MARK 4500 Chapter Notes - Chapter 9: Opportunity Cost

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CHAPTER 9 Balancing Demand and Productive Capacity
Productive Capacity
The resources or assets a firm can employ to create goods and services
Ex: physical facilities/equipment designed to contain customers or for storing goods, labor
Mismatch Demand and Capacity (4 phases)
1. Excess Demand
a. Too much demand relative to maximum capacity (business is lost)
2. Demand exceeds optimum capacity
a. Service quality is perceived to have deteriorated (quality declines)
3. Optimum capacity
a. Staff is not overworked and customers receive good service (demand = supply)
4. Excess capacity
a. Too much capacity relative to demand (may send bad signals)
2 Basic Approaches to Managing Demand
1. Adjust level of capacity to meet demand (understand how productive capacity varies)
2. Manage level of demand (use marketing strategies to smooth out peaks)
Moopolies soeties do’t eed to aage
Managing Capacity
Offer inferior extra capacity at peaks (standing room on bus)
Use facilities for longer/shorter periods
Reduce time spend in process by minimizing slack time
Adjusting capacity to match demand:
o Rest during low demand
o Cross-train employees
o Use part-time employees
o Customers perform self-service
o Ask customers to share
o Create flexible capacity
o Rent/share facilities and equipment
Managing Demand
Take no action (let demand find its own levels)
Interventionist approach: reduce demand in peak periods and increase when there is excess
capacity
o Change product elements, change pricing, modify place/time of delivery, promotion
Inventorying demand until capacity becomes available (formal wait and queuing system,
reservation system)
Managing Waiting Lines a universal phenomenon
Rethink design
Install reservation system
Tailor to market segments
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Document Summary

Chapter 9 balancing demand and productive capacity. The resources or assets a firm can employ to create goods and services. Ex: physical facilities/equipment designed to contain customers or for storing goods, labor. 2 basic approaches to managing demand: adjust level of capacity to meet demand (understand how productive capacity varies, manage level of demand (use marketing strategies to smooth out peaks) Offer inferior extra capacity at peaks (standing room on bus) Reduce time spend in process by minimizing slack time. Adjusting capacity to match demand: rest during low demand, cross-train employees, use part-time employees, customers perform self-service, ask customers to share, create flexible capacity, rent/share facilities and equipment. Take no action (let demand find its own levels) Interventionist approach: reduce demand in peak periods and increase when there is excess capacity: change product elements, change pricing, modify place/time of delivery, promotion. Inventorying demand until capacity becomes available (formal wait and queuing system, reservation system)

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