TUGAS OPERATIONS FUNDAMENTAL CASE STUDY : Shouldice Hospital TOPIC : Strategic Capacity Management

Anggota Kelompok : 1. GERALDO JOHAN (1140003481) 2. STEFANI ANGJELINA (1140003525) 3. JULIARDY YUWONO (0800736932) 4. WENNY NYOMAN (1000868756) 5. DANIEL HERMAWAN (0900823782) Kelas : MA 1

BINUS BUSINESS SCHOOL MM Young Professional Business Management Jakarta 2011

Case Analysis
Shouldice Hospital was established in 1945 by Dr. Edward Earle Shouldice (1890-1965), inventor of the Shouldice repair. Dr. Shouldice developed his innovative technique during World War II, to help young men who were unable to enlist in the military because of their hernias. Notable features in Shouldices service delivery system contribute to its success; a) Shouldice only accept patients with uncomplicated external hernias (focused). b) Patients are subject to early ambulation, which promote healing. (patients are taking a vocation). c) Its country club atmosphere, gregarious nursing staff, and built-in socializing make a pleasant experience (patients dont feel that they are staying in a hospital). Problem Definition The problem is that Shouldice is facing a paradox of change. From the case (on the Future Plans part), we find that the management of Shouldice considered about unsatisfied demand that should be served by Shouldice Hospital. Shouldice is operating at its best operating level for a service company with limited flexibility in its plant, a specialized work force but are failing to meet all the demand for its chosen market niche. Adding additional capacity to meet the unmet market need may upset the existing work force and lower service quality. Failing to meet the market demand may invite competition that could eventually cause Shouldice to loss market share and end up with excess capacity. Problem Justification Capacity is nearly 100% full if they do 30 operations a day and the patients stay 3 days. This would fill up 90 beds for a 5 day work week. Because it is a service they can not store there product. To increase their output and maintain their quality they would need to increase they size of the plant where the service is provided. This involves large capital investments and considerable time. Construction would also cause a disruption to the quality and country club atmosphere of the hospital. Therefore the plant has limited flexibility. The staff also has limited flexibility. Surgeons and surgeons assistants are specialized fields that have limited desire to be cross trained. It is assumed that because the staff is made up of a gregarious nursing staff and the doctors schedule that the staff is happy with the existing work schedule and do not want a change. Increasing the days worked would cause more aggressive scheduling of the operating rooms and may make it hard to maintain the same kind of working relationships and attitudes. 2

The case states the reason they are considering the expansion is because of considerable unsatisfied demand. The market place will fill this demand in one way or another. List of Alternative Courses of Action Courses are action are based on that the assumption that the reason for their desired expansion are to met an unmet market demand and is not driven by addition profit or other reasons. This assumption is required because of the limited information provided in the case. 1) They could do nothing different and continue to do as they are currently doing. 2) They could add an additional day by operating on Saturday 3) They can increase additional beds by 50%. 4) They can meet the unmet market demand with external capacity.

Evaluation of Alternatives 1) Doing nothing is a valid consideration. Their existing system and reputation sets them apart as a market leader and it is assumed to be a profitable setup. If it is working do not try to fix it. It is unknown if the existing set up is acceptable to management as far as profit and other operating measures however, we will assume that it is. The assumed risk is if they do not do any thing then competition will enter the market place and could eventually take patients away from Shouldice. There is insufficient data presented to truly analyze this risk. 2) Adding an additional operating day on Saturday is also a valid consideration. It would utilize ideal plant capacity. It could increase the number of patents served by 20% or 1500 people a year. Would this be a sufficient number of patents served to keep competition from entering the same market is unknown. It will be assumed that what the vice president meant by considerable unsatisfied demand was more than 20% so there would still be an unmet need to pull competition into the market place. Adding a Saturday is also assumed to have a negative impact on the work force that drive down the serve quality that gives Shouldice a competitive advantage. time it takes the new staff to come up the efficiency curve. 3) Increasing the number of bed by 50% would not be advisable unless they added more doctors and surgery rooms because the existing plant capacity and number of doctors could not fill an addition 45 beds. They would be operating the surgery rooms at over capacity. The construction requires large capital investment, time, and would disrupt the country club atmosphere. This plan involves an 3 It would increase rate of service utilization beyond 70%. This could be offset by hiring addition staff but one should consider the

additional capital expenditure of $ 2 million, it would also require additional well qualified surgeons who will be able to carry on the quality tradition at the Shouldice Hospital. Also this solution would take some time to be implemented. 4) Meeting the unmet market demand with external demand is also a valid consideration. It could be done in several different ways. They could look to other facilities that are similar and team with their doctors to train them in the Shouldice processes and share in the profits. This would help keep the competition out of the market and could be done as a silent partner until the service quality reach a level that Shouldice would want to associate their name with the other facility. Another option would be to subcontract or franchise the operation.

Recommendations Our group would recommend a combination of doing nothing with the existing staff and plant as to maintain the country club atmosphere and gregarious nursing staff that gives it its competitive advantage and meet the unmet market demand with external sources of capacity to keep the competition from entering the market. Beside it, we also suggest the hospital to establish and develop a more efficient scheduling time in checking out, for example, by 12pm in the afternoon, the post operative patient should leave the hospital, so the hospital management team could get enough time to prepare the room for the next / new patients. Answer for Question 1. The Shouldice Hospitals beds utilization condition : 90 beds x 7 days/ week = 630 beds available in a week 30 patients x 3 days x 5 days per week = 450 beds utilized

450 beds utilized / 630 availble beds = 71.43% Answer for Question 2. A similar table to show the effects of adding operations on Saturday (Assumption : 30 operations would still be performed each day) :

Beds Required
4

Check-in Day Mon Tue Wed Thu Fri Sat Sun Total

Mon 30

Tue 30 30

Wed 30 30 30

Thu

Fri

Sat

Sun

30 30 30 30 30 30 30

30

30

30 60

30 90 90 90 90 60

30 60

Use 90 beds, 3.5 average stay Total number of patents per week = 180 137 current throughput/148 theoretical = x / 180 theoretical New throughput = 180 x (137/148)= 167 patients / week Additional patients per year=(167-137) x 50= 1450 additional revenue for the clinic = 1450 x (450+0.20 x 75) = $674,250 Less cost 124,250 Net increase in profit: 550,000 for no additional investment

This condition will affect the utilization of the bed capacity : 90 beds x 7 days/ week = 630 beds available in a week 30 patients x 3 days x 6 days per week = 540 beds utilized (increased 20% than before) 5

540 beds utilized / 630 available beds = 85.71% This capacity is not sufficient enough for the additional patients. The reasons are : Require to schedule 23-25 operations on Saturday Six surgeons and a supervising surgeon have to work on Saturdays Need other additional personnel, means more costs Operating close the theoretical capacity of the facility

Answer for Question 3. After looking at the effect of increasing number of beds by 50%, so the number of operations could be handled by the hospital per day before running out of bed capacity (assumption : operations are performed 5days per week, with the same number performed on each day) : Total Number of Rooms: 90 + 45= 135 Total number of patents per week = 193 137 current throughput/148 theoretical = x / 193 theoretical New throughput = 193 x (137/148)= 179 patients / week Additional patients per year=(179-137) x 50=2100 additional revenue for the clinic = 2100 x (450+0.20 x 75) = $976,500 Less cost 176,500 Return on investment = 800,000/2,000,000 = 40%

The hospital could not really perform that many operations. Several considerations for this alternative : Require to schedule doctors to the full capacity of five days per week Increase work load on admissions, kitchen, laundry, housekeeping and accounting 6

 Further staggering of meal hours for patients (100 seat dinning room) Disruption during construction

Answer for Question 4. Due to all uncertainties in government health care legislation, Shouldice would like to justify any expansion within a 5 year time period. The calculation is written as below : If we add the 45 additional beds @ $100.000 $4.500.000 1 Year = 7000 operations performed @ $700 $4.900.000 (note : $700 revenues are resulted from the average hernia surgery cost per operation minus with the surgeon cost = $1300 - $600 without considering other operational costs) So, after we estimate, we find that in a year, the Shouldice Hospital earns profit $400.000. In other words, the hospital is able to reach BEP within a year.

REFERENCES
Chase, Jacobs, Aquilano. (2009). Operations and Supply Management, 12th edition, Chapter 5. New York : McGraw-Hill. 7

www.writework.com. (2004). Case study : Shouldice Hospital Limited. Downloaded on 9th of August 2011, Retrieved at 5 PM, from http://www.writework.com/essay/case-study-shouldice-hospitallimited