Many service organizations are capacity constrained. There's an upper limit to their capacity to serve additional customers at a particular point in time. They may also be constrained in terms of being unable to reduce their productive capacity during periods of low demand.
In general, organizations that engage in physical processes like people processing and possession processing are more likely to face capacity constraints than those that engage in information-based processes. A radio station, for instance, may be constrained in its geographic reach by the strength of its signal. But within that radius, any number of listeners can tune in to a broadcast.
Defining Productive Capacity
What do we mean by productive capacity? The term refers to the resources or assets that a firm can use to create goods and services. In a service context, productive capacity can take at least five potential forms.
Stretching and Shrinking the Level of Capacity
Measures of capacity utilization include the number of hours (or percentage of total available time) that facilities, labor, and equipment are productively employed in revenue operation, and the percentage of available space (e.g., seats, cubic freight capacity, telecommunications bandwidth) that is actually utilized in revenue operations. Some capacity is elastic in its ability to absorb extra demand.
A subway car, for instance, may offer 40 seats and allow standing room for another 60 passengers with adequate handrail and floor space for all. Yet at rush hours, when there have been delays on the line, perhaps 200 standees can be accommodated under sardine-like conditions. Service personnel may be able to work at high levels of efficiency during these short periods of time, but they would tire quickly and begin providing inferior service if required to work that fast all day long.
Even where capacity appears fixed, as when it's based on the number of seats, there may still be opportunities to accept extra business at busy times. Some airlines, for example, increase the capacity of their aircraft by slightly reducing legroom throughout the cabin and cramming in another couple of rows. A restaurant may add extra tables and chairs. Upper limits to such practices are often set by safety standards or by the capacity of supporting services, such as the kitchen.
Another strategy for stretching capacity within a given time frame is to utilize the facilities for longer periods. Examples of this include restaurants that are open for early dinners and late meals, universities that offer evening classes and summer semester programs, and airlines that extend their schedules from 14 to 20 hours a day. Alternatively, the average amount of time that customers (or their possessions) spend in the process may be reduced.
Sometimes this is achieved by minimizing slack time, as when the bill is presented promptly to a group of diners relaxing at the table after a meal. In other instances, it may be achieved by cutting back the level of service like offering a simpler menu at busy times of day.
Creating Flexible Capacity
Sometimes the problem is not in the overall capacity but in the mix that's available to serve the needs of different market segments. For example, on a given flight, an airline may have too few seats in economy even though there are empty places in the business class cabin.
A hotel may find itself short of suites when there are standard rooms still available. One solution to this problem is to design physical facilities to be flexible. Some hotels build rooms with connecting doors. With the door between two rooms locked, the hotel can sell two bedrooms. With the door unlocked and one of the bedrooms converted into a sitting room, the hotel can now offer a suite.
The Boeing Co. received what were described, tongue-in-cheek, as "outrageous demands" from prospective customers in terms of flexible capacity when it was designing its new 777 airliner. The airlines wanted an aircraft in which galleys and lavatories could be relocated, plumbing and all, almost anywhere in the cabin within a matter of hours. Boeing gulped but solved this challenging problem (it was facing stiff competition from Airbus Industries at the time). Airlines can rearrange the passenger cabin of the "Triple Seven" within hours, reconfiguring it with varying numbers of seats allocated among one, two, or three classes.
Another good example of highly flexible capacity comes from an eco-tourism operator in the South Island of New Zealand. During the spring, summer, and early autumn months the firm provides guided walks and treks, and during the snow season it offers cross-country skiing lessons and trips. Bookings all year round are processed through a contracted telephone-answering service.
Guides and instructors are employed on a part-time basis as required. The firm has negotiated agreements to use national parks, huts, and cabins, and it has an exclusive arrangement with a local sports goods store that allows clients to purchase or rent equipment at reduced rates. As needed, the company can arrange charter bus service for groups. The firm has the capacity to provide a wide range of services, yet the owners' capital investment in the business is remarkably low.
Not all unsold productive capacity is wasted. Many firms take a strategic approach to disposition of anticipated surplus capacity, allocating it in advance to build relationships with customers, suppliers, employees, and intermediaries. Possible applications include free trials for prospective customers and for intermediaries who sell to end users, customer or employee rewards, and bartering with the firm's own suppliers. Among the most widely traded services are advertising space or airtime, airline seats, and hotel rooms.
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