Should you Balance Capacity with Demand? | Rowtons Training by Laurence Gartside

Laurence Gartside

4 Oct 202107:39

Summary

TLDRLaurence Gartside explains why perfectly balancing capacity with demand in operations management is often a flawed strategy. Despite a cashier's capacity to serve 60 customers per hour matching the average demand, variations in both customer arrivals and service times lead to perpetual queues. Aiming for 100% utilization exacerbates the issue, causing waiting times to increase drastically. Instead, businesses should accept some idle time to maintain efficient service.

Takeaways

🧐 Balancing capacity with demand might seem efficient but often leads to long queues and customer dissatisfaction.
😤 Customers get frustrated when they encounter long waiting times, even if the business appears to have the right number of staff.
🛒 Supermarkets and other businesses face challenges in predicting customer arrival patterns and matching them with cashier availability.
⏰ Demand varies throughout the day, leading to periods of inactivity for cashiers and periods of queue growth.
📉 Lost capacity, such as when no customers arrive during a cashier's available minute, cannot be recouped.
📈 Queues can grow indefinitely if demand consistently outpaces capacity, especially in businesses operating 24/7.
💼 Operations managers must consider the impact of aiming for 100% utilization when there is variability in both demand and capacity.
🔍 Reducing variability in demand or capacity is challenging, especially in customer-facing businesses like supermarkets.
🏢 The decision on how much capacity to provide is crucial and involves balancing the cost of additional staff or equipment against customer wait times.
📊 Queue times increase significantly when utilization rates exceed 70-80%, depending on the level of variability.
🔗 It's important for businesses to plan capacity utilization carefully to avoid excessive waiting times and potential loss of customers.

Q & A

Why is balancing capacity with demand often a bad idea?
-Balancing capacity with demand can lead to long queues and customer dissatisfaction because of the inevitable variation in both demand and capacity. When demand and capacity rates match, the system can never catch up, leading to a perpetual queue that grows throughout the day.
What is the example given in the script to illustrate the problem with balancing capacity and demand?
-The script uses the example of a convenience store with one cashier who can serve 60 people per hour and historical demand data showing an average of 60 customers per hour. Despite this seeming balance, the reality is that the queue would continue to grow due to the variability in customer arrival times and service times.
How does the variation in customer arrival times affect the queue length?
-Variation in customer arrival times causes the queue to grow because when no customers arrive, the cashier's capacity is wasted, and when multiple customers arrive at once, the cashier can only serve one at a time, causing the queue to build up.
What is the role of capacity variation in the supermarket cashier scenario?
-Capacity variation, such as the cashier sometimes taking longer to serve a customer, contributes to the problem of queues. It adds to the unpredictability and can cause the queue to grow faster than if there was no variation.
Why can't the cashier catch up with the queue?
-The cashier can't catch up with the queue because the losses in capacity when no customers arrive cannot be recouped, and when two or more customers arrive at once, the cashier can only serve one, leaving the other to wait, thus the queue persists.
What is the impact of aiming for 100% utilization on queue times?
-Aiming for 100% utilization exacerbates the problem because any variation in demand leads to increased queue times. This is because there is no buffer to handle fluctuations in customer arrivals, leading to longer waiting times.
How does the concept of capacity utilization relate to different types of businesses?
-Capacity utilization is a critical concept across various businesses, including car factories, doctor's surgeries, call centers, and restaurant kitchens. It involves deciding how much capacity to have relative to the expected demand and understanding the trade-offs between underutilization and queue times.
What is the recommended level of utilization to avoid drastic increases in queue times?
-The script suggests that queue times start to increase drastically when utilization goes above 70 to 80 percent, depending on the level of variation. This implies that businesses should aim for less than 100% utilization to manage queue times effectively.
What are some strategies to reduce the variation of demand and capacity?
-Strategies to reduce variation include improving service time consistency, such as cashier training, and managing customer expectations, such as through预约系统 or peak-time pricing. However, these strategies may not always be feasible or desirable depending on the business model.
Why is it not practical to make customers book appointments with the cashier?
-Making customers book appointments with the cashier is not practical for supermarkets because it goes against the spontaneous nature of grocery shopping and would likely deter customers, leading to a loss of business.
What is the final advice given by Laurence Gartside regarding capacity management?
-Laurence Gartside advises that while it's tempting to aim for 100% capacity utilization to take on more work, businesses should be wary of the resulting increase in waiting times and queues. He suggests getting comfortable with some unused capacity to ensure better customer service.

Outlines

00:00

🛒 Balancing Capacity with Demand in Operations Management

The paragraph discusses the concept of balancing capacity with demand in operations management, using the example of a supermarket cashier. It explains that while it seems efficient to match capacity with demand, it often leads to long queues and customer dissatisfaction. The speaker, Laurence Gartside, points out that customers don't arrive at a steady rate, leading to periods of wasted capacity and growing queues. He illustrates this with a hypothetical convenience store that perfectly matches capacity with average demand but still experiences a perpetual queue due to the variability in customer arrival times. The paragraph emphasizes the challenges of managing capacity in the face of unpredictable demand and the importance of not aiming for 100% utilization to avoid infinite queues.

05:04

🔍 Managing Capacity to Reduce Queue Times

In this paragraph, Laurence Gartside continues the discussion on capacity management, focusing on the practical implications for operations. He suggests that reducing the variation in capacity, such as the cashier's service time, is not always feasible, especially in supermarkets where customer demand cannot be controlled. He notes that businesses often find that queue times increase significantly when utilization rates exceed 70-80%. The speaker advises that businesses should be comfortable with some level of unused capacity to prevent queues from growing excessively. He concludes by encouraging viewers to learn more about operations management and related topics through his courses and invites feedback on their experiences with queues.

Mindmap

Keywords

💡Capacity

Capacity in the context of the video refers to the maximum amount of work that can be handled by a system, such as the number of customers a cashier can serve per hour. It is a core concept in Operations Management, as it directly impacts service delivery and customer satisfaction. The video illustrates this with the example of a cashier who can serve 60 customers per hour, indicating the cashier's capacity.

💡Demand

Demand is the actual need or desire for a service or product, measured in this video by the number of customers arriving at the supermarket checkout. It is variable and can lead to inefficiencies if not properly managed. The video discusses how demand varies, sometimes leading to no customers and at other times, a queue forming.

💡Queue

A queue in the video represents the line of customers waiting to be served. It is a direct result of the mismatch between capacity and demand. The video uses the queue as a visual representation of the inefficiencies that arise when trying to perfectly balance capacity with demand.

💡Operations Management

Operations Management is the focus of the video and involves the design, operation, and improvement of the systems that create and deliver a product or service. The video discusses how Operations Management principles can be applied to understand and manage the challenges of balancing capacity with demand.

💡Utilization

Utilization is the extent to which a resource is used, often measured as a percentage of its capacity. The video warns against aiming for 100% utilization due to the variability in demand and capacity, which can lead to long queues and customer dissatisfaction.

💡Variation

Variation in the video refers to the fluctuation in both demand and capacity. It is a key factor that makes it difficult to perfectly match capacity with demand. The video explains how variation in the time it takes to serve a customer contributes to the problem of queues.

💡Efficiency

Efficiency is the degree to which resources are used effectively to produce the desired output. The video argues that while balancing capacity with demand might seem efficient, it can actually lead to inefficiencies due to the formation of queues and lost customer goodwill.

💡Supermarket Manager

The supermarket manager in the video is tasked with making decisions about staffing levels, which is a common challenge in Operations Management. The manager must consider historical demand data and the cashier's capacity to make informed decisions about hiring.

💡Customer Satisfaction

Customer satisfaction is impacted by the waiting times and service quality. The video implies that long queues can lead to dissatisfaction and loss of customers, which is a critical outcome that Operations Management aims to avoid.

💡Capacity Utilization

Capacity utilization is the ratio of the actual output of a facility or system to its potential output. The video suggests that aiming for high capacity utilization can be detrimental due to the variability in demand and capacity, leading to increased queue times.

💡Process Improvement

Process Improvement is the ongoing effort to make a process more efficient or effective. The video suggests that as operations managers, one way to handle variability is to work on reducing the variation in capacity, such as making cashiers' serve time more consistent.

Highlights

Balancing capacity with demand seems sensible but often leads to operational inefficiencies.

Aiming for 100% capacity utilization can lead to disastrous consequences in operations management.

Variation in demand makes it impossible to perfectly match capacity with demand, leading to inefficiencies.

When demand and capacity are perfectly balanced, queues will form and continue growing throughout the day.

Lost capacity during low-demand periods cannot be recovered, leading to longer queues during high-demand periods.

If the arrival rate of customers matches capacity, the queue will stabilize but won’t clear unless new customers stop arriving.

In a 24-hour operation, queues would grow infinitely if demand consistently matched capacity.

Customers may leave due to long wait times, leading to a loss of business, even if the capacity matches demand.

Excessive utilization leads to growing queues, while low utilization may seem inefficient but prevents delays.

Operational managers should aim for 70-80% utilization to maintain efficiency and avoid long queues.

Variation in capacity, such as customer service time, exacerbates the problem, making balancing even harder.

Reducing variation in capacity or demand is ideal but often not practical in environments like supermarkets.

Queuing theory shows that capacity utilization above 80% dramatically increases waiting times.

Operations managers must accept periods of idle capacity to maintain overall operational efficiency.

In many industries, like call centers or healthcare, managing capacity utilization is crucial to prevent service delays.