Question

Explain in your own words the difference between demand management and capacity management. Give at least two examples for each one.  For group work, students could provide examples of how companies they worked for used capacity and demand management.

Answer 1

Capacity manages the number of customers that can be served based on products, services, and employees. Demand manages the number of customers interested in consuming the product at a given point in time.  Methods of capacity management include involving the customer in the service-delivery system, cross-training employees, using part-time employees, renting or sharing extra facilities and equipment, scheduling downtown during periods of low demand, or changing the service-delivery system. Demand management methods include using price to create or reduce demand, using reservations, overbooking, practicing revenue management, using queuing, shifting demand, or creating promotional events. Provide students with an example such as the Olympics or Valentine’s Day and have students discuss capacity and demand tactics to manage the consumer market. 

Capacity controls service volume; demand gauges customer interest. Tactics include involving customers, pricing strategies, reservations, and event promotions.