Capacity Strategy

The Operations Strategy Matrix

Resource Usage

Quality Issues include

competitiveness
• Capacity levels
Speed
Performance

• Number of sites
objectives

Market
• Size of sites
Dependability • When to change
Flexibility capacity
• How much to change
Cost capacity
• Location

Capacity Supply Process Development

network technology and
organisation
Decision Areas

Adapted from Slack and Lewis

2008
 The three levels of capacity decision
making
Level Time scale Decisions Span of Starting point Key questions
decision of decision

Strategic Years – months Buildings & All parts of the Probable markets to be How much capacity do
capacity facilities process served we need in total?
decisions Process Current capacity How should capacity be
technology distributed?
Where should capacity
be located?

Medium Months weeks Aggregate number Business site Market forecasts To what extent do we
term of people Physical capacity keep capacity level or
capacity Degree of constraints fluctuate
decisions subcontracted Could we change
resources staffing levels as
demand changes
Shouts we subcontract
or off load demand
Short term Weeks/ hours/ Individual staff Site Current demand Which resources are to
capacity minutes within the department Current capacity be allocated to which
decisions operation available tasks?
Demand on the When should activities
individual facilities be loaded on individual
Adapted from Slack & Lewis 2008 resources?
Factors influencing the overall level of capacity

Availability Forecast
of capital level of
Cost
demand Changes in
structure of
capacity future
increment demand

Operations Overall level of Market

Resources capacity Requirements

Economie
s of scale Uncertainty of
Flexibility of future demand
capacity
provisions Consequences
of over/ under
supply

© Adapted from Nigel

Slack and Michael Lewis
2003
 Good forecasts are essential for effective
capacity planning …
… but so is an understanding of demand uncertainty, because it allows
you to judge the risks to service level
Only 5% chance of demand
Distribution of demand
being higher than this
DEMAND

DEMAND
Only 5% chance of demand
being lower than this
TIME TIME

When demand uncertainty is high, the risks to service level of under-

provision of capacity are high

Slack, Chambers & Johnston - 2007

Factors influencing the overall level of
capacity
Availability
of capital
Cost structure of Forecast level of Changes in
capacity increment demand future demand

Operations Overall level of Market

Resources capacity Requirements

Economie
s of scale Uncertainty of
Flexibility of future demand
capacity
provisions Consequences
of over/ under
supply
© Adapted fromNigel
Slack and Michael Lewis
2003
 Flexibility of provision – Express at Holiday Inn

Reception Area Bar Area

Measuring Capacity

• Assessing service capacity is difficult because of

– Service product mix
– Impact of location
– How intangible the service product is
– Identification of resource constraints
Short Term Capacity Strategies

Demand Demand Demand

Capacity Capacity Capacity

Demand
Level capacity Chase demand
management

Slack, Chambers & Johnston - 2007

Ways of reconciling capacity
and demand
How do you cope with
fluctuations in demand?

Absorb Adjust output Change

demand to match demand
demand
Level capacity Demand
management
Chase demand

Slack, Chambers & Johnston - 2007

Planning and managing capacity
Resource planning
Long Term
Planning

RESOURCES • Forecasts CUSTOMERS

• Investment
Capacity Demand
Management Medium Term Management
• Space Planning • Pricing
• Layout • 1-year demand • Advertising
• Staff forecasts • Off-peak offers
• Equipment • Capacity • Reservations
• Stock requirements • Complementary
• Process • Capacity plan services
• Time • Alternative
• Outsourcing attractions
Short Term • Queuing
Planning / Control
Ways of reconciling capacity
and demand
How do you cope with
fluctuations in demand?

Absorb Capacity Change

demand Adjust output changes demand
to match made to
demand reflect
Level capacity
demand
Chase demand
changes

Mixed Plan
Hill and Hill 2018
Slack, Chambers & Johnston - 2010
 Managing Capacity

• Short-term capacity • Changing capacity form

adjustments and nature
- overtime - annualised hours
- temporary staff - substituting capacity by
technology/customers
• Flexible capacity
- subcontracting
- flexible staff
- part-time or temporary staff
- shift patterns
- staggered working hours
Level Capacity Strategies

Demand

Capacity

Level capacity

Slack, Chambers & Johnston - 2010

Level Capacity

• Prime objective
– Maximum utilisation of expensive resources
• Who uses level capacity strategies
– Airlines
– Hotels
– Specialist services
– Restaurants
Level strategy approaches

• Promotion of off peak demand

– Happy hour
– Early bird menus
• Queue management
– The service must be worth the wait
• Booking systems
– A form of queue management
Chase Capacity Strategies

Demand

Capacity

Chase demand

Slack, Chambers & Johnston - 2010

Chase Management

• High volume consumer services

– There must be a high degree of volume flexibility
– Many fall into the high volume/low process variety
• Who uses chase strategies
– Theme parks
– Fast food restaurants
Chase strategy approaches

• Flexible staffing
• Subcontracted staff
• The customer within the process
 Managing demand

• Changing the pattern of demand

- Alternate pricing
- Advertising
- Offering counter seasonal services or products
• Scheduling
- Reservations or appointments
- Fixed schedules
- Advertising
- Educating customers
• Managing uncertainty
- Forecasts vs known orders
Changing demand patterns

• Pricing strategies
• Limiting service
• Segmentation of demand
• Advertising and promotion
Putting the strategies together

• Service organisations tend to be more complex

• What would be the capacity strategies for
– A hotel
– A restaurant (chain)
Factors influencing the timing of capacity
change
Lead time of Forecast
capacity level of
Ability to change demand Competitor
cope with
change activity

Operations Timing of capacity Market

Resources change Requirements

Economies of
scale Uncertainty of
future demand
Required
level of
service

© Adapted fromNigel
Slack and Michael Lewis
2003
 In class Tutorial

• Having completed the reading you answer the following questions

– What is the difference between long term and short term capacity
management
– What do businesses base their long term capacity decisions on?
– Look at table 1 and decide which degree of interaction your brand fits within
and why
– What are the risks to maximising a hotel or restaurants capacity to increase
customer numbers
– How can strategic capacity planning activities influence the daily operation of
a hospitality business?
https://www-sciencedirect-com.libaccess.hud.ac.uk/science/article/pii/S0278431909000589
Click
Click on the link above or access via my reading
Volume and Variety in process design
References

• Johnson R & Clark G (2008) Service Operations Management - Improving Service

Delivery 3rd edition – Pearson publishing
• Slack N, Chambers S & Johnston R (2010) Operations Management 6 th edition - Pearson
publishing
• Slack N, Chambers S and Johnston R (2007) Operations Management
5th Ed Prentice Hall
• Slack and Lewis (2008) Operations Strategy (2nd edition) Prentice Hall
• Slack and Lewis (2003) Operations Strategy. Prentice Hall
• Hill and Hill (2010) Essential operations management. Palgrave
Macmillan
• Hill A and Hill T (2018) Essential Operations Management 2 nd edition – Palgrave Macmillan
For Next week

Read the article

- Melián-González, S., & Bulchand-Gidumal, J. (2016). A model that
connects information technology and hotel performance. Tourism
Management, 53, 30-37. 10.1016/j.tourman.2015.09.005
https://www-sciencedirect-
com.libaccess.hud.ac.uk/science/article/pii/S026151771530011X?_rdoc=1&_fmt=high&_origin=gateway&_docanchor=&md5=b8429449ccfc9c30159a5f9aeaa92ffb&ccp=y

Consider the following

The importance of IT on hotels
The importance of IT on their customers
How can IT be beneficial to both sets of stakeholders?
Market order winners and qualifiers

Factor Importance to different type of customer

Individuals Groups
Eat in Takeaway Takeaway
for meeting
Happy to Short of
wait time
Product
design
Service
design
Product range
Delivery
speed
Price
Quality
Conformance
Market order winners and qualifiers

Factor Importance to different type of customer

Individuals Groups
Eat in Takeaway Takeaway
for meeting
Happy to Short of
Product wait time
Order Order Winner Order Order Winner
design Winner
Winner Qualifier
Service
design
Order Winner Qualifier
Product range Qualifier Qualifier
Delivery Qualifier
speed
Price
Quality
Conformance