MANAGING

DEMAND AND SUPPLY

 Understanding Capacity Constraints
and Demand Patterns

Capacity Constraints Demand Patterns

 Time, labor, equipment and • Charting demand
facilities patterns
 Optimal versus maximal use
of capacity • Predictable cycles
• Random demand
fluctuations
• Demand patterns by
market segment
 Strategies for Shifting Demand
to Match Capacity

Demand Too High Shift Demand Demand Too Low

• 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
• 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
 Strategies for Flexing Capacity
to Match Demand

Demand Too High Flex Capacity Demand Too Low

• 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
• Perform maintenance
renovations
• Schedule vacations
• Schedule employee training
• Lay off employees
 Nature of Demand Relative to Supply

Extent to Extent of Demand Fluctuation over time

which supply
is constrained Wide Narrow
Peak demand can  Electricity  Insurance
usually be met  Natural gas  Legal services
without a major  Telephone  Banking
delay  Hospital maternity  Laundry and dry
unit cleaning
 Police and fire
emergencies
Peak demand  Accounting and tax Services similar to those in
regularly exceeds preparation above but which have
capacity  Passenger insufficient capacity for
transportation their base level of business
 Hotels and motels
 Restaurants
 Theaters

Source: Christopher H. Lovelock, “Classifying Services to Gain Strategic Marketing Insights,” Journal of Marketing, 47, 3 (Summer
1983): 17.
 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
 Waiting Line Issues and Strategies

 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