CAPACITY MANAGEMENT PT 3 of 3 | COPING WITH DEMAND FLUCTUATIONS (STRATEGIES) | SITORA INOYATOVA

Summary

This 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

00:00

🍦 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.

05:01

🌊 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.

10:02

🔄 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.

Keywords

💡Demand Fluctuations

Demand fluctuations refer to the changes in the quantity of a product or service that consumers wish to purchase over time. In the context of the video, this concept is central to understanding why businesses need to adapt their operations. For instance, ice cream sales fluctuate with the seasons, with higher demand in summer and lower in winter.

💡Level Capacity Plan

The level capacity plan is a strategy where a company maintains a consistent level of production capacity regardless of demand fluctuations. It's mentioned in the video as a method that works well for non-perishable goods with reliable demand, such as steel production or cigarette manufacturing.

💡Perishable Goods

Perishable goods are products that have a limited shelf life and can spoil or degrade over time, like ice cream. The video uses ice cream as an example of a perishable good to illustrate why the level capacity plan might not be suitable for such products.

💡Chase Demand

The chase demand strategy involves adjusting a company's capacity to match changes in demand. This approach is highlighted in the video as suitable for perishable goods and services where the capacity can be flexibly adjusted, such as hiring temporary staff during peak seasons at a restaurant in a seaside resort.

💡Seasonal Business

A seasonal business experiences significant changes in demand throughout the year due to seasonal variations. The ice cream business discussed in the video is a quintessential example of a seasonal business, where demand is high in summer and low in winter.

💡Capacity Management

Capacity management is the process of efficiently managing a company's production capacity to meet varying levels of demand. The video introduces this concept as a way to cope with demand fluctuations using different strategies.

💡Demand Management

Demand management is a strategy that involves changing or influencing the demand to match available capacity. The video describes various tactics such as price differentials, scheduling promotions, and offering alternative products to shift demand to off-peak times.

💡Price Differentials

Price differentials are a method of demand management where prices are adjusted to influence demand. The video gives the example of flower prices increasing significantly during International Women's Day due to high demand.

💡Shelf Life

Shelf life refers to the duration that a product can be stored without becoming unfit for sale or use. The script mentions that products with a reasonable shelf life, like canned goods, are suitable for the level capacity plan strategy.

💡Utilization

Utilization in the context of the video refers to the extent to which a company's capacity is being used. It's one of the measures used to assess how efficiently a company is operating and is impacted by the strategies used to cope with demand fluctuations.

💡Efficiency

Efficiency in operations management, as discussed in the video, is the ability to produce the maximum output with the minimum input. It's calculated as the ratio of actual output to potential output and is affected by the strategies a company adopts to handle demand changes.

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]

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