Coping with Fluctuating Demand for Services Copyright Houghton

Why Is Services Demand a Problem? • Demand cycles • Services must often cope

The Nature of Service Demand • Random fluctuation occurs without warning and cannot be

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Chasing Demand with Service Capacity • Service capacity has three aspects: • The physical

Capacity Issues • Optimum capacity is the number of customers that can be effectively

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Smoothing Demand to Fill Service Capacity • The activity of shifting patronage to times

Managing the Perishable Product • Pick segment mix with maximum total profitability over demand

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Why Is Services Demand a Problem? • Demand cycles • Services must often cope with cycles of demand that may be deeply ensconced in the behavioral patterns of the customer. • Perishability • Services exist only for the time during which they are performed. Copyright © Houghton Mifflin Company. All rights reserved. 2

The Nature of Service Demand • Random fluctuation occurs without warning and cannot be easily managed. • Predictable fluctuation occurs when customer demand follows a pattern over time that repeats itself. Copyright © Houghton Mifflin Company. All rights reserved. 3

Chasing Demand with Service Capacity • Service capacity has three aspects: • The physical facility in which the service is performed or rendered; • The personnel whose labors create the service and their skill level; • The equipment that enables the service to occur. Copyright © Houghton Mifflin Company. All rights reserved. 5

Capacity Issues • Optimum capacity is the number of customers that can be effectively handled under ideal conditions. • Sometimes maximum capacity is not optimum capacity. Copyright © Houghton Mifflin Company. All rights reserved. 6

Smoothing Demand to Fill Service Capacity • The activity of shifting patronage to times when a service's productive capacity is underused and deflecting or discouraging patronage when its capacity is oversubscribed. Copyright © Houghton Mifflin Company. All rights reserved. 8

Managing the Perishable Product • Pick segment mix with maximum total profitability over demand cycle. • Smooth peaks and fill valleys by managing capacity and demand. • Examine size and profitability. • Segment mix - Segments and proportion of total • Value mix - Long-term profitability of each segment • Key is relationship management. • Segments and customers • Service preferences (value) • Price sensitivity (costs) Copyright © Houghton Mifflin Company. All rights reserved. 10