Unit 12 Hospitality Operations Management

Unit 12 Hospitality Operations Management

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Hospitality Operations Management

Operations management concerns with managing of resources that directly produce the organization’s service or product. These resources are brought together by a series of processes so that they are utilized to deliver the primary service or product of the organization. Thus, operations is concerned with managing resources through transformation processes to deliver service or products. (Rowbotham, Galloway and Azhashemi, 2007) Since the mid-1980s, the rate of growth of major service sector categories as hospitality services, has been approximately double that of other industries (Daley et al., 1998). Due to the unique characteristics of service operations, such as heterogeneity, inseparability, intangibility and perishability, a service cannot be stored and has to be produced and consumed simultaneously (Fitzsimmons and Fitzsimmons, 2004). From a guest’s point of view, the service is an experience. It is the sum of everything that happens to him or her in connection with a transaction or series of transactions. Services differ from goods in several aspects. (Lovelock, 1992) Operation is the core function of the organization and continuously manages the flow of resources through it. In many organizations, operations accounts for 80% of the employees and hence most of the added value (Naylor, 1996). The growing importance of the service sector in the global economy has drawn a significant increase of interest in operations management.

An effective and efficient service operation is consequently a challenge to operations manager due to the intense, competitive environment within the hospitality industry.


Therefore the improvement of operation functions, such as the use of capacity management, is essential for operations manager to create a more effective and efficient operation. At the same time, it helps to increase service quality and generate higher profitability.

Ava Restaurant in Hotel Panorama in Hong Kong is the organization of choice for evaluation for this essay. Definitions of one of the operation’s functions, capacity management, will first be given. It will be used as a practical example to evaluate and analyze the effectiveness of capacity management in the industry. Existing problems with capacity management in Ava Restaurant will be identified, and potential solutions and recommendations will be suggested. A summary of the key points and final recommendation will be presented in conclusion.

In the service industry, achieving efficient capacity management has always been one of the challenges of all operations managers (Klassen & Rohleder, 2002). Lines (1996) states that customers have grown accustomed not to have to wait, and if the goods they require are either not in stock or unavailable at short notice, they will go elsewhere.

Consequently, their requirements have to be anticipated and most or all distribution operations have to be completed before their orders are received. Despite the opportunities and apparent attractiveness of the service sector, however, there are no guarantees of


success (Rodie & Martin, 2001). Dealing with capacity effectively and efficiently will definitely increase success in the service industry.

Lovelock (1992) defines the capacity of a service as the highest possible amount of output that may be obtained in a specific period of time with a predefined level of staff, installations and equipment. Slack et al. (1995) defines capacity as the maximum level of value-added activity over a period of time that the process can achieve under normal operating conditions. Due to the fact that services need to be produced and consumed simultaneously (Czepiel, 1990; Grove and Fisk, 1997; Martin and Clark, 1996), when demand for a service falls short of the capacity to serve, the results are idle servers and facilities. An example is during lunch or dinner periods the majority of guests arrive at a fairly similar time. These variations of service demand create periods of idle service at some times and of consumer waiting at others. The ideal way for a service provider to cope with this would be to reduce its capacity in periods of low demand and increase it in the high season (NG et al., 1999). In reality, imbalance occurs frequently, so capacity management is therefore required to balance demand and supply (Mabert, 1986; Shemwell and Cronin, 1994).

Adenso-Diaz et al. (2002) state that the aim of capacity management is to minimize customer-waiting time and to avoid idle capacity, with the goal of attending to demand in time and in the most efficient way possible. Capacity planning and control is the task of setting the effective capacity of the operation so that it can respond to the demands placed upon it (Slack et al., 1995). As suggested by Armistead and Clark (1994), “Capacity management is the ability to balance demand from customers and the capability of the service delivery system to satisfy the demand.”


Balancing the supply of and demand for services is the major method for ensuring a smooth operation when managing capacity. Operations managers have to first understand the nature of demand (Lovelock, 1984) and second, the options for managing capacity to meet the expected demand. Moreover, operations managers have to understand the composition of their capacity, the degree to which it can be changed, and the speed of reaction (Slack, 1983) and costs involved (Heskett, et al., 1990) as well.

The accuracy of a forecast of demand is important in capacity planning and control (Slack et al., 1998), and with technological supports, the operations managers of Ava Restaurant can keep updating the capacity forecast daily by using the Respak system, as the demand changes instantaneously. Information Technology such as Property Management System (PMS) can assist operations managers in collecting guest information in regards to the daily occupancy and number of rooms that have breakfast inclusive. This will benefit forecast the capacity in an effective and efficient way. There is no doubt that better capacity decisions can be made if the demand can be forecast accurately (Betts et al., 2000). Operations managers can better organize staff and equipment, which will enhance the service operations. However, there are still limitations in using the occupancy forecast in predicting the demand in breakfast time of Ava Restaurant, as operations managers are unable to accurately predict the demand of breakfast from walk-in customers.

In order to solve the problem of unexpected demand in the breakfast period, the adoption of advance booking is recommended. The hotel can encourage customers to make reservations prior to breakfast time in order to enjoy discounts. Harrison (1993, p. 130)


states, “Demand may be managed through the encouragement of non-peak purchasing through pricing and promotional activity”. As a result, operations managers have a better forecast in anticipation for the actual service operation. A balance of supply and demand can be managed effectively; consequently high service quality and efficient operation can still be maintained, even during the peak period.

Ava Restaurant is located on the 38th floor of the Hotel Panorama at the heart of Tsim Sha Tsui district in Hong Kong. There is a high demand from office workers and tourists in the area. However, there is a multitude of options of restaurants, cafés, and fast food establishments located in the surrounding area.

Irregularity demand during lunch period occurs as a result, in particular when the weather is pleasant, which allows in-house customers and people working near the hotel to walk to other venues for lunch. Additionally, the majority of customers are not used to making reservation for lunch, which makes lunch period a great deal of difficulty to forecast demand.

Strategies for managing the demand will be a more practical way to deal with the fluctuating demand of Ava Restaurant during lunch period instead of forecasting. Sasser (1976) suggests level strategies that focus on influencing demand to match the capacity level with what the hotel expected. There are several strategies available to influence demand. For example, promoting off-peak demand, developing complementary services, yield management and reservations (Klassen and Rohleder, 2002; Fitzsimmons and Fitzsimmons, 2004; Sasser, 1976, Meredith, 1992). Reservations for Ava Restaurant during


lunch period are unusual, therefore managers can hardly develop yield management to allocate the capacity and operate the service both effectively and efficiently.

Promoting off-peak demand and developing complementary services is rather reasonable strategies for Hotel Panorama to overcome capacity problems. Schmenner (1995) states that lowering prices are a great incentive for getting customers to spend more. It can also assist in making demand pattern more evenly distributed. Creative use of off-peak capacity can also results from seeking different sources of demand (Fitzsimmons and Fitzsimmons, 2004). As a suggestion, customers could be offered an option to settle the bill before 12:30pm and a 10% discount could be given. This kind of promotion can be used to encourage people to have meals during off-peak time in order to avoid rushes of business.

As Fitzsimmons and Fitzsimmons (2004) noted, developing complementary services is a natural way to expand one’s market and it is particularly attractive if the new demands for service are contra-cyclical and result in a more uniform demand. Complementary service can also be another strategy to deal with capacity problems. As a suggestion Ava Restaurant could set-up waiting areas in the bar, where customers could enjoy a drink while waiting during peak period. These practices can relax impatient customers (Jones and Dent, 1994; Koepp cited in Bitner et al. 1990), and avoid customers going somewhere else for lunch when it is necessary to wait (Davis and Heineke, 1994; Kleinrock, 1967; Katz et al., 1991; Hornik, 1992; Jones and Pappiatte, 1996). It also helps generate higher profits for the hotel by appropriate waiting time management.


Slack et al. (1998) comments that the level strategy is not suitable for perishable products such as food services, which usually results in a waste of staff resources reflected in low productivity. Since service cannot be stored as inventory, a level capacity strategy would indeed involve running the operation at a uniformly high level of capacity availability. Adenso-Diaz et al., (2002) also agrees that capacity management is made more difficult by the impossibility of making an inventory of the service for its subsequent use, as occurs with the production of goods.

Another strategy, which Sasser (1976) suggests, is chase strategy, which attempts to match the capacity closely to the varying levels of demand, by changing supply to keep in line with demand. Slack et al. (1995) state that a chase demand plan is much more difficult to achieve than a level capacity plan as different amounts of staff and equipment are required in each period of time. In most cases, demand cannot be smoothed as effectively as operations managers expect. In the later studies of Slack et al. (1998), mentions that, “chase management avoids the wasteful provision of excess staff that occurs with the implementation of level strategy, and yet should satisfy customer demand throughout the planned period” (Slack et al., 1998, p.404). It is becoming more common for operations manager to use chase strategies (Klassen and Rohleder, 2002), which have to be applied to satisfy the variable demand, such as increasing customer participation, creating adjustable capacity, sharing capacity, cross-training staff and using part-time employees (Fitzsimmons and Fitzsimmons, 2004).


There are number of alternatives available to accomplish chase management in reality, for examples, scheduling employees, hiring part-time employees, cross-training staff to so more that one job, and using customer participation (Klassen and Rohleder, 2002; Schmenner, 1995; Meredith, 1992, Fitzsimmons and Fitzsimmons, 2004; Garcia et al., 2002).

Creating adjustable capacity, sharing capacity and using part-time employees have already been used in the hotel, and those strategies are quite effective in smoothing the operation and dealing with the fluctuating demand. Tables and chairs are moveable for arranging different customer mixes, and floor plans can be adjusted slightly to accommodate small groups, while staff can do some preparation tasks during the off-peak time in order to have a smoother operation during the peak time.

Sharing capacity is widely used in the hospitality industry, since the industry often requires a large investment in equipment and facilities. Ava Restaurant, Café Express and in-room dining share the same kitchen in the hotel. It may be possible to find another user for these facilities during periods of under-utilization (Fitzsimmons and Fitzsimmons, 2004), therefore saving cost.

Part-time employees are employed when peak time is predictable and persistent, such as during weekends, holidays and special occasions. These part-time employees are mostly college students, under-graduates in hospitality studies or experienced servers, since the required skills and training are both minimal.


Another method is to train staff so that they can be better prepared to cope with the existing demand. Cross training employees is believed to be a good suggestion, as Klassen and Rohleder (2002) claim that cross-training employees is an important factor in the model. During slow periods between lunch and dinner, employees should be given the opportunity to learn new skills (see for examples, Cross, 1986, 1991; Wickens, 1987; Cordery, 1989). As a result, staff satisfaction and job security increased, and a higher work pace will be obtained (Carnall, 1982; Bryson, 1999).

Additionally, the approach of enabling staff to be cross-trained increases the functional flexibility of the hotel regarding its staffing, allowing it to use staff in a more flexible ways therefore bringing labour cost saving and lowering the turnover rate (Turner, 1999; Shamir, 1975; Allan, 1998). It is also the only decision option, which reacts to the actual relationship between demand and capacity. For example, if the demand for Ava Restaurant is very high, cross-trained employees from the in-room dining section can provide assistance. The flexibility of the employees can ensure the smoothness of the operation for the entire hotel, while service standards and quality remain unchanged.

Apart from the level strategy and chase strategy raised by Sasser (1976), Armistead and Clark (1994) argue that level and chase strategies are not enough for all service organizations, it was suggested that another totally different strategy which is known as


coping strategy. Armistead and Clark (1994) note that it is inevitable that all service organizations will at times run out of capacity to satisfy demand within the time-frame expected by customers. This is the area that most operations managers would recognize as coping. In these situations, there are two possible courses of action: first, to allow service quality standards to fall in an uncontrolled way and second, to try to control the fall in service standards, therefore protecting the service standards for the core service.

Armistead and Clark (1994) indicates that service operations managers need to have an understanding of the level of utilization of resources above and below which service quality will be affected, unless corrective actions are taken. Maister (1985) illustrates the idea of resource utilization and service quality in the context of queuing theory, where it is recognized that to maintain a consistency in waiting time and queue lengths, average utilization of resources may be relatively low. There is also the recognition, in those services where the role of the customers (Hart et al., 1990) is to create the experience. As an example, in restaurants or theme parks, the level of utilization of resources can affect the perception of service quality. Therefore, it implies that a higher level of resources utilization can improve service quality.

The capacity strategies proposed by Sasser (1976) are inadequate guidance for service operations managers if the aim of the service organization is to improve their service delivery to compete on the territory of service recovery and unconditional service guarantees. Coping capacity strategy is proposed as a path to magnify the strategies of chase and level capacity management. Armistead and Clark (1994) presented a way of developing coping strategies that recognize changing operational focus, capacity strategies


and customer service dimensions within a total service delivery. Coping strategy involves improving the basics of capacity management in forecasting and scheduling; measurement of service quality and utilization of critical resources; instituting a measuring system which will warn when the coping zone is being approached; deciding whether to reduce service quality levels and how this should be done; or deciding how to bring in additional resources.

Some of the elements of coping strategy can be found in Hotel Panorama, such as deciding whether to reduce service quality levels and how this should be done. When unexpected demand hits the hotel, senior management provides appropriate service with limited resources to the customers in order to satisfy their needs. Good communication and relationship between managers in Hotel Panorama create an easier way to bring in additional resources when Ava Restaurant is busy. For instance, the in-room dining manager is willing to share some of his team, chinaware, culinary, lining, and so on with Ava Restaurant manager during busy periods. In conclusion, high flexibility of resources can help to deliver better quality of service. “Capacity planning and control is the task of setting the effective capacity of the operation so that it can respond to the demands placed upon it” (Slack et al., 1998, p. 391) Capacity management can affect several different aspects of business performance. The balance between capacity and demand affects cost. Low demand could mean under-utilization of capacity and high unit costs. Revenue would also be affected in the opposite way. Capacity levels equal to or higher than demand at any point of time will ensure that all demand is satisfied and all revenue gained. Besides, speed of response to customer demand could be enhanced, either by the build-up of inventories or the deliberate provision of surplus capacity to avoid queuing. Finally, quality of service might be affected by a capacity plan


that involves large fluctuations in capacity levels. The disruption to the routine working of the operation could increase the probably of mistakes being made. In this case, capacity management is necessary to balance the capacity and demand in the organizations.

However, the fact is, capacity management in a service organization like Ava Restaurant in Hotel Panorama, will either succeed or fail in the process of balancing capacity and demand in services. Two basic strategies for managing capacity in services, the level strategy and the chase strategy, were suggested by Sasser (1976). However, accurate forecasting of future demand is not always an easy task, even though it is the key process in managing the capacity. Different approaches influencing demand to match the capacity and supply management are, therefore, used in the industry in order to smooth the daily operation and ensure the service quality. Research findings suggest that service managers are not good at managing capacity in relation to service quality (Armistead and Clark, 1994), so a coping strategy could be used to overcome the shortfalls in understanding and managing capacity in relation to service quality.

In short, it is logical to conclude that each service should choose the demand and capacity management combination that provides the best results in terms of good service, low costs, and profitability (Klassen and Rohleder, 2002). With the implementation of capacity management, the capacity and demand of Ava Restaurant will become manageable, and therefore will definitely improve the effectiveness and efficiency of the operation.


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