Operational Analysis for Improving Performance of Wheatley Park Hotel - Essay Example

Table of Contents Table of Contents 1.Executive Summary 2 2.Operations Audit and Analysis 3 2 Capa 3 2.2. Reliability 4 2.3. Staffing 5 2.4. Health and Safety 5 2.5. Facilities 6 3.Recommendations 7 3.1. Capacity Strategy 7 3.2. Process Improvement Strategy 8 3.2.1.Laundry Services 8 3.2.2.Energy Consumption 9 3.2.3.Kitchen Facility 10 3.3. Human Resource Management 10 3.4. Facilities Expansion 11 3.4.1.Indoor Swimming Pool Project 11 3.4.2.New Letting Rooms Project 12 3.5. Yield Management Strategy 12 4.Bibliography 13 Appendix 1 – Cost of New Laundry Equipment 15 Appendix 2 – Energy Consumption 17 Appendix 3 – Profitability with a Swimming Pool 18 1. Executive Summary Wheatley Park Hotel is a country hotel located on the outskirts of Oxford. Its capacity is 100 bedrooms. During the early stage of the business, the hotel enjoyed a good reputation and made significant profits. However, when Grand Cosmopolitan acquired the hotel from its previous owners, the hotel’s reputation has been in decline. Several issues have been identified in the case. These problems and issues require operational decisions in order to be resolved. Identified concerns include capacity, equipment reliability, staffing, quality and facilities. The operational concerns of the hotel have hindered the performance of the business as well as the efficiency of the operations. The paper determines the different factors surrounding the issues through an operations audit and analysis approach. The impact of these factors greatly affects the operations of the hotel as well as the bottom line of the business – profit. In order to improve the performance of Wheatley Park Hotel, several recommendations are given in the paper. The recommendations are structured in a business strategy approach with emphasis on the service operations side. The recommended strategies cover capacity planning, process improvements, human resource management, facilities expansion and yield management. The focus of the recommendations is to reduce cost, increase efficiency, and acquire greater occupancy in the hotel. The aim of this paper is to explore the different operations strategy that would address the issues and problems of Wheatley Park Hotel and improve its performance in the hotel industry. 2. Operations Audit and Analysis 2.1. Capacity Capacity in operations management is defined as the maximum amount of a product that can be made in a given time (Waters, 2002). In a service operation of a hotel, capacity can be defined as the maximum number of rooms that are available for occupancy (Johnston, 2005). This design capacity is the maximum output of the hotel. However, Waters (2002) claims that the design capacity of an operation is seldom achieved and what is achieved is the effective capacity of the operations which is defined as the maximum realistic output under normal conditions. Wheatley Park Hotel has a room capacity of 100 units. However, the occupancy rate of the hotel is at 60% on annual average. The demand reaches 100% occupancy during December and at the lowest at 40% on February, with other peaks and lows in between. Figure 1 below illustrates the demand and level capacity of the hotel in a year. Figure 1 Wheatley Park Hotel Annual Demand The current effective capacity strategy of the hotel is operating at the 60% occupancy where excellent service was expected from the staff. A level capacity strategy does not vary the amount of resources supplied (Rowbotham, Galloway, & Azhashemi, 2007). At Wheatley Park Hotel, the staffs are kept at a constant level regardless of the demand pattern. This strategy has created subsequent problems with the hotel such as staff wages, overtime pays, congestion and overall high operations costs. 2.2. Reliability Reliability can be defined as the probability that an equipment continuous to work throughout an entire period at an efficient utilisation (Hill, 2005). It is a tactical function of operations management to find ways of improving equipment reliability as well as to find the best time to replace unreliable equipments. Equipments that function well are contributors to the success of an operation, while equipments that are not reliable become liabilities to the business and the operations (Waters, 2002). A problem at Wheatley Park Hotel is its laundry equipment. The machine is old and suffered frequent break-downs. As a result, the cost of laundry operation is high and rising. Cost for breakdown maintenance call-out of £800 is added to the weekly running cost of laundry operation at £1000. Consequently, it affects other operations in the hotel such as the changing of bed linens and towels. Another problem at Wheatley Park Hotel is its energy consumption of electricity and gas. The costs for light and heat are higher as compared to similar hotels. The insulation of the facilities needs improvement. The energy management system of the hotel is outdated. Energy is a major cost driver for a business that operates large facilities and resources. Efficiency in utilising energy is an area in operations where most cost savings are acquired through effective management (Halevi, 2006). 2.3. Staffing Staffing is the task of allocating people to processes in order to get the work done (Rowbotham, Galloway, & Azhashemi, 2007). It is the practice of scheduling the human resource on the demand capacity of the operation (Waters, 2002). Relevant information is needed in order to accomplish an effective staffing schedule. The relevant information may include existing and projected workload, efficiencies of the people and processes, known holidays, what tasks to be completed by people, how much time it takes to complete, and expected work leave (Hill, 2005). In the case of Wheatley Park Hotel, a serious problem with staff scheduling is happening. First, congestion takes place when clients check out in the morning after breakfast. Second, staff wages are high. Housekeeping staffs work overtime. It is the practice of the housekeeping staffs to wait until the end of their shift before cleaning the missed rooms during their shift. Also, management has difficulties of getting people to work on weekends, thus willing staffs work on overtime. Lastly, the level capacity operational strategy at 60% occupancy creates overstaffing during low months and experiences understaffing during peak seasons. 2.4. Health and Safety The goal of hotel food and beverage operation is to meet hotel guests’ desires, with attention paid to price, value, quality, service and atmosphere (Bosselman, 2007). As part of value, quality and service, it is the duty of the kitchen management and staff to create a healthy, clean and safe kitchen environment. As an assurance to the guests and diners, the facility must be certified by public health inspectors (Birchfield, 2008). Loss of certification would generate loss of credibility on the facility and negative reputation on the business as a whole. Wheatley Park Hotel experienced a devastating deficiency in their kitchen facility when it was closed for six days by the Public Health Inspectorate. It was a planned inspection yet there were unsatisfactory findings during the audit. Six days were allocated for thoroughly cleaning the facility and replacing the suspected equipments. As a consequence, the Head Chef was replaced and additional costs as well as opportunity losses were incurred in the business. 2.5. Facilities The attractiveness and competitiveness of a certain hotel in the hospitality industry can rest on their available facilities and amenities. As a service-oriented industry, the facilities contribute in satisfying a customer’s needs and requirements (Hill, 2005). Waters (2002) defines facility as the physical infrastructure of an operation that helps sustain the business. It is a growing trend in the hotel industry to provide health and leisure facilities. Hotels that offer these facilities experience an increase in guest occupancy as well as non-guest visits (Anderson, 2007). Week-end vacation guests as well as extended-stay clients are attracted to easily accessible amenities in the hotel. However, Wheatley Park Hotel has no leisure facilities not even an indoor heated swimming pool. The absence of such facilities can affect the occupancy rate as well as the appeal of the hotel to customers. In order for a business to grow in an industry, it must learn to exploit the trends of the market and respond to the needs of its customers (Porter, 1985). 3. Recommendations 3.1. Capacity Strategy Level capacity approach is effective only when the demand is fairly stable and not seasonal (Rowbotham, Galloway, & Azhashemi, 2007). However, this approach does not bring value for money in Wheatley Park Hotel. In fact, it has caused high labour costs for the hotel. Maintaining a stable workforce for a 60% occupancy over time creates imbalance during peak and low seasons. It is recommended that the hotel utilise a chase demand capacity planning approach. Chase demand involves changing the amount of staffs available in order to match the demand pattern as closely as possible (Rowbotham, Galloway, & Azhashemi, 2007). This means that at times of peak demand most staffs will be available, while at quiet times the resources will reduced. Staff resource is flexible enough reflect the fluctuation in demand. The effective method of creating a chase demand capacity plan is through time-series forecasting. Time series is defined as chronologically ordered data that may contain one or more components of demand such as trend and seasonality (Chase, Jacobs, & Aquilano, 2005). Figure 2 Forecast vs Actual Demand Plot 3.2. Process Improvement Strategy Processes are groups of interrelated activities that together create value for the organisation and excellence in processes would distinguish successful organisations from the rest (Hindle, 2003). The feature of process improvement focuses on delivering outcomes while maximising value and eliminating waste. A company who aims for operational excellence must develop the design of business processes to achieve improvements in cost, quality and service (Hammer & Champy, 2001). 3.2.1. Laundry Services Laundry service is one of the two major areas for Wheatley Park Hotel to improve its performance and reduce costs. Figure 3 shows the break-even analysis plot of replacing the old laundry equipments. The first three months of installation work would incur high costs due to capital expenditures on new equipments and sub-contract laundry services. However, the running cost of laundry operation is reduced upon commissioning of the new equipment. The break-even point is achieved on the sixteenth month of operation. Months thereafter, the laundry operation acquires cost savings from the new equipments because the cost has become smaller than continuing with the old equipment. (See Appendix 1) Figure 3. Break-even analysis of replacing old laundry equipment 3.2.2. Energy Consumption The current energy consumption of the hotel is inefficient and costly. The current annual energy cost of the hotel is at £25,000. According to a survey by the Electricity Council, 12 percent of the energy cost can be saved by improving the insulation and an additional 28 percent can be saved by installing a computerized energy management system. By improving the insulation and installing a computerised energy management system, the hotel can gain annual cost savings of £10,000 or 40 percent of the current annual energy cost. Figure 4 illustrates the costs and benefits of improving the energy utilisation. The return on invested capital on insulation and new equipment is 10 years (See Appendix 2). This means that it is advantageous for the hotel to improve its energy utilisation because of the savings it would gain and capital investment will be recovered. Cost Benefit Insulation cost 30000 Equipment cost 70000 Total costs 100000 Annual cost savings 10000 Return on Investment 10 yrs Figure 4. Cost-Benefit Analysis 3.2.3. Kitchen Facility Quality improvement strategies can be applied in the kitchen facility. The best method of controlling the cleanliness, safety and health of the kitchen is by implementing a checklist of areas and activities that needs frequent inspection. This activity can be audited internally by management for compliance and in conformity to the standards of the Public Health Inspectorate. A first class executive chef is essential to allow the hotel to compete effectively for food and beverage business in today’s market. The chef is an integral part of the competitive advantage of the hotel. He must be more than a technician by being a full-fledged department leader who is responsible for the management of the whole food and beverage department. He must have developed a significant range of managerial skills to complement the technical and artistic training as expected from an executive chef. (Bosselman, 2007) 3.3. Human Resource Management The efficient method of addressing the staffing issues for the hotel is to implement staff a human resource management strategy that is aligned with the chase demand capacity plan. The strategic staffing would put together a combination of human resources that are strategically keyed to the needs of the business (Messmer, 2007). Figure 5 reflects the current and targeted workplace relation in Wheatley Park Hotel. The current work place relation in the hotel borders between soft HRM and arbitrary management due to lack of control, discipline and independence on the staffs. Figure 5. Dimensions of work place relations HRM strategy must shift towards responsibility and empowerment in order to address conflicts on work schedules. The management then strive to increase performance management through a clear concern to measure and control costs so that employee discretion is defined within clear limits (Edwards, 2005). Measuring the performance of the staffs will eventually lead to better management, higher productivity and lower labour costs (Kaplan & Norton, 1996). Once the hotel has implemented performance management through its empowered staffs, the management can then effectively execute a staff rotation scheme that is dependent on the chase demand capacity plan. Furthermore, with responsible and empowered reception staff, the congestion would lessen during peak hours. 3.4. Facilities Expansion 3.4.1. Indoor Swimming Pool Project It is recommended that the hotel build its indoor heated swimming pool in order to respond to the needs of the guests. In so doing, it will increase the occupancy of the hotel to 20% as well as demand an increase in price of £10 per person per night, at par with competition. Bottom line, a leisure facility would increase the profit of the hotel. To illustrate, assuming that every room contributes £100, the annual revenue for the hotel would be £2,190,000 at its current occupancy rate of 60%. With an indoor swimming pool, the occupancy rate would increase to 72% and each room would contribute £110. The projected annual revenue would be £2,890,800. The increase in revenue is £700,800 or 32% from the current annual revenue. The big improvement in revenue is a great contributing factor for recommending the installation of an indoor swimming pool. (See Appendix 3) 3.4.2. New Letting Rooms Project The conversion of old stable block into letting rooms is a good project for the hotel. However, a feasibility study should be undertaken before recommending the conversion. At the current performance of the hotel at 60% occupancy rate, the conversion would have no benefits. However, once the hotel achieves an increased occupancy rate and improved operations, the project can be a good source of revenues during peak months. 3.5. Yield Management Strategy The current trend of hotels is to employ yield management strategy in their reservations. Yield management is the management the amount of revenue that a unit of capacity generates to the business (Rowbotham, Galloway, & Azhashemi, 2007). In the hotel setting, the unit capacity is one room. Currently, the hotel has a yield contribution of £100. By implementing yield management strategy, the hotel can increase the contribution of the room as well as increase its occupancy The steps involves determining the best customer who are willing to pay more, buy more, and remain more loyal. It also involves analysing both revenue-producing outlets and the people who spend money. The management system uses length-of-stay controls to shift demand from sold-out periods to slack periods. A good practice is to give discounts on early reservations and group reservations. Yield management make controlling demand easier. (Quain & LeBruto, 2007) 4. Bibliography Anderson, P. (2007). Spas and the Lodging Industry. In D. Rutherford, & M. OFallon (Eds.), Hotel Management and Operations (pp. 50-67). New Jersey: John Wiley & Sons, Inc. Birchfield, J. (2008). Design and Layout of Foodservice Facilities. New Jersey: John Wiley and Sons, Inc. Bosselman, R. (2007). Managing food and beverage operations in lodging organizations. In D. Rutherford, & M. OFallon (Eds.), Hotel Management and Operations (pp. 239-250). New Jersey: John Wiley & Sons, Inc. Chase, R., Jacobs, F., & Aquilano, N. (2005). Operations Management for Competitive Advantage (11th ed.). New York: McGraw-Hill Companies. Edwards, P. (2005). Discipline and Attendance: A Murky Aspect of People Management. In S. Bach (Ed.), Managing Human Resource (pp. 375-397). Oxford: Blackwell Publishing. Halevi, G. (2006). Industrial Competitiveness: Cost Reduction. Dordrecht: Springer. Hammer, M., & Champy, J. (2001). Reengineering The Corporation: A Manifesto for Business Revolution. London: Nicholas Brealey Publishing. Hill, T. (2005). Operations Management (2nd ed.). Palgrave Macmillan. Hindle, T. (2003). Guide to Management Ideas. London: Profile Books Ltd. Johnston, R. e. (2005). Service Operations Management. New Jersey: Prentice Hall. Kaplan, R. S., & Norton, D. P. (1996). The Balanced Scorecard: Translating Strategy into Action. Boston: Harvard Business School Press. Messmer, M. (2007). Human Resources Kit. New Jersey: Wiley Publishing Inc. Porter, M. (1985). Competitive Advantage. New York: The Free Press. Quain, W., & LeBruto, S. (2007). Yield Management: Choosing the Most Profitable Reservations. In D. Rutherford, & M. OFallon (Eds.), Hotel Management and Operations (pp. 131-143). New Jersey: John Wiley & Sons, Inc. Rowbotham, F., Galloway, L., & Azhashemi, M. (2007). Operations Management in Context (2nd ed.). Oxford: Elsevier Ltd. Waters, D. (2002). Operations Management: Producing Goods and Services. New Jersey: Prentice Hall. Appendix 1 – Cost of New Laundry Equipment Monthly Cost of Old Laundry Equipment Monthly Cost of New Laundry Equipment Running cost @ £1800/wk £7200 Running cost @ £1300/wk £5200 Room set @ £3/day, 60% capacity £5040 Room set @ £1.50/day, 60% capacity £2520 Total Monthly Cost £12240 Total Monthly Cost £7720 Monthly Cost of Subcontract (3months) Subcontracting @£5/day, 60%capacity £8400 Monthly Cumulative Costs (Comparative) Month Old Equipment New Equipment Remarks 1 12240 78400 CapEx+subcontract 2 24480 86800 Subcontract 3 36720 95200 Subcontract 4 48960 102920 new eqpt 5 61200 110640 new eqpt 6 73440 118360 new eqpt 7 85680 126080 new eqpt 8 97920 133800 new eqpt 9 110160 141520 new eqpt 10 122400 149240 new eqpt 11 134640 156960 new eqpt 12 146880 164680 new eqpt 13 159120 172400 new eqpt 14 171360 180120 new eqpt 15 183600 187840 new eqpt 16 195840 195560 Break even 17 208080 203280 Cost savings 18 220320 211000 Cost savings 19 232560 218720 Cost savings 20 244800 226440 Cost savings 21 257040 234160 Cost savings 22 269280 241880 Cost savings 23 281520 249600 Cost savings 24 293760 257320 Cost savings Appendix 2 – Energy Consumption Costs Benefits Capital Expenditure Annual cost savings £10000 Insulation cost £30000 Equipment cost £70000 Total Expenditure £100000 After 10 yrs Total CapEx £100000 Total cost savings £100000 Cumulative Costs of Energy Consumption Year No Improvement With Improvement 1 25000 115000 initial CapEx 2 50000 130000 3 75000 145000 4 100000 160000 5 125000 175000 6 150000 190000 7 175000 205000 8 200000 220000 9 225000 235000 10 250000 250000 Break-even 11 275000 265000 £10K savings 12 300000 280000 £10K savings Appendix 3 – Profitability with a Swimming Pool Profits with Swimming Pool Current Performance (100 Bedrooms) No. of Rooms @ 60% occupancy Annual Revenue (assume @ £100 per room) 60 £2190000 Performance with Swimming Pool No. of Rooms @ 20% increase occupancy Annual Revenue (assume @ £110 per room) 72 £2890800 Profitability with Swimming Pool Increase in Annual Revenue £700800 32% increase Read More