Shouldice Hospital:

Operations Assessment
Shouldice Hospital has been devoted to repairing hernias for over half a century. Although the Shouldice
system has led to great competitive positioning, the hospital is falling victim to its own success. Demand
for Shouldice services is so much higher than its current capacity of 89 beds that it is in a constant state of
operations backlog, which grows by !! patients every " months. #hus, Shouldice needs to find a
solution to its single most critical $uestion % how to e&pand the hospital's capacity while simultaneously
maintaining $uality control of service delivery.
#he analysis below is designed to assess the current operations at the hospital, in addition to e&plaining
our recommendation that Shouldice should invest $4MM in a new unit, which will increase bed
capacity by 50% and require its surgeons to perform Saturday surgeries. As the financial analysis
shows, this change will allow Shouldice to capture unmet demand without compromising its uni$ue
system of patient and employee care. (astly, our recommendation will be also )u&taposed to other
options we evaluated as potential solutions, but that neither make financial sense nor solve the current
dilemma for the hospital.
Hospital Overview
Shouldice Hospital is a *focused factory+, a hospital with a specific area of e&pertise that gives it
competitive strength resulting in lower cost, higher $uality service for its patients, and better pay for and
loyalty from its employees. Speciali-ing in e&ternal abdominal hernias, Shouldice doctors e&ecute the
*Shouldice #echni$ue, developed by founder Dr. .dward .arle Shouldice. #his precise techni$ue has
resulted in early ambulation and higher success rates /greater than 9901 for Shouldice patients for over
22 years. However, what makes Shouldice so successful is that it is not )ust a hernia3healing hospital, it is
an e&perience.
#o the delight of patients, Shouldice is more like a country club than a hospital+ warm, inviting, and
rela&ing versus cold, sterile, and frightening. #he main house, reminiscent of a mansion, is situated on a
sprawling 4! acre estate outside of #oronto, 5anada. #he comprehensive patient e&perience includes
orientation, evening tea, patient sociali-ing, and encouraging nurses and housekeepers. #he service
continues beyond patient stays and continues at free annual check3ups and lavish patient reunions.
6atients actually get this superior techni$ue and remarkable environment for appro&imately half the cost
of going elsewhere. 7verall, the Shouldice e&perience is one that patients love and tell their friends and
family about, making word3of3mouth the hospital's primary marketing vehicle.
Shouldice is also an e&perience for its employees. Shouldice employees are never fired, can participate in
profit3sharing, and earn higher wages than union workers and other surgeons. Doctors make
appro&imately 20 more than the average surgeon in 7ntario, receive monthly bonuses, and are able to
work regular hours leaving them time for personal lives and families. #hese human resource practices
have led to e&tremely low turnover, which supports the administration's goal of having very e&perienced
staff that can properly and effectively e&ecute the hospital's practices and procedures.
#he Shouldice competitive advantage boils down to 8 keys to success, which are the following+
Distinctive techni$ue
.&perienced staff
5omprehensive patient e&perience
#houghtful employee policies
#hese 8 elements work in unison See !ppendi" #$ Shouldice !dvantage% at Shouldice to promote healthy
and happy patients, in addition to content and loyal staff. As the hospital itself states, *Shouldice Hospital
is a total environment.,
Bottleneck Analysis See !ppendi" &$ !nalysis !ssumptions%
'rocess (low
9
)ottlenec*
Shouldice has the capacity to perform 89 e&aminations per afternoon and send 48 eligible
patients to the operation rooms. However, it only performs 44 operations per day, so the
bottleneck between these 9 processes is the number of operations being performed per day.
Shouldice performs 44 operations per day, which generate daily bed demand of " on
:ednesday and #hursday, and 99 on #uesday /See !ppendi" +$ Shouldice,"ls1, all e&ceeding the
current bedding capacity of 89. So between these 9 processes, the number of available beds is the
bottleneck.
7verall, the bottleneck for Shouldice is the number of available beds. #he hospital has to
increase its bed capacity by 4!0 ;/"3891</891= to simply meet its current operation schedule.
-urrent operation schedule
>orning operations+ /8<room1?/2 rooms1 @ 9!<morning
Afternoon operations
3 Assume 2!3minute time slot /82minAoverhead1
3 Bumber of available slots @ 2!min<2!min?2 rooms @ 2<afternoon
3 7n average each operation takes /?9!01A/9?!01 @ . slots
3 #otal operation capacity @ /21</.1 @ 4<afternoon
!ctual operation capacity
5onsider morning operations between 8+4!A> to 9+4! 6>
3 Available slots per room @ /81?/"! min1</2! min1 @ 8.8
3 #otal operation capacity @ /8.8 slots1</. slot per operation1?/2 rooms1 @ 9!
#here is operation per room before 8+4! A>
#otal operation capacity per morning @ /9!1A/21 @ 92
#herefore, total operation capacity per day e$uals 48<day ;/92<morning1A/4<afternoon1= without
having to increase the number of surgeons and<or operating rooms.
Bottleneck Solution
42 Exams
3 Sur!ery
"andidates
33 Sur!eries
4 Sent Home
#ischar!ed
#ay $
#ay 2
#ay 2%&
#ay 4%&
Bottlenec
k
$$' Extended
Stay
( Beds
Availa)le
Bottlenec
k
*ncomin!
+atients
4
As we established above, the current bottleneck lies in the room capacity of 89 and that an increase in the
number of rooms will fi& this bottleneck. #he ne&t $uestion then becomes % how many rooms should be
addedC #o answer this, we asked ourselves how many operations the hospital could perform if the current
89 room capacity did not e&ist.
Dn analy-ing the *ne&t, bottleneck, we found that the number of operating rooms would be the ne&t
constraining resource. 5urrently there are 4! to 4" operations performed daily at the clinic, for an
average of 44 operations. Spread across the 2 e&isting operating rooms, this averages out to "."
operations per room, per day, with some rooms having E operations per day and some rooms having only
". Froken down to the specific hours of the day, assuming that there are 8 operations performed in each
room during the morning hours /from E+4! A> to 9+4! 6>1, a total of 9! operations are performed
before lunch each day at the clinic. After lunch, the remaining 4 operations are performed.
:e believe that this represents an opportunity for improvement. Since each of the normal operations take
hour, and there are 2 hours available during the morning, 2 operations could be scheduled in each
operating room from E+4! A> to 9+4! 6>. #his would represent an increase of operation per room, or
a total of 2 across the 2 operating rooms per day at the hospital. 5urrently we do not see any opportunity
for improvement during the afternoon session, as there are only 4 hours available in each room and a
small amount of slack must be built in to the model to allow for a small percentage of the procedures that
take 9! minutes.
#he resulting model would have 92 operations performed each morning and 4 performed each afternoon,
for a total of 48 operations each day. A comparison of the current model and the revised model is shown
in the diagram below+
#he new model of 48 procedures per day, when scheduled across a 2 day week, results in a schedule that
re$uires at least 44 rooms be available during peak days of the week.
#he diagram below illustrates the revised hospital admittance schedule and resulting peak day capacities+
8
#he new need for 44 rooms represents a 2!0 increase in capacity when compared to the current capacity
of 89 rooms.
,ecommendation Analysis See !ppendi" 4$ !lternative, .on/(easible 0ecommendations%
0ecommendation
Shouldice should invest G8>> in a new unit, which will increase bed capacity by 2!0 and
re$uire its surgeons to perform Saturday surgeries.
)ottlenec*
Since Saturday operations do not re$uire higher bedding capacity, the result is the following+
Fed capacity will increase to /891?/A2!01 @ 44, which e&ceeds the number of beds
currently needed /"1 thus eliminating bedding capacity as the bottleneck.
:ith 44 beds available, 48 new patients can be accommodated per day, thus 48
operations can be performed per day.
#he daily e&amination capacity, daily operation capacity, and number of beds available
all line up perfectly, with no individual factor as bottleneck.
-ost10evenue
5urrent profit per operation @ G2E See !ppendi" +$ Shouldice,"ls%
Bumber of added operations per year @ /E"!!<441?/481?/A9!013/E"!!1 @ 99!
6rofit increase @ /G2E1?/99!1 @ G,"2",8E<year
5ost increase @ time investment of G8,!!!,!!!
6ayback period for the investment @ /8,!!!,!!!1</,"2",8E1 @ 9.8 years
"onclusion
Fased on the $ualitative and $uantitative analysis provided herein, our recommendation is that
Shouldice should invest G8>> in a new unit that will increase the hospital bed capacity by 2!0
and re$uire its surgeons to perform Saturday surgeries. :ith this plan, the throughput rate
increases to 480 /99!<E"!! @ 4801 and provides a payback period of only 9.8 years. Foth
financially and operationally speaking, adoption of this recommendation solves the hospital's
dilemma of how to increase capacity while simultaneously maintaining $uality control of service
delivery. #herefore, considering the increased throughput rate and short payback period, this
recommendation is a sound plan for Shouldice Hospital to adopt.
2
Appendix $: Shouldice Advanta!e
Experienced Staff
Distinctive Technique
Comprehensive
Patient
Experience
Thoughtful
Employee
Policies
"
Appendix 2: Analysis Assumptions
2nown facts
. #here are " e&am rooms.
9. .ach e&amination takes 9! minutes.
4. #here are 2 operation rooms.
8. #here are total of 89 beds for patient accommodation.
2. Bo surgeries on Saturday or Sunday.
!ssumptions
. Surgeons e&amine incoming patients from +4! 6> to 8+!! 6> /2! minutes1 Sunday
through #hursday.
9. !0 of patients e&amined in the facility are sent back home.
4. 44 operations are performed each day >onday through Hriday.
8. 6rimary operations take 82 minutes to finish, recurrence operations take 9! minutes to
finish.
2. !0 of all the operations are recurrence operations.
". Assistant surgeons, nurses and house keeping staff have no impact on the overall
capacity.
E. Average patient hospital stay is 4.2 nights.
8. Adding number of operations doesn't change net profit per operation.
9. 7nly operation process and financial performance are analy-ed, human factor is not
considered in this part of the analysis.
!. new unit is included in analysis as an additional room, rather than separating room for
renovation and room for a new unit.
. Saturday surgeries will not increase surgeon's weekly hours at the hospital.
-alculations
>a&imum e&ams per room+ /2!1</9!1 @ E
>a&imum e&ams per day+ /E1?/"1 @ 89
>a&imum number of patients eligible for operation per day+ /891?/9!01 @ 48
Surgeon utili-ation in the morning+ /21</!1 @ 2!0/at most 2 surgeons working at any
given time1
Surgeon utili-ation in the afternoon+ !!0 /2 surgeons operating, the other 2 surgeons
e&amining1
E
Appendix 3: Shouldice-xls
)ed -apacity
Dnputs
Daily Admit Iate 33
Bumber of Feds (
Stay (ength 3 .i!hts
Saturday Surgery .o
>onday #uesday :ednesday #hursday Hriday Saturday Sunday
>onday 33 44 44 ! ! ! !
#uesday ! 33 44 44 ! ! !
:ednesday ! ! 33 44 44 ! !
#hursday ! ! ! 33 44 44 !
Hriday ! ! ! ! / ! !
Saturday ! ! ! ! ! / !
Sunday 44 44 ! ! ! ! 33
0otal .um)er in Hospital '' (( (( (( '' 33 33

'rofit !nalysis
+rocess
#otal 7perations<patients per year E"!!
7perations per day 44
Bumber of beds 89

Bud!et
Hospital 82!!!!!
5linic 42!!!!!
#otal 9!!!!!!
5ost per operation 2E9
7perations per doctor E"!

,evenue
Ioom 5harge for 4.2 nights 88!
Surgery 5harge/all surgery1 "2!
#otal 5harge per 7peration 9!9!
#otal revenue for operations 2888!!!
Ievenue for general anesthesia 82"!!!
7verall revenue "48!!!!
Ievenue per operation 92!
#otal 6rofit 848!!!!
6rofit per 7peration 2E
8
*nputs: Admit rate, Bumber of Feds, Bights of stay,
Saturday surgeries
Outputs: Bumber of beds used each night
Arrived on >onday
Appendix 4: Alternative1 .on%2easi)le ,ecommendations
Additional Beds32loor Saturday Sur!eries 2ranchisin!
"ost
High+
G8>>
(ow+
Small increase in doctor's
salaries
>oderate
"omplexity
High+
6lanning, construction, etc.
(ow+
7nly impacts doctor's schedules
>oderate
"apacity%Buildin!
+otential
High+
Directly addresses the bottleneck
J increases beds by 2!0
>oderate+
5apacity A9!0 but does not
address the bottleneck
(ow+
Does not address capacity
issues at current facility
"onstituent *mpact
Allows more patients to be
serviced K Shouldice
Has minimal impact on staff
5hair of the Foard J 5hief
Surgeon opposed along w<8!0
of older doctors
5ould create wedge between
young J old in environment
where e&perience is key
Difficult to control $uality of
service
Frand e$uity potentially
compromised
>ay take some business from
current facility
!lternative 0ecommendation 3#
Dnvest G8>> in a new unit to increase bed capacity by 2!0.
)ottlenec*
Fed capacity will increase to /891?/A2!01 @ 44, which e&ceeds the number of beds
currently needed /"1 thus eliminating bedding capacity as the bottleneck.
:ith 44 beds available, 48 new patients can be accommodated per day, thus 48
operations can be performed per day. Dn this scenario, the daily e&amination capacity, daily
operation capacity, and number of beds available all line up perfectly, with no individual
factor as bottleneck.
-ost10evenue
5urrent profit per operation @ G2E See !ppendi" +$ Shouldice,"ls%
6rofit increase after increasing bedding capacity and number of operations is
/G2E1?/E"!!<44?483E"!!1 @ G"2E,22<year
5ost increase is+ time investment of G8,!!!,!!!
6ayback period for the investment @ /G8,!!!,!!!1</"2E,221 @ " years
-onclusion
Bo. 7perations+ A20
Fottleneck+ .liminated
Dnvestment 6ayback+ " years
!lternative 0ecommendation 3&
6erform Saturday surgeries without making other facility changes.
)ottlenec*
9
>a&imum number of beds needed remains the same at ", but number of days that
bedding needs e&ceed bedding capacity increases from 4 /#ues, :ed, and #hurs1 to 8 /#ues,
:ed, #hurs, and Hri1.
-ost10evenue
5urrently profit per operation @ G2E See !ppendi" +$ Shouldice,"ls%
6rofit increase after adding operations @ /G2E1?/E"!!1?/9!01 @ G8"8,!!!<year
Bo increase in cost
-onclusion
Bo. 7perations+ A9!0
Fottleneck+ Aggravated
Bo Lpfront Dnvestment, profit increase 9!0
!lternative 0ecommendation 3+
Hranchise additional, off3site locations to e&pand operational capacity.
)ottlenec*
Bo initial bottlenecks would e&ist at franchised locations, but that will not last
-ost10evenue qualitative%
Iapid e&pansion % domestic and international % increases revenue flow
Iemove management and operational burden at main facility
Iemove potential conflict between older and younger doctors
(essens threat of disrupting corporate culture
>eet competitive threat
-onclusion
Muality of service<brand is )eopardi-ed due to outsourcing
(oss of control and monitoring problems arise
5urrent bottleneck in operations at main facility is not resolved
!