Operations Management Lesson 6 Exercise
LEVEL CAPACITY MGMT
A common example of level capacity management is seating capacity at sports stadiums. My local stadium is Twickenham rugby stadium and has a seat capacity of 82,000 (a 7,000 seat increase in 2007).
The stadium is used mainly at weekends and holds events every few weeks, with its most frequent usage being international rugby events, in addition to the annual national rugby cup finals and various music concerts. For music concerts, the stadium capacity changes per music concert as only a portion of the stadium is used but the pitch is also used for revel goers.
The stadium has a very low utilisation (I would estimate this to be less than 1%) but a high efficiency rate (I would estimate this to above 80%) as most events are sold out, with only a few events such as the varsity rugby march that do not sell out.
Level capacity management in this case is extremely costly, with the stadiums capacity being severely under utilised for such a significant investment (the new Wembley stadium which is less than 10 miles from Twickenham, which is of a comparable size cost approx £750m to replace the existing stadium and local infrastructure).
CHASE DEMAND MGMT
A concept which is growing quite rapidly within the UK because of the high volume of cars compared to the size of our country is traffic management. The best example of this is the chase demand management applied to the M25 motorway, during rush hour on a Monday morning.
Motorway capacity is relatively fixed if you assume that all cars are travelling at the maximum speed and all lines are being utilised, however demand varies significantly. The investment and time needed to cope with increasing demand during the peak periods to enable this to continue is immense. Therefore a form of chase capacity management has been applied, by controlling some of the motorway capacity constraints.
Motorway speed limits are 70 miles an hour for most vehicles, and a vehicle travelling at this speed need to be spaced a certain distance apart in order for motorists to be driving safely, which creates a lot of redundant space between vehicles. Therefore the Automatic Traffic Management (ATM) system has been developed, were motorway efficiency is measured. When efficiency reaches a tolerance level the speed limit is reduced in increments of ten miles per hour to slow traffic down. This enables vehicles to travel closer together as less breaking distance is needed, which causes an increase in the motorways capacity. If used correctly, this can also be used to limit the demand coming into a motorway stretch where bottlenecks are occurring, by slowing the demand of cars travelling into the bottleneck by forcing a lower throughput in previous stretches of junctions.
In addition the latest concept is also to increase the capacity of motorways, during rush hour by directing vehicles to use the hard shoulder of the motorway. In a three lane motorway, this could have the effect of increasing motorway capacity by 33% [reference].
An example of a company who uses yield management is the Odeon cinema. The Odeon offer lower prices in the week, when demand is much lower in order to entice customers to come into the cinema. Utilisation is at its highest on Friday, Saturday and Sunday nights where maximum occupancy is often achieved (typically more the main attraction films) so the Cinema increases its prices and also charges a premium for the best viewing positions as demand exceeds capacity and the pricing strategy brings in more revenue whilst maintaining high capacity utilisation.
The Odeon has also teamed up with the mobile phone company Orange, in developing a But One Get One Free (BOGOF) promotion called ‘Orange Wednesday’. This promotion is to entice clients to come to the cinema in the week (or more specifically a Wednesday), when demand yield’s are at their lowest.
The outbound airport security at Heathrow airport has two single queue/multi server designs, which enables a constant flow of air travellers through the security check areas. There are two queues as the demand is such that the queue length during peak times is unmanageable. During off-peak hours, the second queue is closed.
This model maximises the capacity and resource utilisation of the security process. However, airport security has attracted considerable attention since the terrorist attacks in America 9/11 with increased security measures (new regulations on what you can take through and more thorough checks e.g. shoe removal) used to reduce the risk of terrorism. This has resulted in a longer and more anxious experience for people, with scenes during the summer holiday season of people queuing outside the airport. This could be improved by virtual queuing, such as those used in Walt Disney theme parks.
BIBLIOGRAPHY & REFERENCES
AllBusiness, “Virtual queuing: could it be a reality for airports?”. AllBusiness Company Website, http://www.allbusiness.com/specialty-businesses/264987-1.html, accessed October 2007.
Fred Van Bennekom, “Airport Security Line Queues”. Personal Pages of Fred Van Bennekom, http://www.greatbrook.com/Personal/airport_security_line_queues.htm, accessed October 2007
Highways Agency, “Newsroom > Kelly announces new ways to beat motorway jams”. Highways Agency Government Website, http://www.highways.gov.uk/news/newsroom.aspx?pressreleaseid=153273, accessed October 2007.
IBM Services A-Z, 2007. “IT Services > Outsourcing/Hosting > Infrastructure Outsourcing and Hosting” IBM Company Website, http://www-935.ibm.com/services/us/index.wss/itservice/so/a1000414, accessed July 2007.
Orange Wednesday, "Orange & Film > Orange Wednesdays". Orange Corporate Website, http://orangewednesdays.orange.co.uk, accessed October 2007.
Slack, N., Chambers, S., Johnston, R., Betts, A. (2006) Operations and Process Management, London: FT Prentice Hall
- Twickenham Stadium, "Twickenham Stadium, The Home of English Rugby". Rugby Football Union Official Website, http://www.rfu.com/microsites/twickenham/index.cfm, accessed October 2007.
- Walley, P. (2007) The Warwick MBA: Operations Management, Coventry: University of Warwick