Managing Capacity and Demand

It is very important to match demand and capacity as it would allow the organisation to maximise on profitability and utilise resources efficiently. If capacity and demand are not matched, issues can arise such as failure to smooth the peaks and valleys of demand and overuse of the capacity (Kossmann 2006, p. 39).

Failure to smooth the peaks and valleys of demands is caused by failing to match the supply to the demand (Kossmann 2006, p. 39). It could get really busy before lunch time in Canary Jane’s Flowers with up to five customers all at once. Ms. Stacey, the owner and manager, is aware that during this time and also the morning that it can get very busy so they ensure they have enough stock and staff to match for the day because of the uncertainty. In addition, seasonal changes can affect the demand. For example, weddings tend to happen a lot more in the spring and therefore this increase the demand for flowers more in comparison to winter. This means, for Canary Jane’s Flowers that they would need to increase the capacity to match the demand in spring time and reduce it in winter where it's not as busy. Another method to match the capacity and demand is shifting demand which focuses on customers and involves stretching capacity by using strategies to either attract or detract customers at certain times (Zeithaml, Bitner & Gremler 2013, p. 385). For instance, at Canary Jane’s Flowers on slow days they modify their hours of operation. On busy days such as Valentine’s Day they promote the benefits of ordering earlier than on the day to shift the demand since they know capacity will be too low. For more information on methods to shift demand please refer to Figure 8.1.

Overuse of capacity in the Canary Jane's Flowers scenario would refer to the ratio of staff to customers. Adjusting capacity focuses on the supplying side to fix the difference between capacity and demand (Zeithaml, Bitner & Gremler 2013, p. 388). Ms. Stacey usually has two florists in during the busiest days of the year, for instance Valentine’s Day and Mother’s day. To decrease demand during peak times they rely on students who are on work placements for extra hand when it is necessary. In the winter time where demand it too low employees have a holiday and Ms. Stacey would only keep one person in the store while she would drop in every now and then to give a hand if necessary. For more information on methods to adjust capacity please refer to Figure 8.2. Therefore, there isn’t much overuse in the capacity for Canary Jane’s flowers since adjusting capacity strategies are utilised effectively.

If capacity and demand aren’t matched this means there is both excess demand and business can be lost, or an excess in capacity and resources are wasted. It is very important for Canary Jane’s Flowers to understand their capacity and demand because on top of this they also need to stock the freshest flowers, not have stock sitting there for days. Therefore, capacity and demand should be recognised as an important way for Canary Jane’s to maximise on profitability. Capacity and demand levels will also be influenced by the organisation's communications.

References: 

Kossmann, M 2006, Delivering excellent service quality in aviation, Ashgate, Aldershot, England.Zeithaml, V, 

Bitner, M & Gremler, D 2013, Services marketing, McGraw-Hill Irwin, New York.

Monitoring and Researching Service Success and Failure

Monitoring and evaluating service performance is important because it allows for improvement throughout the service profit chain. Measurement and analysis allows businesses to make decisions based on data, lowering their exposure to risk and providing more predictable results (Gale 1992). Small businesses such as Canary Jane’s Flowers have less need and means to monitor performance, due to smaller sample sizes and more intimate existing knowledge of the business and customers, but such research still holds substantial value for service improvement.

It is common and natural for business operators to self-assess their performance against their past performance and objectives, but it is generally unreliable when done without structure, analysis and impartiality (Parker 2012). Canary Jane’s currently has unstructured performance measurement without formal metrics, consisting of a personal awareness of repeating customers, and reviews on external websites. The business is incidentally reviewed extremely well, with an average 4.9 star rating from 35 reviews on Facebook, Yelp, Yellow Pages, and Etsy. Reviews and ratings are currently the only impartial measurement of Canary Jane’s performance.

Measurement of returning customers is important as it is much cheaper and easier to retain customers than it is to attract new ones (Hennig-Thurau & Klee 1997). As such, customer retention rates are a very important metric to measure. Measuring retention rate is a simple calculation comparing a quantity of new customers to existing customers, but requires those two points of data. Returning and new customers can be counted simply by asking all customers if they have shopped at Canary Jane’s before, with figures stored and compared and monthly intervals to assess retention and attrition rates. A services success or failure will also be impacted by the organisations ability to manage capacity and demand.

References: 

Parker, D 2012, Service Operations Management, Edward Elgar, Cheltenham: UK, pp. 285-287.

Hennig-Thurau, T & Klee, A 1997, 'The impact of customer satisfaction and relationship quality on customer retention: A critical reassessment and model development', Psychology and Marketing, vol. 14, no. 8, pp. 737-764.

Gale, B 1992, Monitoring customer satisfaction and market-perceived quality, American Marketing Association, Chicago.