Case 2

MC 550 Case Study 2, S. Weidner

Shouldice Hospital A Cut Above Case Study 2

Prepared By Steven Weidner

Gregory W. Judge MC 550 Operational Management City University Renton, WA October 15, 1996

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Problem Definition

The problem is that Shouldice is facing a paradox of change. 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

There is limited operating facts presented in the case so assumptions have made based on the information that was presented.

It is assumed that they are operating at the “best operating level” because the way the case describes how efficiently the hospital is ran and how the patients appear to be pleased with there treatment.

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. They also have 15% (14 hostel rooms) additional capacity for peak times. This also works out to be about 70% capacity of there full time potential of 7 days. 70% of maximum capacity is, according to

MC 550 Case Study 2, S. Weidner Haywood-Farmer and Nollet the “best operating point”. To increase it rate of service utilization will decrease the service quality.

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”.

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. Also, if the procedures have been around sense the 1940’s they probably not any secret.

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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.

MC 550 Case Study 2, S. Weidner 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. It would increase rate of service utilization beyond 70%. This could be offset by hiring addition staff but one should consider the 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.

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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

I 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.