1. Chapter
14
Managing Demand
and Capacity
• The Underlying Issue: Lack of Inventory
Capability
• Understanding Capacity Constraints
• Understanding Demand Patterns
• Strategies for Matching Capacity and
Demand
• Yield Management
• Waiting Line Strategies
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2. Objectives for Chapter 14:
Managing Demand and Capacity
• Explain the underlying issue for capacity-constrained
services: lack of inventory capacity.
• Present the implications of time, labor, equipment, and
facilities constraints combined with variations in demand
patterns.
• Lay out strategies for matching supply and demand
through (a) shifting demand to match capacity or
(b) flexing capacity to meet demand.
• Demonstrate the benefits and risks of yield management
strategies.
• Provide strategies for managing waiting lines.
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3. Figure 14.1
Variations in Demand
Relative to Capacity
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4. Understanding Capacity Constraints and
Demand Patterns
Capacity Constraints
Demand Patterns
• Time, labor, equipment,
and facilities
• Optimal versus maximal
use of capacity
• Charting demand patterns
• Predictable cycles
• Random demand
fluctuations
• Demand patterns by
market segment
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5. Table 14.1
Demand vs. Supply
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6. Table 14.2
Constraints on Capacity
Nature of the constraint
Type of service
Time
Legal
Consulting
Accounting
Medical
Labor
Law firm
Accounting firm
Consulting firm
Health clinic
Equipment
Delivery services
Telecommunication
Utilities
Health club
Facilities
Hotels
Restaurants
Hospitals
Airlines
Schools
Theaters
Churches
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7. Figure 14.3
Strategies for Shifting Demand
to Match Capacity
Demand Too High
Shift Demand
• Use signage to communicate
busy days and times.
• Offer incentives to customers
for usage during non-peak
times.
• Take care of loyal or “regular”
customers first.
• Advertise peak usage times and
benefits of non-peak use.
• Charge full price for the
service--no discounts.
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Demand Too Low
• Use sales and advertising to
increase business from current
market segments.
• Modify the service offering to
appeal to new market segments.
• Offer discounts or price
reductions.
• Modify hours of operation.
• Bring the service to the
customer.
©2003. The McGraw-Hill Companies. All Rights Reserved

8. Figure 14.4
Strategies for Flexing Capacity
to Match Demand
Demand Too High
Flex Capacity
• Stretch time, labor, facilities and
equipment.
• Cross-train employees.
• Hire part-time employees.
• Request overtime work from
employees.
• Rent or share facilities.
• Rent or share equipment.
• Subcontract or outsource activities.
• Outsource.
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Demand Too Low
• Perform maintenance,
renovations.
• Schedule vacations.
• Schedule employee training.
• Lay off employees.
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9. Waiting Issues
•
•
•
•
•
•
•
unoccupied time feels longer
preprocess waits feel longer
anxiety makes waits seem longer
uncertain waits seem longer than finite waits
unexplained waits seem longer
unfair waits feel longer
longer waits are more acceptable for “valuable”
services
• solo waits feel longer
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10. Waiting Strategies
•
•
•
•
Employ operational logic to reduce wait
Establish a reservation process
Differentiate waiting customers
Make waiting fun, or at least tolerable
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11. Figure 14.5
Waiting Line Strategies
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12. Figure 14.6
Waiting Line Configurations
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