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T5: Capacity Management (Ch8) (CGC example ('Demand Management' #,…
T5: Capacity Management (Ch8)
Considerations
The goal is not always to fully meet demand, but the balance the pros/cons of meeting or failing to meet demand
The need for capacity management can be driven by fluctuations in demand OR fluctuations in capacity, but essentially the same management can apply
Capacity needs to consider both the demand levels and the supply of inputs in order to meet that demand
Capacity depends on (p.262)
Duration of the output peak - i.e. busy season / rush hour
Specification of the output - can requirements adjust to fit demand
Product / Service mix
Capacity 'leakage' (p.263)
Operating Equipment Efficiency (OEE)
OEE = a x p x q
a = availability
p = performance (speed)
q = quality (losses through waste)
Demand-capacity mismatches
Base-level capacity (p.268)
Questions
What should the base-level be?
How do we adjust for fluctuations?
Factors
Perishability of outputs (food, most services)
Degree of variability in supply and demand
Relative important of performance objectives, i.e. cost v quality etc
3 Methods of capacity planning and management (p.270)
Level Plan
Need to consider inventory holding costs, staff costs, among other costs of Level Plan method
Excess in slack times is stored to meet high demand periods
Produces a fixed-level year round
Chase Plan
Adjusts output to meet demand fluctuations
Orgs will still incorporate some 'level plan' methods by stockpiling during slack demand periods
In addition they will increase capacity in high demand periods by bringing in more staff, order and restocking more supplies, etc
Also need to consider variations in staff, inventory, production costs based on different scenarios
Demand Management
Includes
Paying attention to pricing and promotional expenses
Timing in order to modify demand to suit capacity
Finding alternative products/customers for slack periods
Capacity control
Methods
Price differentials
Scheduling promotion
Constraining customer access
Service differentials - implicit or explicit lowering of service standards in peak times, customers learn to accept or move to lower demand times to get better service
Yield Management (p.274)
Ideal for fixed capacity services, i.e. airlines, hotels,
golf clubs
Focuses on optimising the 'yield' (profit) from filling the fixed capacity as much as possible
Good where:
Capacity if relatively fixed
The market can be fairly clearly segmented
The service is perishable
The service is sold in advance
The marginal cost of making a sale is relatively low
Often referred to as 'dynamic pricing' - e.g. uber model
Forecasting (p.266)
Should be based on units of demand, not money terms that can be 'chicken/egg' to capacity
Enhanced market knowledge (supply and demand) is even more important than forecasting
Can help to identify predictable fluctuations and help convert unpredictable fluctuations into predictable ones
Operations flexibility (p.267)
Flexible operations can be considered more important than forecasting, as forecasting in just crystal ball gazing really
The balance between forecasting and flexibility is influenced by the industry/org, i.e. hospital ED v online retailing, cost based org v quality driven org
CGC example
Capacity is completely perishable
'Demand Management'
#
'
Constraining customer access
' - Demand can also be restricted by not taking any green fee players on Saturday as this is member only time
'
Constraining customer access
' - Restricting 7 Day memberships and having 6/5 day and 9 hole memberships to spread out demand
'Price differentials'
- different prices for membership types
'
Scheduling promotion
' - special rates for Mondays, summer after 2pm, Fridays in winter, etc
CGC does not intentionally use
'service differentials
' but it likely happens through work overload
Service of tee bookings - capacity over any week is always higher than demand, however on a Saturday capacity at peak times cannot be adjusted to meet demand
Supply is reduced seasonally, through length of day (predictable) and frost (unpredictable)
Demand is reduced by weather
Performance objectives are: 1. Quality, 2. Dependability
'Chase Demand Plan'
CGC uses this for the clubhouse facilities
Increasing staff to match high demand days/times