MGF5690 Chap.6 Capacity and Demand Planning
Capacity and Demand Planning
Service capacity is often perishable: an unused appointment or hotel room cannot be stored for later sale. Demand also varies by time, segment and uncertainty, so managers must diagnose where the constraint sits before acting. Capacity levers include staffing flexibility, cross-training, process redesign and shared resources. Demand levers include reservations, pricing, communication and alternative channels.
Yield management matches differentiated demand to scarce capacity, but operational efficiency must be balanced with access, fairness and the customer promise.
What this chapter covers
- 01
Perishable service capacity and demand variation
- 02
Bottlenecks, constraints and effective capacity
- 03
Flexible labour and resource-sharing levers
- 04
Reservations, pricing and demand-shaping levers
- 05
Yield management and customer segmentation
- 06
Access, fairness and balanced performance measures
Worked example · free
Relieve an evening clinic constraint
- +2Identify consultation capacity as the likely evening constraint and verify arrivals, mix and service time.
- +2Offer suitable patients reserved afternoon alternatives while flexing cross-trained staff into the evening peak.
- +2Track access, waiting, utilisation, rebooking and equity by patient group.
Key terms
- Perishable capacity
- Service capacity that disappears if it is unused during the period when it is available.
- Bottleneck
- The constrained activity that limits the flow or output of the service system.
- Yield management
- The allocation and pricing of scarce capacity across demand segments and time.
Capacity and Demand Planning FAQ
Why can high utilisation damage a service?
When demand and service times vary, very high utilisation leaves little buffer for peaks or disruption. Waiting, employee pressure and recovery work can rise sharply even though headline resource efficiency looks strong.
What is the difference between capacity and demand action?
Capacity action changes available resources or productivity, while demand action changes when, where or how customers request service. Strong plans diagnose the mismatch and may combine carefully targeted levers from both sides.
What ethical issue can yield management create?
Segmented access or pricing may disadvantage customers who have less schedule flexibility, information or purchasing power. Managers should make rules transparent and protect essential access while pursuing better capacity use.
Assessment move
Draw a time-based demand and capacity profile before recommending action. Mark the suspected bottleneck, the evidence required to confirm it and whether the problem is total capacity, timing, mix or variability. Sort recommendations into capacity-side and demand-side levers, then explain who changes behaviour and why. Always add a customer consequence and a fairness check.
This chapter is assessed through qualitative managerial reasoning, so focus on diagnosis, implementation and balanced measures rather than unsupported numerical precision. Begin by defining the unit of demand and the resource that must serve it. Visits, cases and calls may consume very different amounts of time, so volume alone can hide a mix problem.
Sketch demand by relevant period and annotate peaks, predictable events, no-shows, urgent work and sources of variability. Describe uncertainty honestly rather than drawing a falsely precise curve. Map available and effective capacity separately. Rosters or rooms show nominal supply, but breaks, skill requirements, equipment, rework and handoffs reduce what can actually flow.
Follow a customer case through the process to locate the binding constraint. Adding people to a non-bottleneck can raise cost without changing waiting or output. Classify the mismatch as an overall shortage, a timing gap, a capability-mix gap or excessive variability. That diagnosis determines the lever.
Capacity responses include flexible staffing, cross-training, task redesign, shared facilities, extended hours and removal of avoidable work. Demand responses include appointments, reservations, communication, incentives, alternative channels and segmentation. For every lever, state whose behaviour changes and what new risk appears.
Shifting customers to off-peak periods may improve utilisation but disadvantage people with limited flexibility. Yield management deserves a customer view. Explain the capacity condition and segment difference that justify allocation or pricing, then test transparency, access and consistency.
A higher price is not an operational strategy by itself; it needs rules that match scarce capacity and do not undermine the service promise. Protect essential or vulnerable access explicitly. Evaluate buffers rather than maximising utilisation. In variable services, a small resource buffer can absorb peaks and protect recovery, whereas relentless utilisation can create queues, burnout and failure demand.
Compare the cost of slack with the consequence of delay using evidence from the chosen setting. For written work, support demand patterns, capacity constraints and customer effects with different evidence sources. Phrase assumptions as assumptions when service-time or arrival data is unavailable. Recommend a staged trial with a review trigger.
Pair utilisation with wait distribution, abandonment, rebooking, employee workload, quality and equity across segments. End by checking whether the proposal reduces the underlying mismatch or merely makes the queue less visible. That distinction produces a credible capacity argument without relying on excluded quantitative techniques.
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