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Demand Management
Part 1 of 4


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Increased global competition has severely impacted American manufacturing, in that customers have developed a heightened perception, or expectation, of what makes up satisfactory quality, price, and ser­vice. The same trend is appearing in many service industries, as international competition is becoming more evident in airline travel, tourism, banking, and real estate. As competition increases and customer expectations rise, the need to manage customer de­mand becomes more important. The future of many manufacturers may depend on how well they inte­grate their product with their service package to pro­vide a complete goods-service package that can be customized, in both time and content, for individual customers.

Both manufacturing and service industries rec­ognize the need for demand management. Manufac­turing companies often use inventory as a buffer be­tween the demand fluctuations and the desire to main­tain a constant level of production. Demand man­agement has also been a matter of concern in service industries, where the perishability of the service may often preclude the use of inventory, thereby requir­ing a much closer matching of demand and supply (capacity).

This paper examines the issue of demand man­agement in service industries, provides a classifica­tion of demand management strategies, describes programs that will help in the implementation pro­cess, identifies some internal and external factors that may influence the choice of demand management strategies, and suggests ways to make the demand management pro­cess more effective.

Customer requirements, as well as the resources available, should be considered when planning production. This requires that marketing and operations work closely together to plan for both short-term and long-term requirements. In manufacturing, the traditional way to provide re­sponse to the customer was to use inventories and order backlogs as buffers. Today, the increasing emphasis on shorter lead times and greater flexibility in responding to customer orders has led to the rapid increase in JIT programs throughout many manufacturing sectors. With JIT pro­grams, there is emphasis to reduce both order backlog and inventories; this makes the need to integrate sales and operations planning (demand management) an even more urgent consideration. Although there is a recognized need, there is little indication that the practice of demand management is widespread in manufacturing or service industries.

DEMAND MANAGEMENT IN SERVICES

There is agreement that the separation of the selling and marketing function from the operations function is much less definite in services than in manufacturing. The term "customer encounter" represents a unique feature of services and implies the coming together of demand and supply, so there is a vital interface between marketing and opera­tions. The fact that most service businesses do not have the buffers of physical inventory or order backlog intensifies the importance of man­aging the customer encounter. This suggests a need for an integrative model that recognizes the close relationship between the marketing of the product (demand side) and the operations of the service activity (supply side).

The fact that almost all services have the characteristics of intangi­bility, perishability, heterogeneity, and simultaneity of production and consumption (Sasser 1976) cause the customer encounter to be a key point in the total process of providing a service. Each customer has unique characteristics and wants. This uniqueness adds variety and complexity to the demand pattern, the service provided, and even the processes used to provide the service.

To Be Continued


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