Balancing demand and capacity

1. What is the difference between ideal capacity and maximum capacity?
The ideal capacity means demand and supply are well balanced at the level of
optimum capacity while the maximum capacity means demand exceeds optimum capacity—
No one is turned away, but conditions are crowded, service quality seems worse, and
customers may feel dissatisfied.
2. What are the building blocks for effective capacity and demand management?
• Define productive capacity.
• Use capacity-management tools.
• Understand demand patterns and drivers by customer segment.
• Use demand-management tools.
3. What are the Five Basic Ways to Manage Demand?
1) Take no action, and leave demand to find its own levels.
2) Reduce demand during peak periods.
3) Increase demand during low periods.
4) Inventory demand using a queuing system.
5) Inventory demand using a reservations system.
4. How can firms make waiting more pleased to their customer?
Even if the wait times were not excessive, a company can improve the perceived wait
time by providing first-rate interactions – interactions that are friendly, accurate, empathetic,
and genuinely show gratitude for the customer’s patience, time, and business.
5. What are the benefits of having an effective reservation system?
• They help customers to avoid queues, thereby reducing dissatisfaction due to excessive waits.
• They allow the firm to control demand and smooth it out.
• They enable the use of revenue management to increase yield (by reserving scarce capacity
for higher-paying segments rather than just selling off capacity on a “first-come, first-served”
basis).
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