Paul, you just reminded me of how much I was thinking about this once. It was for my university degree work, predicting demand. At that time I was thinking of "caotic matrix" and "demand scenarios":

http://www.kainoto.com/files/demand-scenarios.jpg (expanded the Kotler's demand function with time factor)

(sorry, it's in slovenian)

Especially the caotic matrix was interesting, because I've noticed that almost anything in the environment can have some impact on the organisation. So beside raw data, I think you need to involve several experts for things that can't be predicted, since there's no "usable database" about them (like that garage band that is just at this moment producing new Facebook and noone knows about them).

• There appears to be a glut of capacity worldwide (i.e. shipping, telecommunications, manufacturing etc.). Should marketers be concerned with the concept of capacity management?

Yes. Even tough I prefer flexibility. :-)

• What are the ramifications of getting capacity management wrong?

Stress. Costs. Big time reputation waste.

• Businesses are adding flexibility to meet spikes in demand through vehicles like cloud computing, temporary labor and outsourcing. Can you think of others?

Putting something into customer hands to do?

• Suppose “capacity management” is built into the function of an annual strategic planning exercise. What might be a pitfall of this approach?

What was first, egg or the chicken? :-)

Hi Paul,

Terrific post.

What you said here, in a nutshell is key: "Capacity management is all about reducing surprises. Take a good, hard look at your business. What’s growing? Something surely is."

Companies really need to monitor sales and consumer demand every day now so they can gradually ramp up production to meet growing demand for some things and cut production on others. Having said that, spikes can still occur, making it very difficult to meet demand. As large and efficient a company as Toyota is, for example, they could not meet the demand for the Prius when it first debuted. What about Apple's first iPhone? There were surely lost sales opportunities but die-hard consumers queued up until they could purchase the object of their devotion. To answer an overall question you're asking: it's not possible to predict accurately in some cases but closer ongoing monitoring may help eliminate some surprises and potentially negative impact. But what happens if someone with a large following suddenly endorses a product or service today on a tweet or Linked In message--to cite your examples of high growth properties--and there's a run on it tomorrow? Who can foresee that?

Dusan, thank you for taking the time to comment and a special thanks for tackling each of my posed questions.

One of the key points you captured is the need to build in flexibility to business processes, especially to help meet unexpected demand. Easier said than done, especially when the first inclination in challenging economic times is to "cut". Building flexibility might even mean allowing some "slack" in processes, which runs counter to the generally accepted business practices of "lean is best."

The next big thing, big event, or new competitor is hard to predict. But we can prepare! "Chance favors the prepared mind." - Louis Pasteur

Paul, I see flexibility not only as a capacity thing, but as a state-of-mind. When you're really flexible, you're able to change your behavior in a minute, rethink goals, cut your needs, work for someone else or even totaly (read this carefuly) leave business to someone else!

So by being flexible I really mean - leave it to someone else. And if they need you later (and they will, belive me), you jump in as needed.

Of course, is hypothetical and working in my cases. Might not work for a flower shop. :-)

I like that one from Pasteur. Great one, thxs!

Claire, you bring up some terrific points about responding to spikes in demand, especially those huge spikes as a result of some event such as an endorsement, recommendation, review etc. Look at Oprah for example - she can make or break a book through a simple recommendation!
Who can predict if and when a product or service catches fire? What happens if your forecasts are woefully wrong? That's why capacity management matters to marketers--we need to build in flexibility to our business processes to react to volatility.

It's my contention that marketers should be constantly performing "what-if" scenarios to ensure they can adequately meet demand spikes, and then discern strategies to meet those needs. Print on demand, cloud computing, contract manufacturing etc, are just some of things that come to mind as possible avenues to consider.

I personally believe that when your campaigns go over success, you need a high degree of capacity to keep up to the demand. But, there isn't a way to count for how well a campaign will fare. So, it's much more logical to take out powerful campaigns with proportional level of production capacity.

Dusan, You said, "When you're really flexible, you're able to change your behavior in a minute." How's five to ten minutes sound?

I'm reminded of an article from Barrons on Honda's ability to quickly change its product mix in relation to business conditions. This quote says it all, "Honda's models are designed to use common parts as much as possible and to be assembled much the same way. Its heavily robotized production lines can switch from making any one model to another in five to 10 minutes, versus days or weeks at rivals' plants."

Strategic management, thank you for commenting.

You said, "There isn't a way to count for how well a campaign will fare." I do suppose however, that depends on whether you have the data for results for a similar campaign run in the past. Of course, the past (last week, last month or last year) is not today's conditions, and assumptions may change, but sometimes the past can be a fairly reliable predictor of the future.

And sometimes, there's just no way to predict the future, especially when it comes to new product launches. In that case statistical models may be of little to no use.

You did say something that I think bears deeper discussion/pontification when you mentioned, "It's much more logical to take out powerful campaigns with proportional level of production capacity."

Should marketers care about capacity management, or is it just our job to create demand and let the business figure out how to respond?

Keeping an ear close to the consumers at all times is critical. In addition, it is worth the money to have someone in the organization responsible for scanning the environment and identifying trends, patterns, and changes. Those who identify changes early and know their consumers well will have an easier time being able to manage capacity, suffer less in the downturns, and be ready for the upswings.

Camille, thank you for adding your expertise to this article. In addition to collecting your own data about customers and possibly adding in third party sources (partners/analysts/suppliers), it's very important to keep a pulse on both macro and micro economic data points to build a complete picture of demand. The tricky part, I believe, is understanding which data points to rely upon--to separate the signal from the noise.