Lecture 10: Capacity Utilization, Overselling, Shortage
Managing Demand and Capacity:
• The underlying issue: lack of inventory capability
• You can't store services
• Capacity constraints
• Demand patterns
• Strategies for matching capacity and demand
• Yield management: balancing capacity utilization, pricing, market segmentation, and financial
return
• Waiting line strategies: when demand and capacity cannot be matched
• Excess demand: the level of demand exceeds max capacity
o Some customers will be turned away
o For customers who do receive service, quality may be lacking because of crowding or
overtaxing of staff and facilities
• Demand exceeds optimum capacity
o No one is turned away, but quality may still suffer
• Demand and supply are balanced at optimum capacity
o Staff and facilities are occupied at ideal level
o No one is overworked, facilities can be maintained, customers are receiving quality
• Excess capacity: demand is below optimum
o Resources are underutilized resulting in lower profits
o Some customers may receive high quality service, but if quality depends on the presence
of other customers, customers may be disappointed
Demand and Capacity for Service Providers:
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Understanding capacity constraints and demand patterns:
Capacity Constraints:
• Time, labor, equipment, and facilities
• Optimal versus maximum use of capacity
Demand Patterns:
• Charting demand patterns
• Predictable cycles
• Random demand fluctuations
• Demand patterns by market segment
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Managing demand and capacity: the underlying issue: lack of inventory capability, you can"t store services, capacity constraints, demand patterns, yield management: balancing capacity utilization, pricing, market segmentation, and financial. Capacity constraints: time, labor, equipment, and facilities, optimal versus maximum use of capacity. Demand patterns: charting demand patterns, predictable cycles, random demand fluctuations, demand patterns by market segment. The process of allocating the right type of capacity to the right kind of customer at the right price so as to maximise revenue or yield. Yield = actual revenue/potential revenue: where actual revenue = actual capacity x average actual price, potential revenue = total capacity x maximum price. Most effective when: different segments make reservations at different times, customers who arrive/reserve early are more price sensitive than those who arrive/reserve late. Loss of competitive focus: customer alienation, overbooking. Waiting line strategies: employ operational logic to reduce wait, how to configure the queue, multiple queue, single queue, take a number.
