Balancing Demand and Capacity
Cape Cod: A Seasonal Tourist Destination
Cape Cod is a remarkable peninsula of narrow land, jutting out into the Atlantic off the Massachusetts coast like a long arm, bent at the elbow. Native Americans have lived there for thousands of years. The Pilgrims landed there in 1619 but continued across Cape Cod Bay to found Plymouth. Not long afterwards, more immigrants from England settled on the Cape itself.
Fishing, whaling, agriculture, and salt works were among the principal industries in the nineteenth century. By the mid twentieth century, all but fishing had virtually disappeared and tourism was beginning to assume some significance. Events in the early 1960s put the Cape firmly in the public eye. John F. Kennedy became president of the United States and was regularly photographed at his family's vacation home in Hyannis port.
While in office he signed legislation that created the Cape Cod National Seashore, preserving large areas of the Outer Cape as a national park. And the song, "Old Cape Cod," commissioned by tourism promoters and sung by popular vocalist, Patti Page, unexpectedly climbed to the top of the charts and was heard around the world.
With its beaches and salt marshes, sand dunes and fishing harbors, picturesque towns and lobster dinners, the Cape rapidly became a destination resort, drawing millions of visitors each year from New England, the Mid-Atlantic States, Eastern Canada, and beyond. In season, In summer, the Cape is a busy place. Colorful umbrellas sprout like giant flowers along the miles of sandy beaches. The parking lots are full. There are lines outside most restaurants and managers complain about the difficulty of hiring and retaining sufficient serving staff.
Thousands of students take summer jobs on the Cape (many come from Europe) and some employers recruit seasonal workers from Caribbean countries such as Jamaica. Stores and movie theaters are busy (especially when it rains). The Mid-Cape Highway is clogged. Hotels and motels sport "no vacancy" signs. Fishing trips have to be booked well in advance. Vacation cottages are rented, it's hard to get a car reservation on the ferries to the islands of Nantucket or Martha's Vineyard, and the visitor centers at the National Seashore are crowded with tourists.
But return for a weekend in mid-winter, and what do you find? A few walkers brave the chill winds on the otherwise empty beaches. You can park in almost any legal space you wish. Many restaurants have closed (their owners are wintering in Florida) and only the most popular of the remaining establishments even bother to suggest reservations. Student workers have gone back to college and employers have lain off their seasonal workers.
It's rare in winter to be unable to see the movie of your choice at your preferred time. The main problem on the Mid-Cape Highway is being stopped for speeding. If a motel displays a "no vacancy" sign that means it's closed for the season; the open ones typically offer bargain rates. Recreational fishing? You must be crazy there may even be ice on Cape Cod Bay! Owners of vacation cottages have drained their water systems and boarded up the windows.
You can probably drive your vehicle straight onto one of the car ferries to the islands (although the sailing schedules are more limited), and the rangers at the visitor centers are happy to talk with the few visitors who drop by during the shortened opening hours.
Faced with such a sharply peaked season, economic development agencies are working to extend the Cape's tourism season beyond the peak months of July and August, seeking to build demand during the spring and fall months. Among their targets are tourists from Europe, who appreciate the old-world charm of the Cape and tend to spend more money than visitors from Boston or New York.
THE UPS AND DOWNS OF DEMAND
Fluctuating demand for service, like that experienced by the retailers, movie theaters, motels, restaurants, ferries, and other establishments on Cape Cod, is not just found in vacation resorts. It's a problem for a huge cross-section of businesses serving both individual and corporate customers. These demand fluctuations which may be as long as a season of the year or as short as an hourly cycle play havoc with efficient use of productive assets.
Unlike manufacturing, service operations create a perishable inventory that cannot be stockpiled for sale at a later date. That's a problem for any capacity-constrained service that faces wide swings in demand. The problem is most commonly found among services that process people or physical possessions, like transportation, lodging, food service, repair and maintenance, entertainment, and health care.
It also affects labor-intensive information-processing services that face cyclical shifts in demand. University education and accounting and tax preparation are cases in point.
This chapter and the one that follows address the question, how should we match demand and productive capacity? The task starts with defining the nature of the firm's productive capacity, which may vary significantly from one industry to another. Managers also need to document how demand levels vary, what factors explain those variations, and under what circumstances demand exceeds available capacity. Armed with this understanding, they should then be in a position to develop strategies for matching demand and capacity.
From Excess Demand to Excess Capacity
At any given moment, a fixed-capacity service may face one of four conditions (see Figure):
- Excess demand the level of demand exceeds maximum available capacity, with the result that some customers are denied service and business is lost.
- Demand exceeds optimum capacity no one is actually turned away, but conditions are crowded and all customers are likely to perceive a decline in service quality.
- Demand and supply are well balanced at the level oj optimum capacity staff and facilities are busy without being overtaxed, and customers receive good service without delays.
- Excess capacity demand is below optimum capacity and productive resources are underutilized, resulting in low productivity. In some instances, this poses a risk that customers may find the experience disappointing or have doubts about the viability of the service.
You'll notice that we've drawn a distinction between maximum capacity and optimum capacity. When demand exceeds the maximum available capacity, some potential customers may be turned away and their business could be lost forever. When the demand level is between optimum and maximum capacity, all customers can be served but there's a risk that they may receive inferior service and thus become dissatisfied.
Sometimes optimum and maximum capacities are one and the same. At a live theater or sports performance, a full house is very desirable since it stimulates the players and creates a sense of excitement and audience participation. The net result is a more satisfying experience for all.
But with most other services, you probably feel that you get better service if the facility is not operating at full capacity. The quality of restaurant service, for instance, often deteriorates when every table is occupied. The employees are rushed and there's a greater likelihood of errors or delays. And if you're traveling by air you tend to feel more comfortable if the seat next to you is empty.
There are two basic solutions to the problem of fluctuating demand. One is to adjust the level of capacity to meet variations in demand. This approach, which involves cooperation between operations and human resource management, requires an understanding of what constitutes productive capacity and how it may be increased or decreased on an incremental basis.
The second approach is to manage the level of demand, using marketing strategies to smooth out the peaks and fill in the valleys to generate a more consistent flow of requests for service. Astute firms employ a mix of both strategies, which requires close collaboration between operations and marketing.