Chapter 7: Balancing Productive Capacity and Demand

Chapter 7: Balancing Productive Capacity and Demand

1. Productive Capacity is the maximum number of products or services that can be produced, given a fixed number of resources and constraints.

   • Goal is not to utilize staff or facilities as much as possible, but to use them as productively as possible
   • Forms of Productive Capacity
     • Physical Facilities to host customers
       • Hotels
       • Clinics
       • Classrooms
     • Physical Facilities for storing or processing goods
       • Warehouses
       • Carparks
       • Pet Grooming Salons
     • Service Provision Equipment (To process people or information)
       • To ease bottleneck in services
       • Telephones
       • Hairdryers
       • Cash Registers
       • Toll-gates
     • Number, Expertise and Experience of Personnel
       • Constraints in High or Low contact services
         • Insufficient staffing causes customers to wait or else quality of rushed services diminishes
       • Waiters
       • Nurses
       • Doctors
   • Measuring Productive Capacity
     • Percentage of total time facilities, staff and equipment in use
     • Percentage of total space used in revenue operations
   • Demand variability interfering with productive use of capacity
     • Request Variability
       • Changing of Cooking Method
     • Capability Variability
       • Knowledge and experience - seasoned customer VS first timer
     • Effort Variability
       • Effort of student putting into assignments
     • Subjective Preference Variability
       • High Attention Service VS Low Attention Service

2. Capacity Challenge

   • Stretching or Shrinking Capacity
     • Stretch capacity of personnel during peak hours
     • Extend Opening Hours
     • Minimizing Slack Time
     • Cutting Level of Services During Peak Hours
   • Adjusting Capacity to Meet Demand
     • Schedule downtime during low peak periods
       • To ensure 100% capacity during peak period
       • Maintenance to be done during downtime
     • Cross-train employees
       • To ease bottle-necks to increase total capacity
     • Use Part-Time Employees
       • Extra manpower to ease workload
       • More flexibility
     • Self-Service
       • Customers as co-producers
         • Set up self-service kiosks
     • Asking Customers to Share
       • To share one unit of capacity during peak hours
         • Sharing tables or sharing of taxi
     • Create Flexible Capacity
       • Two or more tables combined to accommodate more customers
     • Rent extra facilities or equipment
       • To limit investments in fixed assets
         • Rent out extra space or machines during peak hours

3. Strategies For Managing Demand

   • Demand and Supply Imbalance
     • Excess Demand
       • Customers have to be turned away
     • Demand Exceeds Optimum Capacity Level
     • Demand and Supply Well Balanced
     • Excess Capacity
       • Customers question viability
   • Approaches for Managing Demand
     • Take No Action and let demand find its own levels
       • Customers learn from experience and Word of Mouth
     • Reduce demand in peak periods
       • Encourage customers to shift demand
     • Increase Demand in low periods
       • Introduce Pricing incentives
       • Special Promotional Offers
       • Additional or Modified Services
     • Inventory Demand until supply available
       • Introducing Booking or Reservation Systems