CAPACITY MANAGEMENT PT 3 of 3 | COPING WITH DEMAND FLUCTUATIONS (STRATEGIES) | SITORA INOYATOVA
Summary
TLDRThis video discusses strategies for managing demand fluctuations, particularly relevant for seasonal businesses like ice cream shops. It outlines three approaches: 'Level Capacity Plan', which maintains consistent production despite varying demand; 'Chase Demand', adjusting production to match demand peaks and troughs; and 'Demand Management', which involves manipulating demand to fit capacity. Examples include using storage for non-perishable goods, hiring temporary staff for peak seasons, and offering promotions to boost off-peak sales. The video is an educational resource from Satori net, a module leader at Westminster International University in Tashkent.
Takeaways
- 🍦 The video discusses three strategies for managing demand fluctuations in businesses, particularly seasonal ones like ice cream shops.
- 🔄 The first strategy, 'Level Capacity Plan', suggests maintaining a constant capacity regardless of demand fluctuations, suitable for non-perishable goods with a reasonable shelf life.
- 📉 The second strategy, 'Chase Demand', involves adjusting capacity to match demand, which is more applicable to perishable goods and requires flexibility in staffing and equipment.
- 🏢 Examples of businesses using 'Level Capacity Plan' include mass production companies like steel manufacturers and cigarette producers, where demand is relatively stable.
- 🌊 'Chase Demand' is exemplified by seasonal businesses such as seaside restaurants, which hire temporary staff during peak seasons.
- 🎯 The third strategy, 'Demand Management', focuses on influencing demand to match available capacity, offering various tactics like pricing strategies and service level adjustments.
- 💰 Price differentials are a key method within 'Demand Management', where prices are adjusted based on demand, as seen with flowers on International Women's Day.
- 📅 'Scheduling promotions' is another tactic to influence demand, such as promoting turkeys during off-peak periods to balance seasonal fluctuations.
- 🛒 'Service differentials' allow businesses to adjust service quality based on demand, which can affect customer experience during peak times.
- 🏫 The video concludes with a practical application of 'Demand Management' for an ice cream business, suggesting strategies like offering ice cream to hotels or running promotions during off-peak seasons.
Q & A
What are the three strategies discussed in the script for coping with demand fluctuations?
-The three strategies discussed are level capacity plan, chase demand, and demand management.
What does the level capacity plan strategy involve?
-The level capacity plan strategy involves ignoring demand fluctuations and maintaining a constant capacity with the same number of staff, processes, and equipment throughout the year.
For which type of goods is the level capacity plan strategy recommended?
-The level capacity plan strategy is recommended for non-perishable goods that can be stored for a reasonable shelf life.
What are the conditions for a business to follow the level capacity plan strategy?
-A business should follow the level capacity plan strategy if the product is suitable for storage, non-perishable, and if demand is relatively reliable to avoid the risk of large stock-outs or excessive stock levels.
What is the main difference between the level capacity plan and chase demand strategies?
-The main difference is that the level capacity plan maintains a constant capacity regardless of demand fluctuations, while the chase demand strategy adjusts the company's capacity to reflect changes in demand.
How does the chase demand strategy handle seasonal businesses?
-The chase demand strategy handles seasonal businesses by adjusting staff, working hours, and equipment according to the demand fluctuations, such as hiring temporary staff during peak seasons and laying them off during low demand periods.
What is the demand management strategy and how does it differ from the other two strategies?
-The demand management strategy involves changing or influencing the demand to fit available capacity. It differs from the other two strategies as it focuses on altering demand rather than adjusting supply to meet demand.
What are the four ways to change demand according to the demand management strategy?
-The four ways to change demand are: 1) constraining customer access, 2) using price differentials, 3) scheduling promotions, and 4) offering service differentials.
Can you provide an example of how a seasonal business like a seaside restaurant might use the chase demand strategy?
-A seaside restaurant might hire additional waiters during the summer season when customer demand is high and reduce staff during the winter when fewer customers are present.
How can an ice cream business apply the demand management strategy during the off-peak winter season?
-An ice cream business can apply the demand management strategy by offering ice cream to restaurants and hotels during the off-peak season, scheduling promotions like 'buy one get one free', or reducing prices to stimulate demand during winter.
What is the significance of the example of cigarettes in the context of the level capacity plan strategy?
-The example of cigarettes illustrates that despite some seasonal variations, the demand for cigarettes remains fairly consistent throughout the year, making it suitable for the level capacity plan strategy due to its non-perishable nature and reasonable shelf life.
Outlines
🍦 Coping with Demand Fluctuations: Level Capacity Plan
This paragraph introduces three strategies for dealing with demand fluctuations, particularly in seasonal businesses like ice cream sales. The first strategy discussed is the Level Capacity Plan, which suggests maintaining a constant production capacity regardless of demand changes. This approach is suitable for non-perishable goods with a reasonable shelf life and reliable demand. However, it's not recommended for perishable goods like ice cream, which can only be stored for a few months. The strategy is commonly used by companies in mass production industries, such as steel production and canned goods manufacturing, where demand is relatively stable throughout the year.
🌊 Adjusting Capacity to Demand: Chase Demand Strategy
The second strategy presented is the Chase Demand approach, which involves adjusting a company's capacity to match demand fluctuations. This strategy is more complex to implement as it may require varying staffing levels, working hours, and equipment. It is more suitable for perishable goods. An example given is a restaurant in a seaside resort, which hires temporary staff during peak summer months when customer demand is high and lays off staff during the winter when demand is low. This strategy is the opposite of the Level Capacity Plan and is considered a supply-related solution.
🔄 Influencing Demand to Match Capacity: Demand Management
The third and final strategy discussed is Demand Management, which focuses on altering or influencing demand to fit available capacity. The aim is to change the demand curve to better align with capacity. There are four methods to achieve this: 1) Constraining customer access, such as scheduling appointments; 2) Using price differentials, like increasing flower prices during special occasions; 3) Scheduling promotions, like offering turkeys at a discount during off-peak seasons; 4) Offering service differentials, which may involve varying service levels based on demand; and 5) Providing alternative products or services to utilize capacity during off-peak times. The paragraph concludes with a suggestion for an ice cream business to increase demand during off-peak seasons by offering ice cream to restaurants and hotels or by scheduling promotions.
🏫 Operations Management Overview
This final paragraph serves as a conclusion to the video script, summarizing the key points discussed in the operations management module. It includes an introduction to capacity management, how to measure capacity, calculate utilization and efficiency, and strategies to cope with demand fluctuations. The speaker thanks the audience for their attention and encourages them to engage with the content by liking the video and taking care of themselves.
Mindmap
Keywords
💡Demand Fluctuations
💡Level Capacity Plan
💡Perishable Goods
💡Chase Demand
💡Seasonal Business
💡Capacity Management
💡Demand Management
💡Price Differentials
💡Shelf Life
💡Utilization
💡Efficiency
Highlights
Three strategies to cope with demand fluctuations in seasonal businesses.
Level capacity plan suggests ignoring demand fluctuations to maintain constant production.
Level capacity plan is suitable for non-perishable goods with a reasonable shelf life.
Demand must be relatively reliable for the level capacity plan to avoid stock-outs or excessive stock levels.
Mass production companies like steel and canned goods industries often follow the level capacity plan.
Cigarette sales as an example of consistent demand throughout the year, with slight variations.
Canned foods, with long shelf lives, are suitable for the level capacity plan due to their non-perishable nature.
Chase demand strategy involves adjusting company capacity to match demand fluctuations.
Seasonal businesses like seaside restaurants use the chase demand strategy to manage staff during peak and off-peak seasons.
The chase demand strategy is more complex and requires flexible staffing and equipment adjustments.
Demand management strategy aims to influence demand to match available capacity.
Four ways to change demand: constraint customer access, price differentials, scheduling promotions, and service differentials.
Providing alternative products or services during off-peak periods can utilize underused capacity.
Ice cream businesses can increase off-peak demand by offering products to restaurants or hotels.
Promotions like 'buy one get one free' can stimulate demand for products during off-peak seasons.
Introduction to capacity management, including measuring capacity and calculating utilization and efficiency.
Strategies for coping with demand fluctuations are crucial for operations management.
Transcripts
[Music]
part three coping with demand
fluctuations there are three strategies
or approaches that help us deal with
demand fluctuations if you are in a
seasonal business and we sell ice cream
what should we do with our capacity in
summer when demand is high do we hire
additional staff do we rent or buy
additional equipment what are we going
to do in winter when demand for ice
cream consumption drops so these three
strategies or approaches help to guide
us through these dilemmas let's look
into them one by one the first approach
or strategy is level capacity plan it
tells us to ignore the demand
fluctuations and keep nominal capacity
level constraint with same number of
stuff throughout the year and same
processes and same equipment in the
graph on horizontal axis is time and on
vertical axis is volume so demand is in
the blue ink and fluctuates as you see
throughout the year while capacity which
is in green remains constant thus it is
a line in our example of ice cream
business it would mean to ignore the
high demand in summer and low demand in
winter
and continue producing as much as your
capacity allows throughout the year
however there may be slight concern
because the level capacity plan is
suggested for non perishable goods and
given the fact that ice cream is a
perishable good and can normally be
stored up two to three months under
right conditions this approach is not
recommended for this type of business
to sum up there are two conditions to
follow the strategy product must be
suitable for storage and non-perishable
was reasonable shelf line and second
demand must be relatively reliable to
avoid the risk of large stock-outs
or excessive stock levels who follows
this strategy of the level capacity plan
mostly companies with in mass production
such as steel production household
appliances canned goods
let's take cigarettes as an example not
the best example as smoking is harmful
but just for the sake of an argument do
you know when the demand for cigarettes
is high make a guess to start with let
me tell you that the demand for
cigarettes is fairly consistent
throughout the year however sales do
drop off in January and February because
smokers make new year resolutions to
give up their habit but demand returns
to fairly consistent levels because some
fail to quit and then demand Peaks
around Christmas time for the party
season and has a reasonable shelf-life
as demand is fairly consistent the
operation can feel confident about
following such a strategy again smoking
is bad for your health
canned foods is another example because
exploration days in general range from 1
to 4 years or 3 up to 6 years if stored
under appropriate condition canned tuna
can last about 3 to 5 years and there is
a high demand for canned fish closer to
a new year because of all the cells
would tend to eat during holiday season
Russian and Central Asian countries
mostly sure when Nemo's
you know what I'm talking about the
second approach or strategy is chase
demand which tells us to adjust your
company's capacity to reflect
fluctuations in demand you can see in
the graph now the demand is in blue and
it fluctuates throughout the year and
company adjusts its capacity the green
line to meet demand fluctuations
I drew the capacity first I'm sorry my
mistake but usually your capacity will
be adjusted to demand fluctuations so
back to ice-cream business example you
will hire temporary staff during peak
summer periods for example to make most
of the profit during summer or peak
period and subsequently when demand
falls you will lay off your temporary
staff that's the rule of the chase
demand change the math strategies
opposite to the level capacity plan and
it is much more difficult to achieve
because you may require different number
of staff different working hours and
having different amounts of equipment in
each period and usually it is
appropriate for perishable goods an
example of chase demand strategy could
be all kind of work with seasonal cycle
such as restaurant in a seaside resort
during the winter there are few
customers and therefore there are few
waiters while in summer the restaurant
will be full of clients and during the
summer period temporary staff will be
taken to speed up the services let me
point out that the first two strategies
the level capacity plan and chase demand
strategies are both supply related
solutions our alternative and third
strategy that we will discuss in this
session is demand management demand
management tells us to change or
influence the demand to feed available
capacity
so in the graph in green the result
capacity then we see in pencil the
original demand that fluctuates and our
aim is to change the demand so if our
attempt is successful we get a new
demand curve which is in blue ink
changed demand
how to do that how to change demand well
there are four ways to do that first is
to constraint customer access for
example schedule appointments to manage
the demand second is price differentials
the most obvious mechanism is to change
demand through price example price for
flowers skyrocket druing International
Women's Day on March 8 because there is
high demand for flowers third is
scheduling promotion in the United
States turkeys popular during
Thanksgiving period however throughout
the year the demand is very low so
offering promotions during low demand is
a way to influence demand for Turkey
another example
Jim offer incentives or cheaper rates on
off-peak period so if you go to the gym
before 4:00 or 5:00 p.m. on weekdays
you're likely to get incentives and a
discounted price fourth is service
differentials allows service levels to
reflect demand what does it mean when
there is high demand service may
deteriorate staff will no longer be nice
or for example there may be delays in
delivery because of a lot of orders and
the peak season you might have witnessed
it in your life journey I'm sure you can
come up with your own examples and fifth
is to provide alternative products or
services for example universities during
summer when the demand is low can offer
their facilities for various events
conferences fairs and trainings which
utilizes the capacity during off-peak
period all in all just to give a common
story to this session let's go back to
our ice cream business in case of demand
management strategy for an ice cream
business
your concern would be on how to increase
the demand for ice cream during off-peak
winter season where you could try to
manage or influence the demand for ice
cream by offering ice cream to
restaurants and hotels in off-peak
season for example or scheduling
promotion like buy one get second one
free or of course you could try reducing
the price for an ice cream which I don't
think you can reduce it by much given
the price of an ice cream but you could
try in this session we did an
introduction to the capacity management
now you know what is capacity how to
measure capacity using three measures
and calculate utilization and efficiency
and how to cope with demand fluctuations
using three strategies thank you for
listening please give this video a
thumbs up and do take care of yourself
and your loved ones
this was Satori net of a module leader
for the operations management module at
Westminster International University in
Tashkent thank you
[Music]
you
you
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