Shouldice Hospital Case Study Essay
1588 WordsJun 7th, 20127 Pages
1.0 Description of Situation and Identification of Problems
1.1 Service The Shouldice Hospital competitive advantage is that it only conducts external hernia operations and is specifically designed and operated to provide the highest probabilities for successful treatment with “country club like” patient service. Hernia operations typically have a 90% success rate, with Shouldice hernia operations boasting over a 99% success rate. The Shouldice competitive advantage can be summarized into:
Surgical technique: layered/increased sutured repair technique conducted via local anesthesia
Postoperative regimen and facility design supporting early/ongoing ambulation and socialization
Comprehensive and “country club like” location…show more content…
2.0 Major Objectives It is not clear in the case how the administrator, Alan O’Dell is evaluated. The hospital wants to continue servicing customers needing hernia repairs, and possibly increase its capacity to meet the increasing demand. Shouldice has been considering expansion, but is unsure about how to accomplish this without affecting its excellent patient service. The hospital is concerned about competitor misuse and improper use of the Shouldice procedures which detrimentally affect the Shouldice name and reputation. And lastly, the lead Shouldice surgeon is retiring and needing to be replaced with a surgeon that will embrace the regimented Shouldice protocols but also be open to improvement opportunities and change. Shouldice Hospital does not appear to have issues with customer service, work force management or quality but is struggling with what objective to focus upon. Creating and agreeing upon a vision and mission would help determine the path forward for Shouldice Hospital. The issue of capacity appears to be the most concerning and difficult to answer for Dr Shouldice.
3.0 Identify alternative courses of action. Shouldice Hospital has several options available to them for increasing capacity:
• Spend $2M to expand current bed capacity by adding a third floor. This would enable continuing the current process procedures
For a copy of the case, click here.
- How well is the hospital currently utilizing its beds?
Using the Capacity utilization rate formula on the data given on the table, these are the following beds used per day and subsequently per week that we got:
Then, using the data’s given to compute for the per week computation, we got:
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%
The hospital is currently utilizing 71.43% of their beds, as stated in our last meeting this level of utilization is actually an ideal operating point. To increase its rate of utilization might decrease the service quality. This also gives flexibility to the operations for unforeseen events.
- Develop a table to show the effects of adding operations on Saturday. Assume that 30 operations would still be performed each day. How would this affect the utilization of the bed capacity? Is this capacity sufficient for the additional patients?
Adding operations on Saturday will give the following utilization rate:
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
540 beds utilized / 630 beds available = 85.71%
Adding operations on Saturday will improved the utilization rate of beds from 71.43% to 85.71%. It is still sufficient; however, we might risk the service quality and will decrease the flexibility of their operations against unforeseen events.
- If operations are performed only 5 days a week, 30 per day, what is the effect of increasing the number of beds by 50%? How many operations could the hospital perform per day before running out of bed capacity? How well would the new resources be utilized relative to the current operation? Recalling the capacity of 12 surgeons and five operating rooms, could the hospital really perform this many operations? Why?
If beds are increased by 50% but surgery is held at 30 per day, there will be an increase in bed capacity but the added capacity is wasted because it will not be effectively utilized. But, with the added beds, Shouldice Hospital can exploit the said increase in capacity by performing more surgeries. Surgeries could move from 30 per day to 45 per day. A 50% increase in bed capacity needs to be matched with 45 surgeries Monday, Tuesday, Wednesday, and Thursday to fully utilize facilities 4 days per week.
Also, we must take note that if 30 surgeries are performed each day in 5 rooms, then 6 are performed in each room. To perform 45 per day, the rooms will need to be occupied 9 hrs per day or more rooms will need to be added. Extending the hours may complicate the smooth recovery process used at Shouldice hospital. More operating rooms might be needed to complement the increase in bed.
- If adding bed capacity costs about $100,000 per bed, the average rate charged for the hernia surgery is $2,400, and surgeons are paid a flat $800 per operation, can Shouldice justify any expansion within a 5-year time period?
With the given 5 operating rooms, having a maximum of 40 operations a day, this is the new table of beds required in Shouldice Hospital:
Now, we compute the Revenues that will be generated if the expansion will push through:
$1600/operation (average rate/operation – surgeon’s fee; $2,400 – $800)
Expansion will bring total 200 operations/wk (40 operations per day for 5 days in a wk) = 10,400 operations/yr
$1600 * 10,400 operations/yr = $16,640,000/yr
Then, we compute for the Cost that was incurred by the beds:
$100,000 per bed * 30 beds = $3,000,000
Finally, we compute the value that Shouldice hospital will get but subtracting the cost to the revenues that will be earned in the 5-year period:
$ 83,200,000 ($16,640,000 * 5 yrs) – $3,000,000 = $80,200,000
The expansion decision is a very good investment. It gives a very high returns to Shoouldice hospital.