In this presentation, we will discuss about forecasting a demand, understanding a demand pattern with respect to time, managing capacity constraints and capacity planning. We will understand the strategies for matching supply and demand for a service through flow charts. We will also talk about the strategies for managing demand to match capacity. To know more about Welingkar School’s Distance Learning Program and courses offered, visit: http://www.welingkaronline.org/distance-learning/online-mba.html

1. Chapter - 4
MANAGING
DEMAND & SUPPLY
1

2. Introduction
Forecasting Demand
Understanding Demand Patterns
Managing Capacity Constraints
Capacity Planning
Strategies for Managing Capacity
to Match Demand
2

3. Strategies for Managing
Demand to Match Capacity
Strategies When Demand
and Capacity can not be
Matched
Yield Management
Summary
3

4. INTRODUCTION
Service capacity is a
perishable commodity. The
lack of inventory capability
leads to four possible
scenarios at any given time.
4

5. Excess Demand
Demand Exceeds Optimum
Capacity
Demand and Supply are
Balanced at the level of
Optimum Capacity
Excess capacity
5

6. FORECASTING DEMAND
Forecasting Demand is a very
imp. activity as the better the
assessment, the better the
quality of the planning. A few
situations that differ widely
from manufacturing companies
They are:
6

7. Fixed Capacity with
Widely Fluctuating
Demand
Service Systems that
Cannot Carry Inventories
Sharing Capacity
7

8. UNDERSTANDING
DEMAND PATTERNS
Matching capacity to demand
over a period of time requires
the consideration of demand
curves commonly faced. We
can then seek ways to adjust
service output along such
curves, some them are:
8

9. Typical Curves Representing Forecasts of Demand: Demand vs Time
(Fig. 4.1)
--------------------
(a) STABLE, CONSTANT DEMAND (b) STABLE, CYCLICAL DEMAND
(c) INCREASING DEMAND : LINEAR AND ACCELERATING
9

10. Typical Curves Representing Forecasts of Demand: Demand vs Time
(Fig. 4.1)
(d) INCREASING DEMAND: (e) DECREASING DEMAND:
SATURATING LINEAR & DECELETRATING
(f) DECREASING DEMAND:
VANISHING
10

11. Typical Curves Representing Forecasts of Demand: Demand vs Time
(Fig. 4.1)
(g) LOGISTICAL DEMAND
(h) LIFE – CYCLE DEMAND
11

12. MANAGING CAPACITY
CONSTRAINTS
There are the four major
constraints depending upon
the type of service that service
firms face in order to fully
control the demand. They are:
12

13. Time - Legal, Consulting,
Accounting, Medical
Labour - Law firm, Accounting
firm, Consulting firm
Equipment – Utilities, Helath
clubs, Telecommunication
Facilities – Hotels, Restaurants,
Hospitals, Schools. 13

14. CAPACITY PLANNING
Capacity planning involves
determining the resource
capacity that a firm will need
to meet its demand. In general
terms, capacity is measured by
the maximum output level in a
period of time. There are two
types of Capacity Planning:
14

15. Long-term Capacity Planning:
These decisions are
generally strategic in nature,
normally involving investments
in buildings and equipment
primarily, and to a lesser
extent in human resources.
15

16. Fig. 4.2 Long-term Capacity Management Decisions
MARKETS
COMPETITORS
- Growth
-Markets served
- Competitive criteria
- Services offered
POLITICAL
ECONOMY
- Taxation changes
- Rate of growth
-International
- Interest rates
relations
LONG TERM CAPCTIY SOCIAL
TECHNICAL
DECISIONS -Trends in employment
-New technology
- Green issues
- Impact of IT
INCREASE REDUCE
Single Large Several Close Consolidate
Step Small Steps Centers Centers
16

17. Short-term Capacity Planning:
Decisions in this area relate
to attempting to match supply of
resources and demand with two
broad options being to try and
adjust resources to meet
demand or to try to manage
demand so that resources do
not need to be adjusted.
17

18. Strategies for Matching Supply of and Demand for Services
(Fig. 4.3)
Managing
Service Capacity
Managing Managing
Demand Supply
Partitioning Sharing
Increasing
Developing
Demand Capacity
Complementary Customer
Services Participation
Establishing price Cross-Training
Developing Scheduling work
Reservation Incentives Employees
Shifts
system
Creating
Promoting Using Part-time
Adjustable
Off-peak Demand Employees
capacity
Yield Management 18

19. Strategies for Managing Capacity to Match Demand
(Fig. 4.4)
DEMAND
DEMAND ALTER CAPACITY Too Low
Too High
• Stretch time, labour, facilities • Performance
• Cross train employees maintenance,
• Hire part-time employees renovations
• Request overtime work from • Schedule employee
employees training
• Rent or share facilities • Lay off employees
• Rent or share equipment
19

20. STRATAGIES FOR MANAGING
DEMAND TO MATCH CAPACITY
Partitioning Demand
Vary the Service Offering
Developing Complementary
Services
Promoting off Peak Demand
20

21. Pricing Incentives
Communicate with Customers
Modify Timing of Service Delivery
Modify location of Service
Delivery
Advertising and Sales Promotion
21

22. STRATEGIES WHEN DEMAND &
SUPPLY CANNOT BE MATCHED
Reservations
Waiting Lines
Queuing Situations
Triage
Delaying Service Delivery
22

23. YIELD MANAGEMENT
Relatively Fixed Capacity
Ability to segment Markets
Perishable Inventory
Product Sold in Advance
Fluctuating Demand
Low Marginal Sales Costs and High
Marginal Capacity change costs
23

24. SUMMARY
Thus, this chapter provides deep
insight of how to match service
supply with customer demand. To
cut a long story short, using this
strategies the manager may
match the supply and demand, if
not fully but effectively.
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