Tag: Capacity

OM in the News: Bottlenecks in the Intensive Care Unit

The Wall Street Journal (March 28,2011) reports that reengineering  has a big  role to play in the restructuring of Intensive Care Units (ICUs) in hospitals around the country. Many hospitals battle chronic capacity shortages in their ICUs, which are designed to provide constant monitoring and intervention for patients with life-threatening conditions. These critical care beds typically cost $3,000/day, several times what a normal hospital bed costs.

With rising demand and limited resources, bottlenecks in ICUs are often the norm. And they cause backups throughout the hospital. Operating rooms may have to postpone surgeries, and ERs may have to reject trauma victims if there are no ICU beds available.

The article features the Bronx’s Montefiore Medical Center and how it  reengineered its  ICU system. With 300,000  visits annually, the hospital’s emergency room is the 2nd busiest in the US.  But Montefiore is able to get by with only 78 ICU beds (a relatively small number) and claims a 33% lower mortality rate than the average hospital.

The hospital’s makeover included these features:

(1) An update on each patient every 4 hours to see if the ICU patient is really benefitting from ICU care.

(2) Teams of critical-care specialists visit each potential ICU client to determine if they really need ICU level of care. They provide “portable” ICU team coverage anywhere in the hospital if a bed is not available.

(3) Only critical-care doctors tend to patients inside the ICU. This means family doctors are not present (which some families don’t like) but survival rates have increased from 64% to 92%.

(4)  A rapid response team ( a concept pioneered in Australia), is summoned by any hospital staff member who thinks a patient’s condition is deteriorating.

If there was ever an organization in need of OM tools and analysis, of course, it would be hospitals. Hopefully this article will generate good classroom discussion.

Discussion questions:

1. What can ERs do to improve their throughput?

2. Why don’t more hospitals reengineer their ICUs?

OM in the News: China’s Solar Overcapacity

In our last blog about China and its solar industry, we noted that vast economies of scale and government subsidies were sending solar panel prices down sharply. China was also grabbing market share not only in the US, but controlled the bulk of the European market. With global demand up, Chinese firms like Yingli Green Energy, Suntech, and LDK Solar were ramping up production capacity–doubling it and running factories 24/7, 365 days  a year in some cases. According to today’s Businessweek (Feb. 9, 2011), “all of the major Chinese producers are engaged in massive, very aggressive capacity-expansion programs.”

But their timing may be off. As the Chinese ramp up, austerity-minded European governments are scaling down their solar subsidies. Germany, France, Spain, the Czech Republic, and others, are reducing support for solar power producers dramatically as they face record-high deficits. This leaves China with capacity way ahead of what the market can take.

It’s not just subsidy cuts, though. The French Environmental Minister says most new solar panels “were made in China with a highly questionable carbon footprint”. She adds:  the policy must “create jobs in France, not subsidize Chinese industry”. Since Yingli made 60% of its income off of Germany last year, and Suntech’s European sales were 74% of total revenue in 2009, the Chinese are learning a painful lesson in capacity management. Their internal market is one alternative, but total Chinese demand is only one-twentieth of what Germany spends on solar in one year. This article ties in well with the discussion of capacity planning in Supp.7.

Discussion questions:

1. Do politics play a role in the solar industries in China? In the US? In Europe?

2. How can overcapacity be avoided?

OM in the News: Matching Supply (of seats) with Demand at Delta Air Lines

Have you ever been bumped from a flight that was over capacity? It’s a drama that plays out at departure gates every day in airports around the world. Typically, gate agents on overbooked flights embark on last-minute negotiations with passengers who might be willing to take a later plane. The agents broadcast their offers– vouchers worth $200-$400–and keep ratcheting up the price until enough passengers accept. Customers involuntarily bumped get an $800 voucher ( which the Transportation Dept. is proposing to raise to $1,300).

With 541,000 US passengers bumped in the 1st 9 months of 2010 (53,000 involuntarily), there must be a better way to manage capacity (Supp.7) and manage revenue (Ch.13). According to today’s Wall Street Journal (Jan.14,2011),  Delta Air Lines thinks it has the answer.

Delta’s high-tech new system (opened last month) asks passengers who check in online or at kiosks before going through security, what dollar amount they would accept to be bumped from their (overbooked) flight. Delta can then accept the lowest bids, eliminating a lot of uncertainty early. Not only does this give Delta a negotiating edge–passengers won’t know how low others are willing to go. But, in addition, “saving 3 or 4 minutes at the gate has a big operational impact”, according to Delta.  Delta calls it a “win-win” for both consumers and the airline.

Is this good customer service–or do any one of us even expect customer service when we fly? The topic fits well when discussing capacity and yield management issues in both Supp.7 and Ch.13. Given that 8-10% of passengers with reservations do not show for their flights, what other suggestions do students have?

Discussion questions:

1. Which system is better–Delta’s or its competitors?

2. What options do airlines have for capacity and demand?

Teaching Tip: Queuing Up at Disney on Thanksgiving

Having lived in the Orlando area for over 2 decades, everyone assumes my family and I are regular visitors to the Magic Kingdom and the 5 other  Disney World properties here. After all, Disney World is a powerhouse,with over 62,000 local employees (called “cast members”)  and 48 million visitors last year. So when they find I have yet to take my 13 year old son to the Magic Kingdom, I appear to be some sort of ogre. (To my defense, my kids have been to Universal, Sea World, Wet n’ Wild, Blizzard Beach, Animal Kingdom, and on and on). To overcome this pressure, we all went to Disney today, Thanksgiving, 2010.

Here is what we learned. Thanksgiving is one of the  busiest days of the year. And Disney has a clear plan for dealing with this capacity situation (Supp.7): All free passes are cancelled, all cast members are called in, extra parades are scheduled, more refreshment booths are opened, and hours are extended…the Park didn’t close till 1am!

But the queues–oh the queues! Where else would a rational family of 4 pay $340 in entrance fees, $12 to park, and $50 for water and ice cream, only to wait in a series of 45 minute lines for 5 or 6 rides and shows…and then walk away happy as can be?

Here is the secret to the psychology of queuing theory…something Disney’s flock of Ph.D.s in OR and IE have mastered: (1) Keep your customers informed of how long each queue will take,with signs posted frequently…and overestimate, don’t underestimate. (2) Entertain them while they wait, with videos, music, and cartoon characters. (3) Keep the lines moving so progress seems to be taking place. And (4), make people walk long distances between the most popular features, with plenty of interesting activities en route.

I hope this leads to some useful class discussions about how how queues can be managed. Happy Thanksgiving to all!

OM in the News: Airlines and the Capacity Issue

Because of my early career experience in the aerospace industry (design team for McDonnell Douglas’ DC-10, then the engine for that jet at GE), I have always followed the airline industry closely. Capacity issues have haunted airlines for 6 decades now, going back all the way to 1942, when demand plummeted during that recession. Buying planes is a long term decision, but difficulties after 9-11 and during our current trying times created dramatic drops in demand for seats. This is a great classroom example when you are teaching Capacity in Supp.7.

How do airlines respond? As today’s New York Times reports, airlines trim capacity by grounding planes, reducing the number of flights between cities, and flying smaller planes. At the nation’s largest parking lot near the California Mojave Desert, some 200 aircraft of all sizes (from A320s to 747s) sit tip to wing tip. The dry air keeps the planes from rust and corrosion. Students will enjoy the photo in Supp. 7 showing this image.

The cost, up to $60,000 per month per plane. But the 7% cut in capacity last year  helped raise ticket prices modestly.  Airlines now fly at 80%  of seat capacity, a full 10% higher than their traditional measure.

With the mergers of Delta with Northwest, United with Continental,  Midwest with Frontier, and Southwest with AirTran, there is little growth in demand for more jets forecast in the US. Only 38 wide body planes are on order for delivery in this country by 2015. By contrast, 627 are going to be delivered to foreign carriers during that same 5 year period.

Discussion questions:

1. Why are airlines willing to spend enormous sums to park their planes in the desert?

2. Who can benefit from airline overcapacity?

3. The new Boeing 787 Dreamliner has run into such bad supply chain problems (Ch.11) that it is now 2 years late. How does this impact the airlines that ordered them?