Fluctuating demand for service, like that experienced by the retailers, movie theaters, motels, restaurants, ferries, and other establishments on Cape Cod, is not just found in vacation resorts. It's a problem for a huge cross-section of businesses serving both individual and corporate customers. These demand fluctuations which may be as long as a season of the year or as short as an hourly cycle play havoc with efficient use of productive assets.
Unlike manufacturing, service operations create a perishable inventory that cannot be stockpiled for sale at a later date. That's a problem for any capacity-constrained service that faces wide swings in demand. The problem is most commonly found among services that process people or physical possessions, like transportation, lodging, food service, repair and maintenance, entertainment, and health care.
It also affects labor-intensive information-processing services that face cyclical shifts in demand. University education and accounting and tax preparation are cases in point.
This chapter and the one that follows address the question, how should we match demand and productive capacity? The task starts with defining the nature of the firm's productive capacity, which may vary significantly from one industry to another. Managers also need to document how demand levels vary, what factors explain those variations, and under what circumstances demand exceeds available capacity. Armed with this understanding, they should then be in a position to develop strategies for matching demand and capacity.
From Excess Demand to Excess Capacity
At any given moment, a fixed-capacity service may face one of four conditions (see Figure):
You'll notice that we've drawn a distinction between maximum capacity and optimum capacity. When demand exceeds the maximum available capacity, some potential customers may be turned away and their business could be lost forever. When the demand level is between optimum and maximum capacity, all customers can be served but there's a risk that they may receive inferior service and thus become dissatisfied.
Sometimes optimum and maximum capacities are one and the same. At a live theater or sports performance, a full house is very desirable since it stimulates the players and creates a sense of excitement and audience participation. The net result is a more satisfying experience for all.
But with most other services, you probably feel that you get better service if the facility is not operating at full capacity. The quality of restaurant service, for instance, often deteriorates when every table is occupied. The employees are rushed and there's a greater likelihood of errors or delays. And if you're traveling by air you tend to feel more comfortable if the seat next to you is empty.
There are two basic solutions to the problem of fluctuating demand. One is to adjust the level of capacity to meet variations in demand. This approach, which involves cooperation between operations and human resource management, requires an understanding of what constitutes productive capacity and how it may be increased or decreased on an incremental basis.
The second approach is to manage the level of demand, using marketing strategies to smooth out the peaks and fill in the valleys to generate a more consistent flow of requests for service. Astute firms employ a mix of both strategies, which requires close collaboration between operations and marketing.
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Principles Of Service Marketing Management Tutorial
Services In The Modern Economy
Understanding Service Processes
Managing Service Encounters
Customer Behavior In Service Environments
Relationship Marketing And Customer Loyalty
Complaint Handling And Service Recovery
The Service Product
Pricing Strategies For Services
Promotion And Education
Service Positioning And Design
Creating Delivery Systems In Place, Cyberspace, And Time
Creating Value Through Productivity And Quality
Balancing Demand And Capacity
Managing Customer Waiting Lines And Reservations
Employee Roles In Service Organizations
The Impact Of Technology On Services
Organizing For Service Leadership
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