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Demand Management
Part 3 of 4


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The strategy attempts to reduce the amount of demand variation so that
there is less need to adjust capacity. The customer voluntarily changes their arrival time or rate to alleviate the high amplitudes of the demand pattern. While the service provider can use a matching strategy, it re­quires less adjustment after the demand fluctuation has been reduced. Sometimes economic incentives can be used such as in early-bird spe­cials at restaurants or low weekend room rates at hotels that specialize in business travelers. A similar motivator is to advertise or use other forms of promotion to attract customers to off-peak periods, such as having a retail department send out letters to charge customers telling them that they can get sales-promotion prices if they shop a day early.

Some companies, such as a barber shop, use an informal process by having their employees tell some custom­ers that they will not have as long a wait if they come at the suggested time. A more drastic move is to create a reservation sys­tem so that demand is much more predict­able. The service operation can also cre­ate complementary services so that the customer can be flexible in the service re­quired, such as in a supermarket when the customer sees a line at the deli and goes to the produce section to shop before re­turning to the deli when the wait time is reduced.

Control Strategy Programs

This strategy attempts to fully utilize the capacity resources by limiting demand variation. The customers accept the need to vary their arrival patterns but not always in as cooperative fashion as under the in­fluence strategy. One traditional approach is to separate the high and low-contact ar­eas to establish the technical core where demand is controlled carefully. Processing mortgage payment checks in a bank is an example of the use of the technical core. Another approach is to develop distinctive competencies so that the customer is will­ing to endure a reservation system or long lead times to obtain service, such as in a doctor's or dentist's office. Sometimes the service provider can obtain contractual commitments, such as for a wholesaler who de­livers to a retail store every Thursday afternoon. Some professional of­fices also schedule return visits for repeat customers, i.e., an appoint­ment for teeth cleaning or taking piano lessons. The use of waiting lines is a form of demand control, although most service businesses try to avoid this method as much as possible. A long-term approach is to re­duce the variation among customers by training the customer in the ser­vice process so that most non-value-added process steps are eliminated. These program classifications are not meant to be rigid definitions; they are only examples of the kinds of programs that a business can choose. Many service companies will choose programs that may rep­resent different strategies; however, they will tend to concentrate their efforts in one or two strategic areas.

FACTORS THAT AFFECT THE SELECTION
OF A DEMAND MANAGEMENT STRATEGY

The selection of a demand management strategy can be influenced by
many factors. Based on several studies, the most likely factors are shown along the left-hand side of table 2.

We now have a classification of the demand management strategies
available to companies and a classification of factors that could influ­ence the choice of the strategies. Table 2 shows how the demand man­agement strategies (dependent variables) can be related to the influ­encing factors (the independent variables).

The demand management strategies are arrayed as a continuum from
provide to control with match and influence as interim strategies. The influencing factors are shown on the left side of table 2. The descrip­tions on the left side of the table for each factor correspond to the pro­vide and match strategies while the descriptions on the right side of the table correspond to the influence and control strategies.

SUGGESTED APPROACH


A profile of points can be prepared for an individual company for the
factor groupings; this can then be used to suggest the demand man­agement strategies that would fit with the profile of factors. An ex­ample of how this process works for two hypothetical companies is shown in table 2.

The profile on the left side of the table describes a service that
does not have high-value resources, does not provide custom service with a custom process, and is more oriented to customer service than resource utilization. This company will favor provide and match strat­egies. The company shown on the right side of the table has signifi­cantly different characteristics with high-value resources, custom services and process and an emphasis on resource utilization. This company will favor influence and control strategies.

The profiles shown above are hypothetical; in actual practice, the
results may be different. An empirical study (Crandall 1993) produced profiles that were developed from six different industries. The varia­tion in the reported profiles suggests that the companies surveyed did not have a well-developed demand management process in place and may not have knowingly selected their demand management strate­gies. As each company selects the factors that are most meaningful to their business, the profiles should become more meaningful in select­ing the demand management strategies.

To Be Continued


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