TABLE OF CONTENTS PAGE

Synopsis of Case 2

Major Issues Discussed 3

Question and Answer No.1 5

Question and Answer No.2 13

Question and Answer No.3 16

Conclusion 19

Appendix (Referencing) 20
Synopsis of Case
Fitness Plus is a full service health and fitness sports club that provides three primary activities

i.e. fitness, recreation and relaxation to its members. Club also sponsors softball, volleyball and

swim teams in city recreational leagues. When the owners started the club in 1991, membership

was small. Membership had grown by the time as fitness started playing an important role in

people’s lives. During 1995, on average of 15 members were reporting to the club per hour. By

May 2000, the number increased to 80 members per hour on an average during peak period. Here

they came across the problem of capacity. Members started complaining about the unavailability

of equipments and overcrowding. Owners are now thinking of the capacity expansion but this

expansion can also result in the loss of revenue as the expansion can take up to 6 months and

January is always a peak season for membership enrolments.

Three other factors need to be considered before making any final decision. The area has just

received a facelift. Area is growing in two ways: by population and geographically. The third and

the most important factor that needs to be considered is the increased competition. A new YMCA

is offering a full range of service at a low cost and two new health and fitness facilities are in

town. Now the owners have got many questions on this situation: are the capacities of existing

facilities really constrained and where? If the capacity expansion is necessary, should it be

necessary to expand the existing capacity? If they go for the capacity expansion, then this might

require reducing the capacity of others because they have limited amount of land at current site.

And finally as the competition is increasing, it is the perfect time to open a facility and serve the

market. Otherwise they will risk their revenue.

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Major Issues Discussed
Following are the major issues related to the Fitness Plus case.

Capacity problems:

The major issue with the Fitness Plus is its capacity. They are having complaints regarding

overcrowding and unavailability of equipments. This shows that the club is really small to

accommodate 80 members per hour during peak time. And most of these complaints are centered

on the Nautilus, cardiovascular and aerobics fitness area.

Increase in Competition:

Another major issue is increase in competition. Two years ago, Fitness Plus was the sole

provider of health and sports facilities in town. But now they have to compete with a new YMCA

that is offering full range of services but at a low cost. So now they have to compete with YMCA

at cost but if they want competitive advantage they have to maintain their quality. Two other

facilities are also open in the last two years that are situated 10 to 15 minutes from Fitness Plus

known as the Oasis and Gold’s Gym. But these two new facility providers are targeting a specific

market. The Oasis is targeting the market of young adults while restricting access to children

under the age of 16 and Gold’s Gym is providing the best weight and cardiovascular training

only. Fitness Plus needs to be careful here as most of the members complaints centered on the

cardiovascular area and Gold’s Gym are very best at cardiovascular area. So competition is

building up.

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Resource Availability:

Resource availability plays an important role in the success of a business and is the most

important part of a business. Fitness Plus is having problem with the availability of resources.

Owners are thinking of expansion but they have limited amount of land for expansion and the

expansion of some services will reduce the capacity of others. Another resource they are having

problem with is availability of financial resources. Owners are thinking to renovate a new facility

but the problem is that the financial resources are not available. This problem can be solved

easily by going for the option of long term loan but it depends on the good will of business and

how the owners present their business plan in front of a bank to get a loan.

Demographic Change:

There is a big demographic change in the downtown area in two ways. Firstly the area is growing

both in terms of population and geography and secondly the downtown area has just received a

major facelift and many new offices and businesses in the downtown area are moving back to it

and so causing resurgence in activity. So they need to plan their expansion quite carefully by

keeping in mind these issues.

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Question No.1:

What methods would you use to measure the capacity of Fitness Plus? Has Fitness Plus reached

its capacity?

Answer:

Krajewski, et al. (2010, p. 240) define capacity as:

‘Capacity is the maximum rate of output of a process or a system’.

There is not any one single measure of capacity that can be used as a rule of thumb for capacity

measurement. It all depends on the type and nature of business. Different businesses use different

ways to measure their capacity e.g. a manufacturing company can measure the capacity of its

machine by checking the output i.e. units manufactured at the end of the day or a week or a

month etc.

Output and Input measures of capacity:

The authors Krajewski, et al. (2010, p. 241) state that:

‘In general, capacity can be expressed in one of two ways: in terms of output measures or input

measures. Output measures of capacity are best utilized when applied to individual processes, or

when there are small numbers of standardized services and products and input measures of

capacity are used for low-volumes and flexible processes’

Output measure means that we measure the capacity in terms of output e.g. a manufacturing

company (example given above) can measure the capacity of its machine by checking the output

at the end of the day or week.

Custom Furniture manufacturers have low volumes of production and flexible processes so they

can measure their capacity in terms of input such as number of designers.

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Output measures are used when there are individual processes in the firm or where there are

standardized services offered by the firm so there is a need to define a process. Process as defined

by Krajewski, et al. (2010, p. 24) is:

‘Any activity or group of activities that takes one or more inputs, transforms them, and provides

one or more outputs for its customers’.

The process of Fitness Plus can be interpreted in simple words as: the inputs are customers

coming to the club, signing in at the customer service desk and show the membership card. If the

card is fine then they will be allowed to enter the club or otherwise the access would be denied.

The transformation of input is the members choosing the facility and using the facility. And

finally the output would be the members leaving after an average work out time of 60 minutes.

So this is a process at Fitness Plus and also I think it is a standardized process because it is same

for each and every member.

Fitness Plus is having capacity problems during their peak operating hours. Their peak hours are

4:00 P.M. to 7:00 P.M. and 80 members per hour are reporting to the club. So accordingly, we should

measure capacity for peak hours as the rest of the day is fine as an average of 25 members per

hour are reporting to the club.

So I think output capacity measure would be an appropriate method for measuring the capacity of

Fitness Plus as there is an individual process and standardized services.

The reason for using this measure is that we are provided with all the relevant percentages of the

members using a particular facility. We are also provided with number of members reporting to

the club during peak and off-peak times. So this data will provide a good picture of Fitness Plus’s

capacity.

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As there are different areas and facilities of Fitness Plus and each facility has got its own

capacity, so we will measure the capacity of each facility during peak operating hours by using

the capacity utilization formula. We will check whether they are underutilizing their capacity,

utilizing it in full or over utilizing it. Utilization as described by Krajewski, et al. (2010, p. 241) is

‘The degree to which a resource such as equipment, space, or the workforce is currently being

used, and is measured as the ratio of average output rate to maximum capacity’. Capacity

Utilization formula is

Assumption:

1. The percentage given for the facilities usage pattern will remain same for the total number of

members reporting to the club per hour irrespective of peak and off-peak operating hours. For

example if 80 members are reporting to the club during peak hour then 30% of 80 would be 24

members per hour are reporting to the club to use aerobics facility. Same is the case with off peak

hours as 25 members are reporting to the club during off-peak operating hours then 30 % of 25

members are 7.5 members per off-peak hours are reporting to the club to use the aerobics facility.

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Table 1
Calculations for Aerobics Fitness Area (Peak Time):

Total Capacity of Aerobics Fitness Area 35 PPC

Members reporting (80mph x 30%) 24 MPH

Utilization of capacity (Working 1) 68.57%

Conclusion Underutilized

Note:

PPC = People per class

MPH = Members per hour

Analysis of situation:

Fitness Plus is not utilizing the capacity of its aerobics room in full during peak time as they are

just utilizing 68.57% of their capacity. But they are still receiving the complaints from the

members. The complaints might be due to reason that the members using aerobics fitness facility

are not being served properly by the aerobics instructor. The aerobics instructor is not giving

member sufficient time resulting in complaints from the members. Another thing that I can see is

that these complaints might be due to the yoga classes held twice a week in aerobics room

resulting in overcrowding. So these can be the possible reasons for the complaints. In this fitness

area they have capacity cushion. Authors Krajewski, et al. (2010, p. 243) describe capacity

cushion as:

‘The amount of reserve capacity a process uses to handle sudden increases in demand or

temporary losses of production capacity; it measures the amount by which the average utilization

(in terms of total capacity) falls below 100 percent’.

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Specifically, Capacity cushion = 100% - Average Utilization rate (%)

So in this fitness area they have capacity cushion of 100% -68.57% = 31.43%.

Table 2
Calculations for Cardiovascular equipments (Peak Time):

Total Capacity of Cardiovascular equipments 29 Pieces

Members reporting (80mph x 40%) 32 MPH

Utilization of capacity (Working 2) 110.34%

Conclusion Over Capacity

Assumption:
As there are 29 pieces of equipments and 32 members want to use these equipments, we can

assume that 29 members are using 29 equipments e.g. there are 6 treadmills so 6 members are

using 6 treadmills and same is the case with 9 stairsteppers: 9 members, 6 life-cycle bikes:6

members, 3 airdyne bikes: 3 members etc.

Analysis:

From the calculation we come to know that this area of Fitness Plus is operating over its capacity.

The members who are not able to get equipments are in the queue and finally making complaints

regarding the unavailability of equipments.

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Table 3
Calculations for the Nautilus equipments (Peak Time):

Total Capacity of Nautilus equipments 24 Pieces

Members reporting (80mph x 25%) 20 MPH

Utilization of capacity (Working 3) 83.33%

Conclusion Under utilization

Analysis:

In this fitness they are not utilizing their capacity in full. They are utilizing 83.33% of their

Nautilus equipments capacity. I think it is good because this area has the capacity cushion just

like aerobics fitness area. Their capacity cushion is 100%-83.33%=16.67%. But still Fitness Plus

is having complaints in this fitness area also. Reason behind is that as there are 24 equipments,

some members wants to use the other equipment as well that another member is already using.

This might be the reason for complaints regarding overcrowding.

Table 4
Calculations for the racquetball courts (Peak Time):

Total Capacity of racquetball courts 8 courts

Members reporting (80mph x 15%) 12 MPH

Utilization of capacity (Working 4) 150%

Conclusion Over Capacity

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Analysis:

From the above calculations, we can see that racquetball courts’ capacity is constrained as they

are operating 50% more than the original capacity of the courts. But luckily they don’t have any

major complaints. Most of the complaints are in the Nautilus, cardio and aerobics fitness area.

But still they need to sort this problem out.

Table 5
Calculations for tennis courts (Peak Time):

Total Capacity of tennis courts 6 courts

Members reporting (80mph x 10%) 8 MPH

Utilization of capacity (Working 5) 133.33%

Conclusion Over Capacity

Analysis:

Again there is a capacity problem in tennis courts. They are operating at 133% which is 33%

higher than the original capacity of the tennis courts. It is the same issue just like the racquetball

courts. The club does have some complaints but again these complaints are not so severe.

Nevertheless they need to sort out these problems.

Free weights room:

It is not possible to calculate the capacity utilization of free weights room as the data for the

capacity of that room is not available. The available data is only the no. of members that are

reporting to the club i.e. 80(members reporting to the club during peak hours) X 20% = 20

members per hour. We are not provided with the maximum capacity of the free weight room.

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Table 6
Whether they have reached their capacity or not?

Facilities Usage Over/(Under) capacity

Aerobics Room 68.57% (31.43%)
Nautilus equipments 83.33% (16.67%)
Cardiovascular equipments 110.34 10.34%
Racquetball courts 150% 50%
Tennis Courts 133.33% 33.33%
Free weights room N/A N/A
Total over capacity: {50+10.34+ 33.33-31.43-16.67} = 45.57%

From the above we can see that not just Fitness Plus has reached its capacity but also operating

45.57% over its original capacity. The owners should take remedial action as soon as they can to

avoid any major loss to their goodwill and revenue.

Note: Relevant workings are in the appendix.

Question No.2:

Which capacity strategy would be appropriate for Fitness Plus? Justify your answer.

Answer:

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There are several strategies that Fitness Plus can pursue but I think the most appropriate strategies

might be one of the followings:

• Open a new facility

• Expansion in current facilities

• Acquisition of an existing fitness facility provider

• Outsourcing

Each strategy has its own pros and cons. Owners should keep these pros and cons in mind before

making any capacity decisions.

Open a new facility:

Opening a new facility to overcome the capacity problems is not a bad option as this will give

Fitness Plus nearly 55% of capacity cushion. Why 55%, the reason behind this is, currently

Fitness Plus is operating at 145% so by opening a new facility will solve the 45% capacity

problem and will give the Fitness Plus 55% of capacity cushion as well and also a long term

solution for the capacity problems at Fitness Plus.

This strategy is like an expansionist strategy. Expansionist strategy as described by Krajewski, et

al. (2010, p. 243) is

‘The expansionist strategy involves large, infrequent jumps in capacity’.

This capacity strategy will help Fitness Plus to always stay ahead of its demand and will

minimize the chance of lost sales due to insufficient capacity. A very positive point about this

strategy is that it will give Fitness Plus economies of scale and thus helps Fitness Plus to reduce

its costs and starts competing on price.

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The main problem regarding this strategy is that the unused capacity costs money i.e.

maintenance cost, utility bills, security of building etc. But the thing is there should be large

cushions if the demand is uncertain and this is exactly the case with Fitness Plus.

Another problem is financial resources that are not available. I think this problem can be resolved

by the bank loan as Fitness Plus is having goodwill in the downtown area. Another way to

resolve this problem is the sale and lease back option of their property i.e. to sell their any

property to bank and lease it back or if they have any machinery to do that. This will help owners

in resolving their financial problems.

Expansion in current facilities:

Expansion in the current facilities will definitely solve all the customer complaints but it is only a

short term problem solving strategy. This is a wait-and-see strategy. Wait-and-see strategy is

described by Krajewski, et al. (2010, p. 243) as

‘The conservative wait-and-see strategy is to expand in smaller increments, such as renovating

existing facilities. It involves smaller, more frequent jumps’.

The main advantage for pursuing this strategy is that all the capacity issues will resolve but only

for the time being. In future they might come across with same problem as the membership is

increasing. So it is a good short term capacity strategy but not the long term problem solving

technique.

The problems with this strategy are this strategy will not give any capacity cushion. This strategy

can only be pursued by using the space of other facilities as the land is constrained.

Acquisition of a fitness facilities provider:

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Fitness Plus will be benefited with two things if they go for the option of acquisition (to acquire

any other fitness facilities provide). Firstly, they might get capacity cushions depending on the

size of the facilities provider they will acquire and secondly it is a quickest way of expansion.

Another benefit will be that this acquisition will act as a barrier to entry for the new entrants. And

they can be the leaders in the area they are operating.

Outsourcing:

Outsourcing is a good short term capacity strategy. Advantage is the same that the capacity

problems will resolve for the time being. Disadvantages: there will be no capacity cushion for

Fitness Plus. There will always be a danger of quality of services that Fitness Plus is providing

and the outsourced company might not be able to provide. The cultural difference might cause

problems between the staff members.

Most appropriate strategy to choose

We have analyzed 4 strategies. Owners can pursue any of these strategies. But the most

appropriate strategy according to me is the expansionist strategy i.e. to open a new facility if they

are able to get finance from bank or from sale or lease back. Because it is a long term strategy

and will help Fitness Plus in achieving their goals. Outsourcing should be the last resort because

disadvantages are much more than the advantages. And the remaining two i.e. acquisition and

expansion in current facilities can be pursued but the priority should be to open a new facility.

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Question No. 3:

How would you link the capacity decision being made by Fitness Plus to other types of operating

decisions?

Answer:

There are so many operating decisions in a company and linking the capacity decision with these

operating decisions is one the most important task to do. Otherwise there will be a mismatch

between the capacity decisions and other operating decisions. As we have discussed earlier that

the most appropriate capacity strategy is the expansionist strategy i.e. to open a new facility. By

keeping this in mind that the owners will pursue this expansionist strategy, we will try to link this

capacity strategy with other operating decisions at Fitness Plus. Authors Krajewski, et al. (2010,

p. 245) wrote that

‘A capacity strategy should be closely linked to processes and supply chains throughout the

organization’.

Process as defined by Krajewski, et al. (2010, p.24) is

‘Any activity or group of activities that takes one or more inputs, transforms them, and provides

one or more outputs for its customers’.

Process at Fitness Plus is described earlier. Problem arises when members are not able to get the

equipments that they want to use. They wait in the queue for the equipment to get free or they go

for another area of the club. By opening a new facility, the process will get simple because as the

capacity of club will increase, there will be no more queues for members who want to use same

equipments that other members are already using. And in those 60 minutes they can also go for

any other facility that they were not able to use prior to the capacity extension. So this long term

expansionist strategy will improve the processes at Fitness Plus.

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Supply Chain:

Krajewski, et al. (2010, p. 24) define supply chain as:

‘An Interrelated series of processes within and across firms that produces a service or product to

the satisfaction of customers’.

Maintaining a supply each is a most important task of a firm as it results in the satisfaction or

dissatisfaction of customers. In case of Fitness Plus there is not really a supply chain because they

have simple process. They are service providers but no body else is providing services to Fitness

Plus i.e. the suppliers. The only suppliers Fitness Plus has are the suppliers of utilities like gas

electricity and water. So opening a new facility might not facilitate Fitness Plus in their supply

chain at present. In future there might be the case that the processes at fitness plus increases and

all the processes form a supply chain then the new facility might help Fitness Plus in providing

best service to its customers.

Competitive priorities:

Opening a new facility will have a very positive impact on the competitive priorities of Fitness

Plus. Generally, the competitive priorities are cost, quality, flexibility and time. Starting from

cost, the expansionist strategy will have an impact on cost of Fitness Plus i.e. the operations will

become low cost operations because there will be economies of scale due to the opening of new

facility.

Time: The serving time to members will improve as they will hire new staff members for the new

facility ultimately resulting in much better customer service and also this will bring goodwill to

the club.

Flexibility: There will be more flexibility for members. By opening a new facility, Fitness Plus

can also introduce some more facilities e.g. squash courts, table tennis areas etc. So there will be

more flexibility for customers to choose from wide range of variety.

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Quality: By pursuing this long term strategy, fitness plus would be able to deliver outstanding

service to its customers. If we ask a customer what a quality is? The answer will most probably

be the satisfaction with a service or a product. Same is the case with the Fitness Plus. Customers

are not satisfied with the service they are receiving from Fitness Plus. So by opening a new

facility they will definitely solve the problems. Their quality will improve by this strategy and

also quality is a way to gain competitive advantage.

Planning sales:

Another operating decision that can be affected by the opening of a new facility is planning sale.

Currently they have one building in which they are operating. But if they go for the option to

open a new facility, then this will change the way to plan the sales i.e. how much they should

charge their customers, what extra they can give to the regular members. Currently they are

planning the sales matters according to current situation. They have capacity issues, customer

complaints. For these reasons they won’t be able to plan successfully. But after new facility will

open, they can plan easily without any pressure of capacity.

Scheduling personnel:

Personnel are the staff members and scheduling personnel is one of the challenging tasks to do.

New facility will help personnel to get some relief as new facility will definitely bring some more

staff members so ultimately sharing the burden of current employees. Because I think the

employees at Fitness Plus are not able to provide proper help to the members as Fitness Plus is

really over crowded and also it is not possible for employees to give proper time to each and

every member. After a new facility will open, there will be more staff members for the help of

customer. Employees will work with more devotion as in services industry devotion to work is

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one of the key to success and with in the current situation they won’t be able to devote their time

properly.

Conclusion:

As we have discussed capacity in great detail above, we came to know that proper capacity

management is a very important task of an organization as overlooking such things can cause

severe damages to the organization. As happens in the case of Fitness Plus they overlooked

capacity issues and they came across the capacity problems. They are operating nearly 46%

above their current capacity. But as we have analyzed that the most appropriate strategy for

Fitness Plus is the expansionist strategy as this strategy will provide proper capacity cushions of

nearly 55% against future uncertain demands, will give economies of scale, major expansions and

most importantly this expansion will result in creating barriers to entry for new entrants as no one

will dare to compete with an organization of such a big size.

And as we have tried to link this capacity decision with other operating decisions, this long term

strategy seems compatible with other operating decisions. This strategy will help Fitness Plus in

managing their processes and supply chain in the long run. Short term strategies or wait and see

strategies will not help Fitness Plus so much in the long term decision making.

So the final conclusion is that owners should pursue this long term expansionist strategy as it is in

the best interest of Fitness Plus and also it shows good future prospects.

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Appendix:

Workings Question No.1:

As we know

Working 1: Aerobics Fitness Area = 24mph/35ppc X 100% = 68.57%

Working 2: Cardiovascular Equipments = 32mph/29pieces X 100% = 110.34%

Working 3: Nautilus Equipments = 20mph/24pieces X 100% = 83.33%

Working 4: Racquetball courts = 12mph/8courts X 100% = 150%

Working 5: Tennis courts = 8mph/6courts X 100% = 133.33%

References:

Krajewski, Lee J. Ritzman, Larry p. & Malhotra, Manoj K., 2010. Operations Management:

Processes and Supply Chains. 9th ed. New Jersey: Pearson Education, Inc.

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