Week 11

Managing Capacity and Waiting

• Explain the underlying issue for capacity-constrained services: lack of inventory capability.
• Present the implications of time, labor, equipment, and facilities constraints combined
• with variations in demand patterns.
• Lay out strategies for matching supply and demand through (a) shifting demand to match
• capacity or (b) adjusting capacity to meet demand.
• Demonstrate the benefits and risks of yield management strategies in forging a balance among
capacity utilization, pricing, market segmentation, and financial return.
• Provide strategies for managing waiting lines for times when capacity and demand cannot be
aligned.

Reference:

Ford, R.C. & Sturman, M.C. 2020. Managing Hospitality Organizations: Achieving Excellence in the Guest Experience, 2nd Edition, SAGE Publications, Inc. (Chapter 11)

Zeithaml, V.A.; Bitner, M.J., & Gremler, D.D. (2018) Services Marketing: Integrating customer focus across the firm, 7 th Edition, New York: McGraw-Hill Education. (Chapter 13)

Ford, R.C., Sturman, M.C. & Heaton, C.D. (2012) Managing quality service in hospitality: How organisations achieve excellence in the gust experience. Delmar: Cengage Learning.
(Chapter 11)
Fluctuating Demand
 Fluctuating Demand
• Excess demand.
– The level of demand exceeds maximum capacity. In this situation some
customers will be turned away, resulting in lost business opportunities. For
the customers who do receive the service, its quality may not match what
was promised because of crowding or overtaxing of staff and facilities.
• Demand exceeds optimum capacity.
– No one is being turned away, but the quality of service may still suffer
because of overuse, crowding, or staff being pushed beyond their abilities
to deliver consistent quality.
• Demand and supply are balanced at the level of optimal
capacity.
– Staff and facilities are occupied at an ideal level. No one is overworked,
facilities can be maintained, and customers are receiving quality service
without undesirable delays.
• Excess capacity. Demand is below optimal capacity.
– Productive resources in the form of labor, equipment, and facilities are
underutilized, resulting in low productivity and lower profits. Customers may
receive excellent quality on an individual level because they have the full
use of the facilities, no waiting, and complete attention from the staff. If,
however, service quality depends on the presence of other customers,
customers may be disappointed or may worry that they have chosen an
inferior service provider.
 Capacity

• In an ideal world, planners would be able to determine the exact

capacity required to serve each guest at the moment when the guest
expect service
• Capacity is the ability to deliver service over a particular time period.
• Capacity is determined by the resources available to the organisation
in the form of facilities, equipment, and labour.
• Capacity planning is the process of determining the types and
amounts of resources that are required to implement an
organisation’s strategic business plan
• Capacity planning is to determine the appropriate level of service
capacity by specifying the proper mix of facilities, equipment, and
labour that is required to meet anticipated demand
• What to Do?
 Predicting

• Planners must predict three factors

1. How many people will arrive for service
2. At what rate people will arrive
3. How long service will take

• Predictable cycles:
– Daily (variations occur by hour)
– Weekly (variations occur by day)
– Monthly (variations occur by day or week)
– Yearly (variations occur according to months or
seasons)
 Planning
 Design day
 Is the hypothetical day that the facility, attraction, or service
was designed to handle comfortably
 Planners set the design-day capacity to handle a
predetermined amount of demand without compromising
guest satisfaction
 Average time in queue
 Is the time when capacity is the best trade-off for both the
guest and the facility – not ideal for either one, but
satisfactory

 Capacity day
 The maximum number of customers allowed in the facility in
a day are at one time
 Setting limit to keep guests happy
Strategies for adjusting Capacity to
Match Demand
 Strategies for Adjusting Capacity to
Match Demand
IF DEMAND TOO HIGH:
• Defining service capacity
– In term of an achievable level of output per unit time. Notice that
for service providers our measure of capacity is based on a busy
employee and not on observed output that must always less than
capacity
• Daily work-shift scheduling
– Carefully during the day, the profile of service capacity can be
made to approximate demand
• Weekly work shift scheduling with day-off constraint
– Management is interested in developing work schedules and
meetings the varying employee requirements for weekdays and
weekends with the smallest number of staff members possible
• Increasing customer participation
– This especially effective for fast food restaurant, where customer
not only places the order directly from a limited menu and also
clear the table after meal
 Strategies for Adjusting Capacity to
Match Demand
IF DEMAND TOO HIGH:
• Creating adjustable capacity
– A portion of capacity can be made variable through design.
Capacity at peak time can be expended by the effective used
of slack times
• Sharing capacity
– A service delivery system often requires a large investment in
equipment and facilities. During periods of underutilization, it
might be possible to find another uses for this capacity, such
as airlines share the same gates , ramps, baggage-handling
equipment and ground personnel
• Cross-training employees
– Cross-training employees to perform tasks on several
operations creates flexible capacity to meet localised peaks
in demand
• Using part-time employees
– When peak of activity are persistent and predictable, such as
mealtimes in restaurants or paydays in banks, par-time help
can supplement regular employees
 Strategies for Adjusting Capacity to
Match Demand
IF DEMAND TOO LOW:
• Schedule downtime during period of low demand
– If people, equipment, and facilities are being used at maximum
capacity during peak periods, then it is imperative to schedule
downtime during off-peak periods.
• Perform maintenance and renovations
– For almost all services, facilities and equipment need to be
repaired and maintained periodically. Such scheduling should
take place during periods of slow demand, as should
renovations.
• Schedule vacations and employee training strategically
– To ensure that employees are available when most needed,
employee vacations and training should take place during
periods of slow demand. Some firms adjust capacity by laying
employees off when they know demand will be low.
• Modify or move facilities and equipment
– Sometimes can adjust, move, or creatively modify existing
capacity to meet demand fluctuations.
 Characteristics of Waiting Lines

1. Arrival patterns: Number of guests arriving and

the manner in which they enter waiting line
2. Queue discipline: How arriving guests are
served
3. Time for service: How long it takes to serve
guests
 Differentiate Waiting Customers

Differentiation can be based on the following

factors:
1. Importance of the customer
2. Urgency of the job
3. Duration of the service transaction
4. Payment of a premium price
 Line Types

• Single-channel, single-phase queue

– One server, one step, group of single server with one server per
queue, i.e. quick-serve restaurants; highway toll plazas
• Single-channel, multi-phase queue
– Two or more single channel, single-phase queues in sequence, i.e.
cafeteria, drive-thru
• Multi-channel, single-phase queue
– The customer waits in a single line that then feeds into multiple
channels or stations for the service, each staffed by a server, i.e.
bank, airport
• Multi-channel, multi-phase queue
– It is two or more multi-channel, single-phase queue in sequence,
i.e. airport security screening where the line for the first phase
checks passenger documents and second screens people and
carry-ons
• Virtual queue
– The line that isn’t visible, such as Disneyland Theme Park
 Which Queue to Use?

• Provide customers with four factors:

1. Sense of progress toward goal or service
experience
2. Sense of control over what is happening
3. Activity
4. Sense of fairness with how their wait was
managed
 Essential Features of Queuing Systems

• Calling population
• Need not to be homogeneous, it might consists of several sub-
populations, i.e. arrival at an outpatient clinic can be divided into walk-in
patient with appointments and emergency patients
• Arrival process
• Any analysis of a service system must begin with a complete
understanding of the temporal and spatial distribution of the demand for
that service
• Data are collected by recording the actual times of arrivals
• Queue configuration
• Refers to the number of queues, their location, spatial requirements, and
their effects on customer behaviour
• Organisations such as a bank, a post office, or an airline counter, where
multiple servers are available.
• Queue discipline
• It is a policy established by management to select the next customer from
the queue for service.
• The most popular service discipline is the first-come, first-served (FCFS)
rule
• Service process
• The distribution of service times, arrangement of servers, management
policies, and server behaviour all contribute to service performance
 Balancing Capacity and Demand

• How to accommodate inevitable lines

• Plan and manage the wait in such a way that
guest is satisfied with it
• Two major dimensions:
– Way time spent waiting feels to guest
– How to minimize negative effects of wait by
managing value of experience to guest
 How Guests Feel About the Wait

• Occupied time feels shorter than unoccupied time

• Time spent waiting to begin the service experience
will feel longer than time actually spent in the
experience itself
• Anxious waits feel longer than more relaxed waits
• Waits of uncertain length feel longer than certain ones
• Unexplained waits feel longer than explained ones
• Unfair waits feel longer than fair ones
• Solo waits feel longer than group waits
• Uncomfortable waits feel longer than comfortable
ones
• Interesting waits are shorter than uninteresting ones
• Happy waits are shorter than sad ones
 Waiting Line Strategies: When Demand and
Capacity Cannot be Matched

• Employ operational logic

• Establish a reservation process
• Differentiate waiting customers
• Make waiting more pleasurable
 More Aspects of the Wait

• Emotional wait state

– Customer emotional state will significantly impact
the wait for service, i.e. anxiety, uncertainty,
discomfort
• Crowds and clientele
– If the waiting line to be manages is large and
diverse, the line must be designed to accommodate
what the average guest expects when entering the
wait process
– If the people in line are a more select clientele with
identifiable features, the wait should be more
enjoyable
• Waits in contrast
– If employees are friendly and all servers were busy
 Yield Management: Balancing Capacity Utilization,
Pricing, Market Segmentation & Financial Return

• Yield management is a term that has become attached to a

variety of methods, some very sophisticated, employed to
match demand and supply in capacity-constrained services.
• The goal of yield management is to produce the best possible
financial return from a limited available capacity.
• Yield management—also referred to as revenue
management—attempts to allocate the fixed capacity of a
service provider (e.g., seats on a flight, rooms in a hotel,
rental cars) to match the potential demand in various market
segments (e.g., business traveler, tourist) so as to maximize
revenue or yield.
 Implementing a Yield Management System

Yield management approaches are most appropriate for service

firms when:
• They have relatively fixed capacity.
• They have perishable inventory.
• They have different market segments or customers, who
arrive or make their reservations at different times.
• They have low marginal sales costs and high marginal
capacity change costs.
• The product is sold in advance.
• There is fluctuating demand.
• Customers who arrive or reserve early are more price
sensitive than those who arrive or reserve late.
 Challenges and Risks in Using Yield
Management System

• Loss of competitive focus. Yield management may cause a firm to

over focus on profit maximization and inadvertently neglect aspects
of the service that provide long-term competitive success.

• Customer alienation. If customers learn that they are paying a higher

price for service than someone else, they may perceive the pricing as
unfair, particularly if they do not understand the reasons.

• Overbooking. Customers can be further alienated if they fall victim

(and are not compensated adequately) to the overbooking practices
often necessary to make yield management systems work effectively.

• Incompatible incentive and reward systems. Employees may resent

yield management systems that do not match incentive structures.

• Inappropriate organization of the yield management function. To be

most effective with yield management, an organization must have
centralized reservations.