SHOULDICE HOSPITAL

Global Operations: Case Analysis

HANOVER TEAM 11
NATHAN BROWN, ROXELYN VASCONCELOS, THOMAS EGER, CHING MAN YEUNG, & HAN HSIANG KUO.
Table of Contents
Introduction: The Value of Operations.........................................................3
Shouldice Hospital’s current operational value................................................3
Current Capacity of Shouldice Hospital.......................................................4
Suggested Methods to Increase Capacity....................................................11
Recommendation to Increase Capacity......................................................14
Conclusion: The Value of Operations........................................................14
Tables & Exhibits.............................................................................. 15

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Introduction: The Value of Operations

Operations management serves as one of the most fundamental components to any

business because it identifies, reconstructs and manages all resources of a business. Therefore, it
addresses the most efficient combination of all the resources (facilities, equipment etc.…)
needed as well as the use of employees and their role in producing the product or service. When
the two aspects above merge effectively, businesses are able to design an internal system that
leads to reduced cost, increased productivity among workers, and see an overall increase in
revenues. An additional benefit of effective operations management is the ability to streamline
methods and processes carried out throughout the company. With clear defined operation
practices, companies are able to expand into new locations, hire new staff and service new
customers with less risk of default. It is confident to say that all businesses that are thriving and
producing desired returns, are doing so because of their ability to master their company’s
operations.

Shouldice Hospital’s current operational value

How successful do you consider the Shouldice Hospital to be? How do the company’s operations
contribute to its competitiveness and success?

The Shouldice hospital has several factors leading to its success. First it found a narrow
market segment focusing on patients who have hernia. Hernia operations were among the most
common performed on male patients. In 2000 an estimated 1,000,000 such operations were
performed in the United States alone. Secondly, the service concept of the hospital is unique and
lets patients feel very comfortable. From the employee side, the hospital will cross-train every
staff-member for all positions. As the staff will get a lot of diverse experience, the Shouldice
hospital’s employee turnover is comparably low. Third, the price is competitive. Patients were
attracted to the hospital, by its reasonable rate. For a typical operation including a stay of four
days at $320 per day, a $650 surgical fee and an additional fee of $300 that was assessed if
general anesthesia was required. These charges are compared to an average of $5,240 for
operation performed elsewhere. The hospital not only offers lower prices, but also provides
annual checkups to previous patients for free. These factors prove that Shouldice hospital is very
successful.

Factors Detail
Brand image High quality, good treatment
Service High quality
Market Narrow(potential patients who have hernia) /large(size)
Price/Environmen Competitiveness / good environment
t
Employee Low turnover
Current Capacity of Shouldice Hospital

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In order to have a better understanding of the current situation of the Shouldice Hospital in terms
of the management of their operations, we performed a capacity analysis for the most important
resources and tasks. In this analysis we will not considerate neither scrub nurses nor anesthetists
as these resources are not key to run the Hospital.

To summarize the resources needed per process as well as the length of each one of them, we
developed the following chart:

Process Resources Used Length

Arrival - 10 mins
Waiting Room - 10 mins
Examination 6 rooms, 6 doctors 20 mins
Check in Room 89 beds 2h 30 mins
Orientation - 4h 30 mins
Recreation - 1h
Sleep
Wake-Up - 1h 15 min
Pre-Op Room 1 circulating nurse 45 min
Operation Room 5 rooms, 1 45 min + 15 min
Post-Op Room surgeon, 1 1idle
hr
Exercise - 12 hr
Dinning 1 hr
4rd day morning
Discharge

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 Equations Guide

use of resource time

Resource Utilization =
total available resourcetime

availabletime per period

Design Capacity =
cycle time for bottleneck stage

Little’s Law = L=λ∗W

Direct Labor Content

Direct Labor Utilization =
Total Available Labor Time

¿ of resources∗available time per resource

Capacity (at a particular task) =
cycle time for that stage

A. Examination Room

There are 6 examination rooms available, knowing that the duration time for examinations is
from 1:00 p.m. to 3:00 p.m. (2 hours of examinations). We assumed the last patient could arrive
at 3:00 p.m., therefore the last examination will be completed by 3:20 p.m. since each
examination session lasted for 20 minutes.

Length of the 60 minutes * 2 hours = 120 minutes

examination period 120 minutes + 20 minutes= 140 minutes of examinations

Examination room time used for examinationroom

= 120/140 = 86%
utilization Total Available timeis 140 mins

Design capacity for 140 available minutes

∗6 examination rooms=42 examinations per day
examinations 20 minutes per examination

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 B. Morning Operation Room

As the total number of resources available varies per shift (morning and night) due to the fact
that the activities performed are different in each shift: i.e. in the mornings the hospital only
performs operations while in the afternoon they perform examinations and surgeries. To address
this situation, we assumed that the total number of resources will be arranged to meet the
different needs of the hospital.

According to the case, the total number of operations performed per day varies from 30 to 36,
with 5 operations rooms available from 7:30 a.m. to 12:30 p.m. (5 hours for operations).
Moreover, doctors are able to perform 5 operations with 45 minutes per operation and 15
minutes idle time between operations.

Length of the 45 minutes + 15 minutes idle time = 60 minutes

operations

Total time available for 60 minutes * 5 hours = 300 minutes

operations

Operation room 60 minutes * 5 operations =300 minutes

utilization
300 minutes
=100
300 minutes

Design capacity for 300 minutes

=5 operations per cycle
operation room 60 minutes

5 hours * 5 operations per cycle = 25 morning operations

Afternoon operations

The duration time for afternoon operation is from 1:00 p.m. to 4:00 p.m. (3 hours of operations).
However, we assumed that only 3 doctors will be available for afternoon operations since at least
6 surgeons are needed for the 6 examination room and 1 of them could be on holiday. Adding on,
in this case we do not know how many operations are needed to be completed, therefore we
assume that the full 3 hours will be used for operations.

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 Total operation time 45 minutes + 15 minutes idle time = 60 minutes

Total minutes of the 60 minutes * 3 hours = 180 minutes

operation period

Operation room utilization 180 minutes

=100
180 minutes

Design capacity for 180 minutes

=3 operations per cycle
operation room 60 minutes

3 hours * 3 operations per cycle = 9 afternoon operations

C. Bed for Patients

There are 89 beds available in Shouldice. A patient will usually stay for a minimum of 4 days
and 3 nights, however 60% of the patients lived beyond Toronto, 10% lived outside the province
of Ontario and 30% lived near the Shouldice hospital. Therefore, we assumed that just 70% of
the patients need stay for 3 nights and the other 30% only stay from 1 night since they live close
to their homes.

25 morning operations + 9 afternoon operations = 34

Total operation per day operations per day
(given from previous calculation of operations per morning
and per afternoon)

Average nights of stay per 70% * 3 nights + 30% * 1night = 2.4 nights per patient
patients

Beds needed if patients stay 36 operations per day *2.4 = 86.4 beds are needed
average of 2.4 nights
Using Little’s Law

Utilization of beds 86.4 beds/89 beds = 97.1%

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 D. Surgeons

In this factor of Surgeons, we separated into two scenarios of 36 operations per day and 30
operations per day. Using the given facts, the 5 operations room, the doctor that is needed in each
operation room and the results of the previous calculations to make approaches.

Scenario 1 (36 operations)

Operations Per Day 36

=7.2 operations per day per operation room
5

25 operations in the morning given from previous

Surgeons needed for 36 calculations
operations
36 – 25 = 11 operations needed to be complete in the
afternoon
11
=2.75 operations per doctor∈the afternoon
4

4 doctors *3 hours * 1 operations per hour = 12 operations in

Utilization of surgeons the afternoon

25+12 = 37 possible operation

36 operations / 37 operations = 97.3%

Scenario 2 (30 operations)

Operations Per Day 30

=6 operations per day per operation room
5

25 operations given from previous calculations

30 – 25 = 5 operations needed to be complete in the afternoon

If 4 surgeons are on site

5 operations
=1.25 operations per doctor∈the afternoon
Surgeons needed for 30 4 doctors
operations
If 3 surgeons are on site
5 operations
=1.67 operations per doctor ∈the afternoon
3 doctors

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 1.25
Utilization for 4 doctors = =41.7
Utilization of surgeons 3
1.67
Utilization for 3 doctors = =55
3

Morning Capacity =
5 hours∗5 worker
=25 operations∈the morning
Capacity for surgeons 1 hour per operation

Afternoon Capacity =
4 hours∗3 worker
=12 operations∈the afternoon
1 hour per operation

E. Assistant surgeons

As mentioned before there are only 5 operation rooms available, while there are only 8 part-time
assistant surgeons. In each operation room, 1 assistant surgeon is needed. In this case we
assumed that per day, 5 assistant surgeons worked in the morning, and 3 assistant surgeons from
the morning shift will continued to work for the afternoon operations. While the 2 other assistant
surgeon that worked in the morning ends their shift for the day. At the same time, the 3 assistant
surgeons will not be schedule for the day.

5
Utilization for morning operations = =62.5
Utilization of assistant 8
surgeons 3
Utilization for the afternoon operations = = =37.5
8

Capacity for morning operations =

5 hours∗5 worker
=25 operations∈the morning
Capacity for assistant 1 hour per operation
surgeons
Capacity for afternoon operations =
4 hours∗3 worker
=12 operations∈the afternoon
1 hour per operation

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 F. Anesthetists and Nurses are not included

Considering that the two factors does not affect the bottleneck of the system, therefore there are
no calculation performed.

To have a general idea of the current situation of Shouldice Hospital we summarized the
calculations done before in a chart:

Task/Resource Capacity Utilization

Examination 42 examinations performed during 86% utilization of examination

the period room

Morning 25 operations performed in the 80% utilization for operations

Operations morning room in the morning

Afternoon 9 operations performed in the 100% utilization for operation

Operations afternoon room in the afternoon

Beds for Patients 86.4 beds for average stay of 2.4 97.1% of utilization of beds
nights

25 operations in the morning session 97.3% utilization of daily

Surgeons maximum operation capacity
11 operations in the afternoon
session

Assistant 25 operations in the morning session 62.5% utilization for operations

Surgeons room in the morning

12 operations in the afternoon 37.5% utilization for operation

session room in the afternoon

How well are the current processes balanced?

As we can see in the comparison table, Shouldice’s capacity and utilization are well
balanced. The performance of each factor is in a good standing with utilization above 80%. The
89 beds available in the hospital meets the capacity of the patients staying overnight. The amount
of operations and examinations that are performed is equivalent to the amount of surgeons
available. Which means that there are enough surgeons and assistant surgeons to perform the

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operations and still have time to spend time with their family which is one of the goals for
Shouldice Hospital. Adding on, none of the processes are overloaded, thus the hospital is
reaching its full capacity.

Do you see any areas where costs could be reduced or which are underutilized?

At the moment Shouldice hospital is almost at its full capacity and considering that each
process is well-balanced, there aren’t any considerations for cost reduction or any underutilized
areas.

Suggested Methods to Increase Capacity

Total Operations in 2004 7600 Ops

80% (6080) @ $1,930 per Operation =
Total Revenue in $11,734,400 Total =
2004 $15,124,000
20 % (1520) @ $2,230 per Operation=
$3,389,600

Total Cost in 2004 Hospital = $8,500,000 Total =

Clinic = $3,500,000 $12,000,000
Cost % of Revenue $3,500,000/$15,124,000 = .2314 23.14%

Option 1: Here, we could go to Saturday operations and increase our capacity by 20%.

If we take this route in expansion, with increasing our operations capacity by 20% would
transpire into an increase in operations from 34 per day (25-morning, 9-afternoon) operations per
day (170 operations per week), an additional 34 operations will be performed on Saturday. In
order for this increase to take place, there would need to be additional staff needed to operate the
hospital on Saturday. The additional 34 operations/people would still be able to use the current
bedding capacity for Friday, Saturday, Sunday, & Monday are not 100% utilized. Operating an
additional 34 operations on Saturday will produce the following revenues:

80% w/out Anesthesia = 27

Total # of Saturday Operations = 34 Ops
20% w/ Anesthesia = 7

Revenue Generated off of Saturday Operations

80% of Operations without Anesthesia $1,930 per Operation x 27 Patients =

$52,110

20% of Operations with Anesthesia $2,230 per Operation x 7 Patients =

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 $15,610

Total Revenue from Saturday operations = $15,610 + $52,110= $67,720/Saturday

53 Saturdays in 2005, $67,720*53 = Total Annual Profit of $3,589,160

$15,124,000 (2004 Revenue) + $3,589,160 = $18,713,160 in Total Revenue generated in 2005 w/

20% increase in capacity.

2004 Cost = 3,500,000 ; 2005 Cost = 4,330,225 ;  $830,225

ROI = $3,589,160/$830,225 = 4.3% Return

Option 2: With an investment of perhaps $4 million in new space, we could expand our
number of beds by 50%, and schedule the operating rooms more heavily.

With the established system design, we have identified the # of beds to be the bottleneck
component in Shouldice hospital.

Total Beds = 89 89 Beds + 50% increase (45 New Total Beds = 134
Beds)

An additional 45 new beds increase the capacity to 134 beds available at any given time.
Using Little’s law, we can plug in 134 beds divided by an average of 2.5 nights stay, to reach a
new client arrival rate of 54 new patients a day. A 20 person increase in arrivals, from the
previous arrival rate of 34 new patients daily. The additional 45 new beds will push the current
demand for daily operating capacity from 34 to 54, for a potential daily and annually revenue of:

Total Daily Operations = 54

43 Operations (80%) x $,1930= $82,990

Total Daily Revenue 11 Operations (20%) x $2,230 = $24,530

$82,990 + $24,530 = $39,800 gain from

$107,530 2004

14,040 Operations/annually with increase 50% bed capacity.

11,024 Operations (80%) x $,1930= $21,276,320

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 Total Annual Revenue w/ 50% in beds 2,756 Operations (20%) x $2,230 = $6,145,880

Total annual revenue produced with 50% increase in beds = $27,422,200

2005 Revenue ($27,422,200) – 2004 Revenues ($15,124,000) = $12,298,200 gain in Revenue w/

50% increase in beds.

Assuming that the 4million investment covers all cost associated with 50% increase in
bed capacity, we would see a ROI = $12,298,200 / $4,000,000 = 3.07% Return on 4million
investment.

It is important to note that this option since we had previous identified the bottleneck
component in Shouldice to be the number of beds, in addition to the increase in bed capacity by
50%, we would also need to include 1 new additional operating room. An additional operating
room is needed to meet the new capacity and demand generated off of the additional 45 beds as
the current max operations performed is 34 operations per day per operating room. The increase
of 20 new operations a day will be performed in the new operating room. We are assuming that
the $30,000 required to furnish a operating room will be accumulated into the $4.5 million dollar
investment.

Option 3: Do we want to invest more in Toronto? Or should we establish another hospital with
similar design, perhaps in the United States?

The option of investing into a complete new location rather it be in Toronto or close by in
the United States will be the costliest option out of all. Expanding and duplicating current
operations for any company requires significant resources and funding as it is unlikely a
company has or desires to use their available profits to fund their expansion. Additional cost
includes but are not limited to purchasing of or constructing a new facility, furnishing the new
facility, talent acquisition team, new staff and employees, advertising for new location, and any
taxes and fees associated with operating in a new location. Assuming that a total estimated
investment of $18,920,5161 will be required to build a new 17,000 square foot facility plus the
combination of uncalculated cost mentioned above of an estimate $2,500,000 gives us a total
needed investment of $21,420,516. If the new facility produces identical returns to Shouldice, an
annual profit of $15,124,000 minus operating cost of 79.34% of revenues (12,000,000) gives us a
gross profit of $3,124,000. Assuming that 50 % of profits ($1,562,000) will be used to refund the
initial investment, it will take 14 years ($21,420,516/$1,562,000perYear = 13.7) until we see
profits. 7 years until we see profit if we invest all of our gross profits into the repayment. The
only concern for this option will be the duplication of company culture and techniques in order to
provide the exact same experience that has built their current reputation.

1 Obtained from HBE, a contract service.

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Recommendation to Increase Capacity

Dr. Shouldice should consider opening another location in close proximity of Shouldice
Hospital. We believe that this would be the best solution for the hospital for the following
reasons. The current facility is operating at its full capacity. For a five-day work week, Shouldice
Hospital servicing 89 beds, has an operating capacity of 34 operations per day by five operating
rooms. With any increase in capacity in the above mention components of the hospital, would
require an additional increase to be made. Another indication that the current facility is operating
at capacity is the present backlog that it has of 2400 clients with an additional 100 every six
months. These numbers are haunting for any business as it represent an opportunity to increase
net profits. The consequences of not servicing the clients in the backlog in a timely manner is
lost revenue to competitors.

Another reason attributing to the recommendation of opening a new facility in close

proximity is due to the current attitudes that the staff and employees have towards both of the
other options suggested, working Saturdays and expanding. While expanding bed capacity
generates a 3.07% ROI, it would bring about a negative impact to the culture of the hospital, its
“personal feeling,” and employees. Taking into consideration the unique culture that the hospital
has developed, duplicating and controlling a new facility will allow for Shouldice Hospital to
save its unique culture, but yet still capitalize off it. Displeasing the staff and potentially having
some of them leave the Hospital would be costly and disruptive, seeing how their turnover rate is
low.

Producing an additional Hospital at same capacity would generate an additional annual

gross profit of $3,124,000 after repaying the loan back in 7 years. This would bring the grand
annual gross profit for Shouldice Hospitals to $6,248,000, and a gross margin of 20.65%. A solid
return for Dr. Shouldice.

Due to the high demand and inability to handle current demand, other options such as
new specialties were considered.

Conclusion: The Value of Operations

Having a good operations management strategy it is key to the success of any business.
This allows the company to have the proper amount of resources to achieve the maximum or the
targets established the company by also incurring in the lowest costs which means higher profits
in the long-term. Efficient operations management is also an important tool in order to achieve
competitive advantage within a market or industry as it allows to have better quality, lower prices
and more options available for customers. In case of Shouldice, operation management has
provided them with a credible reputation and a constant growth rate.

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Tables & Exhibits

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