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1、DSE7100 Managing Service Operations Discussion ofDiscussion of ShouldiceShouldice Hospital Limited Case Hospital Limited CaseAssignment #2: Assignment #2: Questions for Questions for ShouldiceShouldice Hospital Limited Hospital Limited1.How Successful is the Shouldice Hospital? 2.How do you account
2、for the success of the hospital?3.What is the strategic service concept of Shoudice Hospital? How are the elements in the service systems designed and managed to support the strategic service concept?4.As Dr. Shouldice, what actions, if any, would you take to expand the hospitals capacity?5.How woul
3、d you implement changes you propose? How Successful is Shouldice Hospital?140,000 highly satisfied “Alumni”(past patients)1,200 backlog of scheduled operationsDemand appears to expand with supplySuperior quality Shouldice Method of Hernia operation imitated by competitorLow recurrence rate, 0.80% vs
4、 10%High degree of employee satisfactionCost Comparison: Shouldices vs. Other HospitalsShouldiceOthersCosts of typical operations$954 (p9)$2000-4000Transportation$200-600$0Time Lost from work in Hospital 4days5daysTime lost from work while recovering5days10daysValue of time lost (ranging from $50 to
5、 500 per day)$450-4500$750-7500Total before Allowancefor recurrence$1604-6054$2750-11500Probability of Recurrence0.80%10.00%Expected Cost of Recurrence$13-48$275-1150Total cost to patient, employee and insurer$1,617-6,102$3,025-12,650How About the Profitability of Shouldice Hospital?Hospital:Revenue
6、s (4 days X $111/day x 6,850 patients/year)3,041,400Cost2,800,000Profit: 241,400Clinic:Revenues ($450+ 60 + 75 X 0.20) X6,850) 3,596,250Cost2,000,000Profit1,596,250Total Profit1,837,650Return on equityTotal Depreciated Assets: $5 milReturn on Asset:1,837,650/5,000,000 = 37%What is the return on Asse
7、t if they expand the capacity by 50% at the cost of $2 mil?1,837,650 x 1.50 / 7,000,000 = 40%“The Dream World ”Shoudice is offering:high quality service at low priceShodice is having Highly satisfied customersHappy EmployeesShouldice is alsomaking high profitHow is all of this achieved?What are the
8、major reasons for the success?Maximizing the difference between perceived quality and value to the patient on one hand and the cost of supplying services on the other. What is the Unique Service Concept?What does Shouldice hospital offer to its customers?The hernia surgery (the Shouldice method)Peac
9、e of mind/low risk/Low RecurrenceIndependence/Dignity/ControlSocial experience, fraternityExcused absence from work without guiltA vocation Market Focusfocus on a narrow segment of potential patients who have hernia andthey are predominantly male, older in age, essentially in good healthlarge market
10、 potential: 600,000 operations in U.S. in 1979Internal FocusDoctors: Dedicated to quality of shoudice method, tolerance for boredom, family orientedNurses: people oriented, assist patients Staff: flexible, team orientedA Focus Strategy Operating ConceptShouldicce achieves outstanding results as a lo
11、w price and at a high profit because:Everything done by the hospital is designed to maximize the difference between perceived quality and the value of the service provided patients on one hand andthe cost of providing the service on the other.How did they do that?Patients are carefully screenedPatie
12、nts are active participants in the service delivery processThe avoidance of general anesthestics allows a wide range of involvement of patientsStaff is freed from much disagreeable workReducing the cost of nursing, housekeeping and laundryStructure hospital jobs that involves more counseling and pos
13、itive interaction with the patientsHow did they do that?The Clinic is a focused factory resulting in:Highly productive surgeon: 300 hernia/yr Vs. 30 by less focused surgeonSharing of expensive services such as anesthetistShort and relatively regular hours for surgeonhigh compensation ($50,000 + $40,
14、000)Opportunities for surgeons to observe and and advise one another Peer group pressure that leads to higher level of self-control of qualityA conscious effort is made to make Shouldice a “family”experienceThe elements in the service system to support the service Concept (managerial elements) Servi
15、ce encounterDoctors and nurses are carefully recruitedEmployees trained to help / counsel patientsCommunal dinning for doctors, nurses , staff and patientsQualityadherence to Shouldice methodopportunity for surgeon to observe & advise one anotherThe elements in the service system to support the serv
16、ice Concept (managerial elements)Managing capacity & demandAdmission by appointment: scheduled serviceScreening patients: easier to estimate the service timewalk-in patients or local residents on waiting list to make up cancelled reservationInformationMedical Information questionnaireFree annual che
17、ck-up - unique data base on the result of the surgeryAnnual reunion to keep alumni informed and gather customer feedbacks- loyal customer base - effective word-of-mouthThe elements in the service system to support the service Concept (structural elements)Delivery systemMaximum degree of customer par
18、ticipationEfficient and low costAvoid a typical hospital atmosphereFacility designAcres of gardens to encourage exercise & rapid recovery minimize hospital feeling (carpeting and odorless disinfectant etc)Stairways are designed for patients to use right after operationsNo TVs and Telephones in rooms
19、 to encourage walkingOperating rooms are located in semicircle to encourage doctors to help each other and use the same anesthetistThe elements in the service system to support the service Concept (structural elements)Locationlarge city near air port - access to worldwide marketlarge local populatio
20、n to fill up cancelled bookingsCapacity planningElective procedures - scheduled operationsBalancing Capacity and improving capacity utilizationNeeds to increase capacityThe Capacity DecisionWhere is the bottle neck?How should they increase the capacity?How should they implement that change?Shoudice
21、Hospital Limited: Analysis of CapacityCurrent Throughput6,850 Operations/50 weeks = 137 operations/week ( with a peak of 165/week)CapabilitiesExamination Rooms:(6 rooms x 3 hrs (1-4 PM) x 5 days x 60 min/hr) / (20 min / exam) = 270 patients /weekAdmitting Procedure:(2 people x 4 hrs (1-5 PM) x 5 day
22、s/week x 60 min/hr) / (10min/patient) = 240 patients/weekNursing Station:(2 stations x 4 hrs (1-5 PM) x 5 days/week x 60min/hr)/(10 min/patient)=240 patients /weekShoudice Hospital Limited: Analysis of CapacityCapabilities Operating Rooms:(5 rooms x 8.5 hrs/room/day x 1.1 hrs/patient x 5 days/week)/
23、 = 188 patients /weekSurgeons:11 surgeons x 3.5 operations /day x 5 days = 178 patients/weekHospital rooms: (see transparency)89 rooms = 134 patients per week (assuming use of weekends for convalescence and 3.5 days average stay)103 rooms = 148 patients (assuming use of weekend for convalescence, 3.
24、5 days average stay, and use of 14 “hostel” rooms for two nights each week)How to expand the capacity?Aim : increase capacity & maintain control of service qualityAlternatives:Add Saturday operationsAdd a new floor (45 more hospital beds)Establish a new facility for herniaExpand to other types of op
25、erationsOthers?Please Help Shoudice to make the DecisionsWhich alternative do you recommend?Why?How do you implement the solution that you are recommending?Add in a new floor (45 beds)Total Number of Rooms: 89 +45= 134Total number of patents per week = 193137 current throughput/148 theoretical= x /
26、193 theoreticalNew throughput = 193 x (137/148)= 179 patients / weekAdditional 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%Add in a new floor (45 beds)DisadvantagesRequire to
27、 schedule doctors to the full capacity of five days per weekIncrease work load on admissions, kitchen, laundry, housekeeping and accountingFurther staggering of meal hours for patients (100 seat dinning room)Disruption during constructionAdvantagesEasy to control and maintain qualityRetain the cultu
28、re and environmentSchedule Saturday as an Operating DayUse 89 + 14 rooms, 3.5 average stayTotal number of patents per week = 180137 current throughput/148 theoretical= x / 180 theoreticalNew throughput = 180 x (137/148)= 167 patients / weekAdditional patients per year=(167-137) x 50= 1450 additional
29、 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 investmentSchedule Saturday as an Operating DayDisadvantagesRequire to schedule 23-25 operations on SaturdaySix surgeons and a supervising surgeon have to work on Saturdays
30、Additional other personnel Violates the implied contract that Shouldice has with its surgeons, strong opposition by the senior doctorsOperating close the the theoretical capacity of the facilityAdvantagesNo investment is neededCan still maintain qualityA Second Facility for Treating HerniaAdvantages
31、New location close to the customers, say USAImprove its competitive position and increase its profitsOperate in a less restrictive environmentNew Opportunities for existing personnelTransfer of knowledge and expertise to the new facilitiesDisadvantagesRequires a significant investment and Dr. Shoudi
32、ces timeControl of qualityIt is difficult to create the same culture and atmospherePotential competition with the existing facilityDiscussion Questions1.Describe Shoudice Hospitals service package. 2.How are the distinctive characteristics of a service firm illustrated by Shoudice Hospital?Shoudice
33、Hospitals Service PackageSupporting FacilityAcres of gardens to encourage exercise & rapid recovery Carpeting and odorless disinfectant etc to minimize hospital feeling Stairways are designed for patients to use right after operationsNo TVs and Telephones in rooms to encourage walkingOperating rooms
34、 are located in semicircle to encourage doctors to help each other and use the same anesthetistLocated to a large city: Toronto, access to worldwide market, large local population to fill up cancelled bookings.Shoudice Hospitals Service PackageFacilitating Goods:Medical suppliesFood, medicine etc.Ex
35、plicit ServicesQuality hernia surgery using the Shouldice method, low recurrenceVery experienced doctorsShoudice Hospitals Service PackageImplicit ServicesPeace of mind/low riskIndependence/Dignity/ControlSocial experience, fraternityExcused absence from work without guiltA vocation Shoudice Hospitals Distinctive CharacteristicsCustomer Participation in the Service Customer Participation in the Service ProcessProcessSimultaneitySimultaneityIntangibilityIntangibilityPerishabilityPerishabilityHeterogeneityHeterogeneityENDThank You
