Service Demand & Supply
Service Demand and Supply Planning
Planning is considered the most important function of every project and organization (Singla, 2011). Successful organizations spend their more than 60% of the time in the planning process. It is because strong planning makes the subsequent steps easy. If planning is poor, the rest of the activities are bound to fail. It is, therefore, mandatory to spend maximum time and put in the best efforts in the phase of planning so that execution and implementation can be made possible without hassle.
In the context of business organization, the major game to play around is maximizing profitability (Tulsian, 2002). It is the core objective of every commercial organization and the very survival and existence of organization depends upon the ratio of profits it earns. The simple formula of profit calculation is revenue less expense. In order to maximize profits, organizations adopt any or both of the two strategies i.e. revenue maximization and cost minimization. The breakeven point determined no profit no loss and then organizations plan their climb towards profits.
Business organizations can be manufacturing concerns which are engaged in procuring raw material, producing goods and selling them to the customers against a decided price, or they can be service organizations providing intangible services to the customers and charging fee for them (Neelankavil and Rai, 2009). Manufacturing concerns have goals of providing the product to all who need it and selling all the units produced. Manufacturing concerns maintain a certain level of inventory and operate through their stock to satisfy customer's demand. The situation is little different in case of service organizations (Arlbjorn, Vagn and Henning, 2011).
Service sector operates on its capacity, which may be called as inventory. This inventory may not be tangible as the unit produced, but it can be an opportunity to be sold. This concept can be explained better by taking examples of service industries.
Hospitals, schools, restaurants, consultancy, courts, cinemas and airlines, all operate under the umbrella of service organizations. All of them have limited and defined capacity which is used to generate revenues. In school, number of seats is a class is capacity and schools want to fill in all the seats. In hospitals, number of beds and number of doctors determine the capacity. The profit of hospital is maximised if all the beds are filled all the time and there is no doctor who does not have patients to see. In restaurants, number of tables and chairs per table is inventory. In cinema, number of seats is inventory. Same is valid for airlines. This inventory is available for defined time slots. The profit maximization strategy of airline focuses on selling tickets for each and every seat in each and every flight. As the flight takes off with vacant seats, the opportunity is lost and the capacity is under utilized.
This discussion makes clear that like manufacturing concerns, service sector also has inventory but the difference is this inventory is exhaustible. This very nature of service organization differentiates the strategies which service sector adopts to ensure its profitability.
From operational point-of-view, the biggest challenge for organizations is to align their supply and demand. This challenge is valid for both manufacturing concerns and service sector. Much has been researched and huge literature is available on the operations management of manufacturing concerns, yet the service sector is equally in need of this literature providing guidelines and setting best industry practices.
This paper will explain how the techniques adopted in manufacturing concerns can be used in the service organizations. The paper will explain the need of adaptation, if there is any and present certain tools, techniques and approaches which are helpful in maximizing profits for service sector.
It is evident from the previous discussion now that service organizations also have inventory to sell and they need to create demand against this inventory. It is also true vice versa. There can be demand of a service and the organizations need to enhance their capacity to meet that demand. The example can be found in case of cinema. If a movie makes huge business, everybody loves to watch it while every seat is already booked and people keep on waiting for the next slots so that they can get ticket. In educational industry, there are many students applying for admission while the seats are selected. In case of airline, sometimes, people wait for chance to get a seat and it is also common that the flight is operated under loaded.
In order to balance the supply and demand, service sector makes necessary arrangements. Just like the manufacturing...
At times, seating configuration is changed in an existing aircraft so that more passengers can be occupied. It is also in practice that the aircraft are switched from smaller to bigger if high passenger load is expected on a particular flight. The educational institutes offer evening classes to the students who are not accommodated in morning sessions.
Just like manufacturing concerns calculate their requirement of raw material to align supply with demand; same practices are adopted in educational institutes. Depending upon the number of enrolments for a particular course, the administration decides the frequency of offering, the strength of class and the number of teachers to be hired.
It is important to mention at this stage that the mentioned similarity is not applicable in all service sector organizations. For example, in a hospital, the administration can do nothing to increase its demand if people are healthy and do not need medical healthcare. The marketing department of a hospital cannot make people feel ill so that they visit hospital and hospital's revenue is generated. It can be argued that hospital industry does not operate for profits and is more related to social service, but it is also true that there are many private sector hospitals which are run for profits. They ensure profitability through quality of service (Perry and Sohal, 1999) and inviting other commercial organizations to have them on panel so that their employees are bound to visit the same hospital whenever they feel the need.
Another similarity found between the manufacturing and service organizations in the context of managing supply and demand is the use of Enterprise Resource Planning (ERP) software. ERP is an effective planning tool and provides the comprehensive picture of organizational performance from various perspectives. Based on effective reporting mechanism implemented in ERP, the service organizations can calculate their demand to manage their capacity (Holmstorm, Ala-Risku et al. 2010).
There is, however, difference of design of ERP implemented in service sector. The difference will be based on the difference of operations as highlighted in the previous discussion. Material planning, supplier management and re-order level are not the part of service ERP.
Having discussed all these points, it is important to highlight how service sector manages its supply chain. Traditionally, supply chain management is the management of all entities involved in the process of supplying raw material, producing units, distributing them to retailers and selling them to business or home customers. The demand is calculated using the data available to all these stakeholders. There are chances that demand forecast in not accurate as the units are included in calculation more than once because every entity places its demand keeping in view the demand of next level in supply chain (Seth, Deshmukh and Prem, 2006).
The supply chain of service organizations is relatively smaller. It is because no physical unit is traded in it rather there is consumable service highly dependent upon time slots. However, it is no surprise to say that service organizations too have their supply chains and they manage them as well. The examples provided below will explain this concept even more.
Take the aviation as example. An airline has core booking system which is used to maintain the ticketing purchasing system. In order to increase the sales of their tickets, airlines issue licenses to General Sales Agent (GSA) and Passenger Sales Agent (PSA). These GSA and PSA license holders are considered part of supply chain as the airline marketing department reserves seat inventory for them. These license holders calculate their demand of seats and negotiate with airlines to give them the specified number of seats. Accordingly, airline plans to place larger or smaller aircraft on the route.
In case of hospitals, when the organizations are taken on panel, the hospitals need to ensure that no employee is left unattended. Same is valid for hotels and restaurants. If an organization makes a contract with a hotel to accommodate their employees when they visit outstation for official duties, the hotels are liable to arrange for their accommodation.
In case of telecommunication industry, where telephone and Internet connection are used as service, the company issues connections with shared bandwidth. It is to ensure that maximum connections are sold and there is no customer who needs Internet connection and is not catered for by the organization.
The promotion campaigns by service organization are different from manufacturing concerns…
