Managing Capacity and Demand

Managing Queues

Capacity: maximum possible output in a given time
Different operations will use different units
Manufacturers: aggerate weight or number of products capable of being made or stored
over time
Hospitals use the number of available beds
Airlines use the number of available seats
Too much capacity: idle staff, machinery or facilities, extra cost
Too little capacity: may lead to lost orders

Capacity Planning and Control: the required availability for an operations products matched to
the operations capacity to deliver them
Objectives: to identify alternate capacity plans, choose the most appropriate capacity plan

Types of Capacity
1. Design Capacity: theoretical maximum capacity, assuming an operation operates at full
capacity at all times. Unlikely due to inefficiencies in the system.
2. Effective Capacity: potential capacity that can be achieved on a typical day, taking into
account things such as planned maintenance and product changeovers
3. Achieved Capacity: actual output of an operation, may be less than effective capacity due
to unplanned non-working time eg machine breakdowns or staff shortages

Measurement of Capacity
Utilization: the proportion of the design capacity that is actually achieved in the operation
Efficiency: the proportion of effective capacity that is actually achieved in the operation

Matching Capacity and Demand
Demand Capacity
Predictable Variations Predictable Variations
o Seasonality o Staff holidays
o Peaks o Planned maintenance
o One-off demands
Unpredictable Variations Unpredictable Variations

Matching Supply and Demand in CPOs
o Most CPOs are perishable consumed as they are produced
o Maximum capacity of some CPO systems has no
flexibility
o Demand for CPOs more difficult to predict
o Variability in customer service time
o Most CPOs are location bound

Coping Zone
o Point where service cannot cope with increase in
demand. Usually 75-80% of capacity
o Eg: tables becoming full in a restaurant and
customers having limited time
o Poor perceived (or actual) service quality and problems for both customers and staff
o Service organisations need to plan ahead

Capacity Planning: amount of capacity to make available
Capacity Scheduling: how to utilise the existing capacity

Management of capacity to fit demand
o Level capacity
o Chase demand

Management of demand to fit capacity
o Demand management




Level Capacity Strategy
Inputs are kept constant during periods of low demand
to create inventory to meet periods of high demand.
o Airline maximise utilisation of expensive
fixed resources
o Restaurants fixed capacity and use this as an
advantage to create 'waiting lists to increase
anticipation

Chase Demand Strategy
Inputs are adjusted so that outputs match demand.
o Retail deal with high levels of output and
weekends
o Theme parks open and close attractions as
demand changes
o Manufacturing plants open or close lines
according to demand


Capacity Leading and Lagging














Demand Management Strategy
Influencing demand so that imputs and
outputs are closely matched
(Pricing strategy, advertising/promotion.
scheduling, service/product design)
o Pubs/resaurants happy hour
o Airlines early booking
o Supermarkets 2for1 to sell more
products



Revenue (Yield) Management
o A method that can help a firm sell the right inventory unit to the right customer at the right
time
o Origionally used by airlines and hotels, now for tickets, gold and sports clubs, etc.
o Operations overbook facilities to try maximise usage risk if everyone turns up

Mixed Capacity Strategies using more than one strategy
Example: University
o Level Capacity: maximum number of students
o Chase Demand: temporary staff, visiting lecturers
o Demand Management: bursaries, modify entry requirements
Example: Airline
o Level Capacity: maximum load as often as possible
o Chase Demand: staffing flexibility to meet booking pattern
o Demand management: promote off peak, manage revenue by flight
Example: Restaurant
o Level Capacity: basic meals made to level capacity
o Chase Demand: staff rotas, use of part-time and casual staff, on-call staff
o Demand Management: 2for1, bulk buy discounts, happy hour
Forecasting
o Predicting the level of demand for a product/service
o May not be accurate, but still necessary

Qualitative Methods
o Panel approach group of experts determine their best guess to predict demand
o Delphi method uses a questionnaire to gain information from a greater number of experts
o Scenario planning involves a group experts looking at various possible scenarios and
gauging the associated risks before coming up with a predicted demand

Quantitative Methods
o Time series analysis looks back to predict future demand
o moving average forcasting
o exponential smoothing
o Casual modelling techniques more complex
o Regression line analysis two variables
o Multi regression analysis many variables

Managing Queues
Queuing Characteristics
o unlimited populations represents a theoretical model of systems with large number of
possible customers
o limited population may be a process where number of customers are pre-determined or
known, such as guests at as hotel
o arrival pattern: the way the customers enter the system (typically random with random
intervals between each one)

The Queue Itself
o Customer being served is usually not considered to be in the queue
o Queue can be physical or virtual (telephone callers waiting to speak to a call centre)
o System capacity: the maximum number of customers waiting in the queue and being
served

Queuing Discipline
o FIFO/FCFS: first in first out/first come first come first served
o LIFO/LCFS: last in first out/last come first served
o SPF: shortest processed first (10 items or less etc.)
o SIRO: served in random order (busy areas with no obvious queues like busy bars and
clubs)

Types of Queue
o Single line queue: all customers lining up
behind one another, on the basis on when
they arrive. Customers consider this system to
be fair
o Multiple channels: the format seen in
supermarkets, a number of individual queues
with no filtering of customers
o Diffuse queue: take-a-ticket queue is an
example, customers register their place in the queue with a ticket instead of a formal queue
o Priority queue: number of different queues for various types of customer (eg. airports
have fast track for first/business class, supermarkets have priority for customers paying
cash)


Queuing Behaviour
o Unoccupied time feels longer than occupied time
o Solution: entertainment throughout queue
o Pre-process waiting feels longer than in-process waits
o Solution: tickets
o Uncertain waits feel longer than known, finite waits
o Solution: information about the waiting time
o More valuable the service, longer customers will wait
o Solution: Display value