9 Level and chase capacity strategies

When demand patterns are understood a service can decide when and how much capacity to provide to meet that demand. Where demand fluctuates there is the question ‘to what extent do we change capacity over time to match demand?’ This section looks at the reasoning that addresses this question.

Activity 9 Demand over time

Timing: Allow approximately 10 minutes

The figure below shows the expected demand over a period of time, e.g. one year. You can see there is quite a lot of seasonal variation in expected demand.

Figure 7 Meeting demand with a ‘level’ capacity strategy

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The figure is a line chart with the x axis labelled as ‘time’ and the y axis labelled as ‘demand’. There is a line on the chart (coloured in black) labelled as ‘demand’ that starts low, dips, and then curves upwards towards a peak, falls to a new minimum point, and then rising again. A second line, labelled ‘capacity’, sits entirely above this fluctuating demand curve. This line is straight and horizontal across the entire graph.

Figure 7 Meeting demand with a ‘level’ capacity strategy

The figure also shows a potential ‘capacity strategy’ that provides a constant amount of capacity throughout the year – known as a level capacity stategy. What do you think the likely advantages and disadvantages of this strategy are?

Answer

The level strategy is not good at minimising wasted or idle resource as there are long periods where capacity significantly exceeds demand. A key advantage is that the plan should always meet demand – as long as the demand forecast used is reasonably accurate. Another simple feature is that the plan is quite easy to implement as the people involved in organising resources know that they need to keep the resource plan the same throughout the year.

Now let’s look at a different capacity strategy. In this case the capacity is adjusted periodically so that it matches more closely the profile of forecast demand. This is known as a chase strategy. Is this always a better approach?

Figure 8 Meeting demand with a ‘chase’ capacity strategy

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This figure is a modified version of figure seven. The horizontal line is replaced by a stepped line, for capacity, that consistently sits above the demand curve but generally follows the shape of the demand curve, representing many changes in capacity to loosely match the changes in demand.

Figure 8 Meeting demand with a ‘chase’ capacity strategy

The resources in this case have higher utilisation and you would expect this to be more efficient. However, this is not always the case. The key issue is that changing the capacity can be difficult to implement in some cases – think about how we might do this: Seasonal staff? Different shift patterns? Agency staff?

In some of these cases the extra resource might be more expensive and less productive than those on long-term contracts. Hence we sometimes have to balance between the stability of level strategies and the complexity of chase.

The following screencast explains the theory of level and chase capacity strategies in more detail.

Download this video clip.Video player: Screencast 1: Level and Chase

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Transcript: Screencast 1: Level and Chase

[MUSIC PLAYING]

PAUL WALLEY

In this screencast I'm going to explain the two main medium term capacity strategies used by services to help meet demand. These strategies are known as level and chase capacity strategies, which offer two fundamentally different ways to reconcile demand and capacity balance.

This graph shows an imaginary but typical situation, where we have demand changing over time. This time period could be a day, a week, or a year. We usually find that demand is not constant, as there will be seasonal peaks and troughs in demand. We need to decide if we need to adjust capacity to match those peaks and troughs.

One option is to keep capacity fixed. We know this as a level capacity strategy. What we can see from the diagram is that we've set capacity at a level that's consistently above demand here. Under those circumstances, we expect all of the demand would be met in that time, as there is always enough capacity.

There are certain trade offs that we have with level capacity, in that we see that there are periods of time where a lot of capacity might be wasted. For example, we may have service personnel standing around with very little to do. At other times, we see that the same people will be quite stretched. We might wonder if the quality of the service might be maintained during that time.

The level capacity could be set lower than that shown on the graph, more towards the average demand. This would cause backlogs and delays at some busy times, and the backlog might be cleared when less demand is coming in.

The alternative approach is to adjust capacity in anticipation of a change in demand. We could look at demand forecasts and anticipate when peaks and troughs are going to occur, usually through seasonality of demand. We then make adjustments to capacity to match the general pattern of demand over time as best we can. We know this as a chase capacity strategy.

In the diagram here, you can now see that our chase strategy has tried to match demand and capacity as much as possible. It won't match perfectly, because we need to add capacity in particular blocks, such as one extra person, an extra shift, and so on. And so we get an approximate match but not a perfect match. And in this case, we still get a little bit of wasted capacity some of the time.

The issue here is that we often have to plan very carefully for these additions and reductions in capacity, and that might not be so easy to implement. We find that these two capacity strategies have different key features. The level capacity strategy is much easier to plan. You decide what capacity to set, implement that plan, and it never changes.

A level strategy is easy for both employees and customers to understand. So if you've got customers needing to understand when a facility is going to be open, for instance, then a level capacity strategy is useful, because you will be consistent in your opening times. A level strategy should ensure a particular service level so that we can set the capacity to always meet the demand ideally.

The downside is the potential waste, or the underutilization of resource. There are also potential implications for staff who might have to go from busy times to very quiet times, and quiet times can be surprisingly demotivating.

With a chase capacity strategy, we might have to use fairly complex schedules, and this can be very difficult to plan and quite confusing for staff. Sometimes the chase strategy should ensure a service level, but we could get the forecast wrong. And under those circumstances, we could be caught out with insufficient capacity.

The chase strategy has high utilization of resource, but sometimes that might not be so good. We could tire out our workforce, for instance, if we keep them too busy. Sometimes a little bit of downtime isn't a problem.

Then you have to ask the question, is the chase capacity strategy cheaper? It might cost you money to change the profile of your capacity over time. Sometimes additional short-term staff, such as agency staff, can be more expensive than core staff that we employ full time. This would make capacity increments more expensive. Are the new staff as productive or as competent as core staff?

In summary, there is no one single right answer to which approach to take. And, in fact, most services use a mix of level and chase strategies. It is up to you to decide which of these options to take based around your own local circumstances.

End transcript: Screencast 1: Level and Chase

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Screencast 1: Level and Chase

The next section looks at how you might visualise data such as demand patterns.