An organisation must know that how much capacity it has and whether this capacity is operating effectively or not. Krajewski and Rotzman (2002) mentioned that capacity planning is a central pillar to the long-term success of an organisation. Cost analysis is a proper way to determine the existing capacity of an organisation and a proper strategic plan can be implemented to determine that which areas require further expansions. In this case study the focus is on the capacity issues of the fitness plus.
Fitness plus is a health service provider and sports club located in Greensboro, North Carolina. The club has started its services in 1991 and initially the membership was small and use of facilities provided by club was normal. But in recent years the membership has grown and due to lack of long term strategy the club has faced capacity issues of overcrowding. So in order to avoid the loss of memberships to the competitors, fitness plus needs to work on this issue.
2-Fitness plus background
Fig.2 Fitness plus
Fitness plus has started its services in 1991 in a large suburban office park, it not only provide the health services but also work as a sports club. Three primary activities are being performed by the club; including fitness, recreation, and relaxation.
Only one type of membership is being offered and that's yearly membership. In its second year the membership started growing, as the population of the area increased the popularity for the fitness also increased due to more health awareness among people. This change caused an increase in demand and by 1995 -an average of 15 members per hour during a typical day was recorded. With the passage of time there was a tremendous increase in the members visiting the club. By 2000 average number increased to 25 in a typical day and during peak time it grew to 80 members per hour. That has resulted an overcrowding and because the club was not designed to keep back ups in such situations so customer started complaining due to unavailability of the equipments.
With the increased population and demand for health fitness other companies took the benefit and started working in the area as competitors of fitness plus. Three other clubs started providing health and fitness services in the area. Two of them are located 10-15 minutes from Fitness plus.
YMCA (offering full range of services at a low cost)
OASIS (deal with the young adult crowd and access of the children under 16 is restricted)
GOLD'S GYM (providing weight and cardiovascular training
Only)
But Fitness plus membership has also increased during this period.
3-MAJOR ISSUES
The increased membership has created some serious issues for Fitness plus and it's a challenge for the management to resolve the issues in order to save the position and reputation in the market.
Members are complaining the unavailability of equipments and overcrowding. But complaints are centered in the specific areas:
Nautilus
Cardiovascular
Aerobic fitness
Based on the data collected, the peak time is between 4.00 pm to 7.00 pm and during this period the number of the members visiting the club/ hour is almost 80 in2000; double the numbers 5years ago. The average number of members arriving / hour during the same period had increased from 15 to 25 members. Studies conducted indicated that individuals on the average spent almost 60 minutes / visit. Apart from it, high usage of health and fitness facilities was recorded during the peak period; it was not only making members to wait but also affecting the shelf life of the equipment, which could be the reason as to why complaints are only centred in these areas. Following are some reasons for the issues mentioned in this case:
Failure in capacity measurement
Poor management
Lack of proper strategy
Lack of proper trainers
No total quality management
No long term strategy
No proper forecast
No proper utilization of space
Inappropriate layout
To solve these issues Fitness plus has two option 1st option is the expansion of existing facilities by reducing the other capacity and 2nd
Option is building a new facility downtown. The first option would take four months to complete and second would take almost one year to complete and commence for the business. But due to financial constraints, Fitness plus can only under take one option at this present time. So the best choice for the time being would be to utilize the available space properly to get desired output. Utilization of space indicates the degree to which a resource as equipment, space or the workforce is currently being used and is measured as the ratio of the average output rate to the maximum capacity. So that means the average output rate and the capacity must be measured in the same terms.
4-CAPACITY OF FITNESS PLUS
The problem is centered in aerobics and workout activities regarding the space and capacity issues. Therefore, the focus in Fitness plus would be on space capacity for aerobics activities and equipment capacity for the workout activities during the peak hours. In capacity measurement, space and equipments are regarded as primary capacity as these are the building blocks of capacity. According to case data the duration of peak hour is 3hours that is between 4.00pm - 7.00pm. During these hours, the number of members reaches to almost 80 per hour. The detailed analysis of capacity in club is as follows:
Club perform three primary activities
Fitness
Recreation
Relaxation
4.1-FITNESS takes place in four different areas:
4.1.1-AEROBICS
The room accommodation is 35 members per each session and each session takes almost one hour. The usage during peak hours is 30% that is 24 members per hour.
4.1.2-CARDIOVASCULAR
It contains 29 equipments including nine stair steppers, six treadmills, six life cycle bikes, three air dyne bikes, two cross aerobics machines, two rowing machines and one climber. It is assumed that each member would spend about 45 minutes to complete the exercise, which suggests that almost 38 members will be able to use the equipments per hour (60minutes ÷ 45 minutes x 29 equipments). The usage during peak hour is 40%, which are 32 members per hour.
4.1.3-NAUTILUS
At present, 24 equipments are available and it is assumed that each member would take about 45 minutes to complete the whole course. This indicates that 31 members will be able to use the equipments per hour (60minutes ÷ 45 minutes x 24equipments). During peak hours the usage is 25%, which are 20 members per hour.
4.1.4-FREE WEIGHTS
Currently, one room is assigned for free weights workout. There are no details available on the type of equipments or the space of the room. Since there were no complaints from this area, so I would assume that it could accommodate 16 members during the peak hours.
4.2-RECREATION
According to statistics there are ample space available to accommodate its members during the peak hours. There are 8 racquetball courts, which can accommodate between 16 and 32 members based on 8 single and 8 double games respectively. During peak only 12 members play racquetball games. As for tennis game, there are 6 courts and using the same analogy, the courts can accommodate between 12 and 24 members for 6 singles and doubles games. However, only 8 members utilise the facility during peak hour. The above calculations are made based on each game lasting for an hour. Even if it exceeds one hour, e.g. one and a half hour, there are ample courts available to meet the demand. It also includes pool services.
4.3-RELAXATION
It includes the yoga classes, which are held twice in a week in the aerobic room, whirlpool tubs are fitted in each locker room, and a trained massage therapist is there for this purpose.
Capacity Measurement Summary
Activities
Usage pattern
No. Of members per hour
Available capacity per hour (members)
Capacity variance per hour (members)
Members' Complaint
Aerobics
30%
24
35
9
Yes
Cardiovascular
40%
32
38
6
Yes
Nautilus
25%
20
31
11
Yes
Free Weights
20%
16
16
Nil
No
Racquet Ball Courts
15%
12
16
4
No
Tennis Courts
10%
8
12
4
No
Table 4. Capacity of Fitness plus
5-MEASURES OF CAPACITY
As the capacity has been identified as the problem, the critical step is to measure the capacity. This is one of the major setbacks in capacity measurement, as one is able to conclusively measure the utilization capacity, particularly for the service organizations as it involves more than observations and surveys. Yu-Lee (2002) pointed out that all of the capacity measures that can be ultimately created are based on the primary measures i.e. physical space, condition of equipments, workforce, type of members, frequency use of equipments and the type of equipments and support system. Based on the results, Fitness plus has sufficient capacity to meet the demands during peak hours. However, according to member's complaints it indicates otherwise.
Here we need to look beyond the capacity measurement. Fitness plus needs to study the type of members using its facilities during peak hours i.e. working single adults, student below 16 years of age, family groups and so forth. This is necessary when formulating strategy to address each of these groups. Study should have been conducted on the conditions of the equipments. This will give the indication whether or not the unavailability of equipment is due to breakdowns. Apart from collecting data on the condition of the equipments, Fitness plus should also collect data on the frequency use of equipments among its members, especially for workout equipments relating to cardiovascular and nautilus. This information will indicate which are the equipments least used and based on the study, Fitness plus can replace the equipments with the popular ones. Shelf life of equipment can be maintained by equal use of all the equipments
In the case of aerobics, there is ample room available to accommodate its members during the peak period. As the room's capacity is 35 members per hour, which can easily meet the 24 members per hour during peak hour. The problem, in this case could be related to schedule as the room is also used for yoga classes twice a week. Based on the focus study detailed above, Fitness Plus would be able to identify the actual factors that are causing overcrowding and unavailability of equipments.
After measuring the capacity Fitness plus management needs to assess the current capacity cushion that whether it is appropriate or not. This systemic approach involves four basic steps:
1-Estimate future capacity requirement (forecasting the customers demand and then comparing it with the current capacity in order to determine that what its capacity should be for some future time period)
Processing and set up hours required for
A years demand summed overall services (gym) Capacity requirements = _________________________________________________
Hours available from a single capacity unit per year
Reference: OPERATION MANAGEMENT 9th edition by Ritzman, Krajewski
2-Identify the gaps by comparing requirements with available capacity. It is the comparison between the demand and current capacity.
3-Develop alternatives
4-Evaluate the alternatives
In Fitness plus complications arise when the multiple operations and several resources involved as it has happened in the case of the fitness plus expanding the capacity of some operations may increase over all capacity. Next to this point is the to develop alternative plans to cope with the projected gaps. In the case, there is a greater chance that large numbers will arrive at the same time. And then a queue develops due to imbalance between the available equipments and the members. This could be largely due to its flexi- layout process where members are free to choose their own fitness activities (chase Jacobs and Aquilano, 2004).
Waiting -line model would be appropriate model to analyze the queue developing problems. This can b applied on the operations aspect in order to prolong the shelf life of the equipments. E.g. 32 members visited workout room per hour and spent 45 minutes per machine. According to model, if each member spends 20 minute/machine and work out on at least 2 machines during each visit which also includes 5 minutes waiting time for next machine. Then service rate will be 3cutomers/ hour and thus the 32 members/hour get transformed into 80-members/ hour (Ritz man 2003). So Fitness plus should plan to manage the waiting customers by providing entertainment such as news coverage i.e. CNN, BBC, providing comfortable seats and waiting areas to calm the situation.
In case of aerobics class, waiting- line model can't be applied. It can be improved by expecting members to come at start and equal time should be given to each member in one-hour session
Fig 5-Layout showing the appropriate utilization of the space
6-Capacity strategy
Proper Strategy is the basic key for any business to succeed. It is a biggest challenge for any management to cope with the uneven demands and plan the strategy according to fluctuation of demands. Fitness plus is currently dealing with the capacity issues. So the management can either adjust the capacity according to demand variations or change the demand pattern match the available capacity or can use the both strategies in combination.
Fitness plus needs to plan the strategy before making any decision for the capacity issues. This planning involves the following areas to be addressed with:
Market Share:
Fitness plus needs to know firstly about their target in market share that how much of the total market is to aim for. They need to determine that what will be its effect on the competitors.
Timing:
Fitness plus needs to lead the demand by creating "capacity cushion" - planned underutilization, accommodating surges in demand and attracting new business to take market share from competitors. In order to meet the demand likelihood of falling short roughly equal to likelihood of having too much capacity. They could require OT, extra shifts, scrambling, etc. to make up difference. Or lag the demand with negative capacity cushion.
Increment:
Fitness plus must decide on the best level of capacity involves considerations for the efficiency of the operations. Keeping economies of scale in view which states that average unit cost of a service can be reduced by increasing its output rate. Exposure to risk must be documented to create a defensive strategy.
Type:
Matching the technology and services to the market and create flexibility in the plans to implement change when needed
6.1-SHORT TERM STRATEGY:
There are three ways to meet the demands: influencing, scheduling and delaying. Promoting off- peak demands and differential pricing does influencing, requiring advance reservations does scheduling, and delaying is practice of forcing customers to wait until capacity become available (Dechter 2004). Following are some other short-term tools,
• Overtime, floating labor, added shifts
• Sub-contracting
• Workforce supplements (e.g., temps)
Detailed short- term strategies are as follows:
6.1.1-Pricing strategy:
The first strategy is to reduce demand during peak time either by charging the higher price during peak time or offering the less costly service during off peak. Fitness plus can offer two types of memberships with price variance. To set prices, Fitness Plus should start determining the best price assuming that it will not result in capacity constraints. It is expected to shift the demand during peak to off -peak period and at same time increase revenue (Shugan 2004).
But price increase may encourage its members to try competitive service providers and, if they like competitive services, we may lose those customers. We may also permanently lose those customers. In fact, Fitness Plus needs to consider carefully the option of pricing strategy to avoid loosing customers. At present, there are three new competitors operating nearby to Fitness Plus's current location.
6.1.2-Non-pricing strategy:
In this case, these members have already revealed a propensity to like Fitness Plus's service because they have already used the services. It is now only necessary to interest them in additional off-peak services. While members are waiting for their turn, Fitness Plus can expose them to advertising concerning its off-peak services.
There are many other ways of using peak periods to reach potential off-peak members. It can target members during the peak with coupons for off-peak services. During the peak, Fitness Plus can offer discounted tickets for relaxation activities such as massage, drinks; health supplements products etc during the off-peak periods.
The other strategy would be restriction on members' access during peak-period. Fitness Plus needs to study on the type of members visit its facilities during peak periods. The information can be used to categorise the type of members and based on that decision can be made. The peak period is between 4.00 pm to 7.00 pm, during this period most of the members would be working executives. One way of reducing the access would be restricting members below 16 years of age using the facility during this period. In order to encourage them to use during off-peak period, Fitness Plus can offer student's membership rate.
Fitness Plus can increase the popular equipments and at the same reduce the unpopular equipments which in turn help to gap the members requirements. Fitness Plus should also maintain a proper maintenance records on all its equipments. Proper monitoring will ensure uninterrupted usage and maximise the availability of equipments. It also reduces repair cost.
In the area of Aerobics, the complaints could be due to schedule mix-up between aerobics and yoga classes. The issue can be resolved by rescheduling the classes based on the demand for these classes and ensuring the schedules do not clash with each other.
6.2-LONG-TERM STRATEGY:
Unlike short-term strategy, long-term strategy involves forecasting demand. Fitness plus should understand the market and make necessary decision to either expand its business by offering new facilities or expand the current location. But top priority is to forecast demand. There are various techniques to forecast demands, however forecast should be accurate.
Once demand is known, Fitness plus must adjust the capacity to meet demands and objectives. One thing to remember, an organisation will never be perfect at forecasting and adjusting to the forecasting, so long as it is not perfect, there is room to improve.
It also includes:
• Equipment additions
• Facility expansions
• Workforce policies (e.g., long -term hiring)
7-LINKING CAPACITY DECISION WITH OTHER OPERATING DECISIONS
Strategically decisions should always link to the SUPPLY CHAIN of organisation. Because whenever, management take decisions about designing, determining degree or resource flexibility, inventory and locating facilities, they must consider its impact on capacity cushions.
Fig-7 Supply chain link with strategy
Every decision taken by management would have a direct impact on the value chain.
Fig-7 Value chain linking with strategy
There is a direct correlation between these two. Because all the discussion above is related to capacity strategy and capacity problems, but in real sense the operating decisions are the real essence for the companies either on large scale or small scale. Another problem regarding Fitness plus services is lack of QUALITY. Here, I would like to suggest SIX SIGMA and THEORY OF CONSTRAINTS (TOC).
The SIX SIGMA strategy involves the use of statistical tools within a structured methodology for gaining knowledge needed to achieve better, faster, and less expensive products and services than the competition (Breyfogle III, 1999). A Six Sigma initiative in a company is designed to change its culture through breakthrough improvements by focusing on thinking out of-the-box in order to achieve aggressive stretch goals. When deployed appropriately, Six Sigma can infuse intellectual capital into a company and produce unprecedented knowledge gains that could translate into shared bottom line results (Kiemele, Schmidt and Berdine, 1997).
The strategy takes the key manufacturing, engineering, and transactional processes of entire process through the five transformational phases.
1. Define: Identify customer needs and a project suitable for Six-Sigma effort.
2. Measure: Determine how and what to measure the performance of the selected process.
3. Analyze: Understand and determine the variables that create quality variations.
4. Improve: Identify means to remove causes of defects and modify the process.
5. Control: Maintain the improvement.
Fig-7 Six sigma for continuous improvement
Eliyahu M. Goldratt developed theory of Constraints (TOC) during the 1980s. The core idea of TOC is that every organization has at least one constraint that prevents management from achieving the goal of the organization to a larger degree. Constraints can be physical resources or policies. TOC develops a set of procedures and methodologies to identify and optimize such constraints. For the purpose of continuous improvement, TOC uses a systematic approach, which consists of five focusing steps (Goldratt and Cox, 1992).
1. Identify the system's constraint(s).
2. Decide how to exploit the system's constraint(s).
3. Subordinate everything else to the above decision.
4. Elevate the system's constraint(s).
5. If a constraint has been broken, go back to Step 1. Do not allow inertia to cause a system's constraint
Conclusion:
Fitness plus has been serving the society for past 9years and with every year their membership has also increased, but due to lack of long term strategy, they are facing certain problems regarding capacity and equipments. I have concluded from the case and statistics that Fitness plus needs to address the immediate problems at hand first i.e. resolving member's complaints on overcrowding and unavailability of equipments. Adequate action plan is required to be taken to satisfy the customers in order to avoid losing members to its competitors.
Long term strategies are always less risky and organization can lead the demand, but it is always time consuming and at the moment Fitness plus do not have time due to short arrival of peak month. It can consider the strategies under short-term strategies to address some of its capacity problems. I would recommend the pricing or non-pricing and timing and sizing strategies. Apart from strategy implementation employees should also be briefed on the changes in procedure and processes so that they would be able to provide adequate explanation and services to the members when implementing the changes. Statistics shows that Fitness plus has enough resources, but due to poor strategy management, they could not utilize them properly. So there should also be a periodical review on its capacity to ensure effective use of resources. In case of capacity measures, I would recommend input method of capacity measurement.
Another issue, which I have observed, was lack of quality mentor that should be a six sigma. Fitness plus needs to assess the quality because they don't have a future planning for ahead and a sudden huge demand can cause further problems. I would suggest theory of constraints to determine the possible constraints within the firm. Strategy should have a proper correlation with value chain. I have also recommended waiting-line model to resolve the issue of waiting customers, by providing entertainment in seating area e.g. providing television facility and magazines etc. with comfortable seating environment.
As for the long-term plan, Fitness plus need to look at its overall corporate goal and based on the current strategic planning. The planning should be immediately started so that information can be gathered for the groundwork. If this short-term and alternative strategies result into a positive outcome, Fitness plus can make an announcement to its members on its expansion plans at the beginning of the year.
I would sum up my report with the hope that if such precautions and alternative routes would be adopted, Fitness plus would be able to resolve its problems within the safe period.
