Business Information

Most services are unable to accumulate stock of finished products. This lack of inventory does not matter when demand levels are relatively stable and predictable. However, poses many problems in service organizations with limited capacity, which face large fluctuations in demand. Among the most affected are the transport, accommodation, repair and maintenance, entertainment, healthcare and many professional and business services.

There are two basic solutions to the problem of fluctuations in demand. One is to adjust the capacity, so as to meet changes in demand. This approach falls within the domain of operations management and human resources. The second is to control the level of demand, using marketing strategies to smooth the peaks and fill the valleys in order to generate a more consistent flow of requests for services.

Adjust the level of capacity

In these cases, there is the option to adjust the overall level to match capacity with demand changes, this strategy is known as “chasing demand.” For example, during peak periods, management may add staff for extra hours and rented facilities. During periods of low demand, capacity can be reduced by laying off some staff, scheduling vacations for employees for that time, sending staff to training programs, leasing equipment and facilities to other persons, or removing these items service for maintenance and renewal.

In summary, there are several actions that managers can take to adjust capacity and balance it with the fluctuating levels of demand:

1) Schedule downtime during periods of low demand: the activities planned maintenance and repair should be performed when it is expected that demand is low and employees must also take their vacation during these periods.

2) Hiring employees per hour: Many organizations hire extra workers during peak periods.

3) Renting or sharing facilities or extra equipment: In order to limit investment in fixed assets, a service business can rent space or extra machines in peak periods. Companies with complementary demand patterns may conclude formal agreements to share these assets.

4) Provide employees with functional training. If the company can provide employees with functional training, to play a variety of tasks, then it is possible to change, as necessary, to the point where there are obstacles, increasing the total system capacity.

Controlling the level of demand

At any time, a service organization with fixed capacity will face one of four conditions:
• Demand exceeds capacity available, and may lose potential business.
• The demand exceeds the optimal capacity, no one is turned away, but it is likely that all customers receive a deterioration in the quality of service.
• Demand and supply are well balanced at optimal capacity
• Demand is below the optimum capacity and available resources are not used to full capacity.

There are five common approaches to demand management. The first is to take no action and let the application find its own levels. Eventually, customers will find out when will be formed in line to use the service and when will it be available without delay. The problem is that they can also learn to find a competitor who get better response.
Involve more interventionist approaches to influence the level of demand taking active measures to reduce peak period and increase it when there is excess capacity.

Two other approaches involve an inventory of demand until capacity becomes available. This can be achieved either by introducing a reservation system, which promises customers access to capacity at the specified time, or by setting up formal systems for waiting list (or a combination of both).

Using the mix of marketing elements to model demand patterns

Product variants: Many service offerings remain unchanged during the year, but others suffer considerable changes according to season. Hospitals, for example, usually offer the same range of services throughout the year. In contrast, hotels and resorts much alter the mix and focus of its outreach services such as dinner, entertainment and sports, to reflect the preferences of customers in different seasons.

There may be variations in product offerings, including over 24 hours as in the restaurants.

Modifying the schedule and location of delivery: One strategy is to vary the hours that service is available, to reflect changes in customer preferences for each day of the week, pro season, etc. Movie theaters offer matinee often on weekends, when people have free time during the day. Another strategy involves providing customer service to a new location. The mobile libraries and trucks equipped with basic medical facilities are two examples. Some car rental companies establishing branches of the season in resort communities.

Strategies for pricing: the price to be effective as an instrument of demand management, the marketing manager must have some idea of the shape and slope of the demand curve of a product. It is important to determine if the aggregate demand curve for a specific period varies sharply from one period to another. If so, maybe different plans will be required pricing to fill the capacity in each period. To complicate matters further, there may be separate demand curves for different segments within each period. Many service businesses explicitly recognize the existence of different demand curves for different segments during the same period, establishing different classes of service, each with an appropriate price level for the demand curve for a specific segment. In essence, each segment receives a variation of the commodity, with an added value to core service, in order to attract higher-paying segments.

In each case, the objective is to maximize the revenue received from each segment. However, when capacity is constrained, we must ensure that the segments that allow more utilities to use as much capacity as possible.

Communication efforts: advertising and publicity can remind consumers peak periods and encourage them to travel off-season times, no crowds, when the service is perhaps faster or more comfortable. In turn, changes in price, product characteristics and distribution should be communicated clearly. Short-term promotions, combining both price and communication elements and other incentives, can provide customers with attractive incentives for change when using the service.

Inventory demand

While service businesses can rarely take an inventory of their offerings can often make an inventory demand. This task can be performed in one of two ways: 1) asking customers to wait in line to attend based on first come (waiting list), or 2) offering the opportunity to reserve space in advance .