ABC Manufacturing is developing their 2017 SOP. The sales plan is already developed, using the forecast obtained from Demand Management and is as follows: (the numbers are in 1000’s)
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec300 280 400 500 500 300 200 100 150 250 300 350
Other problem parameters are:
Initial worker level = 300, Initial inventory = 50,000, Required ending inventory = 100,000, Cost per unit = $50, one worker can produce 500 units/monthHiring cost = $200 per worker, Firing cost = $350 per worker, Inventory holding cost = 1% of item cost/month, Shortage cost = 3% of item cost/month.
1. Develop a Chase plan2. Develop a Level plan
For each plan, calculate the end of month inventory (or shortage) level, monthly hiring and firing schedule and costs, monthly inventory and shortage costs, and the total cost.
3. By trial and error, come up with a mixed strategy that will have less total cost than any of the above two.
Property Management Case
THE STONINGTON BEACH HOTELBERMUDA
As he prepared for the September Hotel Management Committee meeting, Bill van der Plog, the General Manager of the Stonington Beach Hotel, was anxiously waiting for Oliver Hollingsworth to arrive for their meeting. Oliver was the Director of Physical Plant for Bermuda College. The College owned the Hotel and managed all of its property services through its College maintenance facilities.
Bill knew that he would have to work closely with Oliver in the preparation of a report to the Management Committee regarding the state of the Hotel property. He knew that the Committee would be particularly interested in the current state of the property and how the arrangement with the College’s institutional maintenance facilities were working out. He knew also that the Committee was looking for information regarding the imminent refurbishment of the property since it would need to incorporate this project into the 1993 annual budget.
THE ISLAND OF BERMUDA
Bermuda College is located on the island of Bermuda situated in the Atlantic Ocean approximately 600 miles east of New York. Since 1620, the island has been a self-governing dependent territory of the United Kingdom. In the last century, it experienced significant population growth and now numbers approximately 57,000, about two thirds of whom are Bermudians and the remainder being expatriate workers, principally in the island’s financial sector.
Being located by the Gulf Stream, Bermuda is blessed with very temperate weather. It never gets snow and seldom sees temperatures lower than F50º or higher than F90º. It is very humid throughout the country due to the proximity of all of the country to the ocean. No part of Bermuda is more than 1½ miles from the sea.
Not surprisingly, Bermuda is also prone to being hit or skirted by many of the hurricanes occurring during the Atlantic Ocean’s storm season which runs from August through November. In the period 1980 through 1993, three hurricanes hit the island. While these storms did considerable property damage, there was no loss of life. They did disrupt the tourism sector for a period of time after each hit, most notably in the week following the storm.
There is no fresh water on the island. The two principal sources of water are collections from rainfall and a limited amount of brackish water found in low lying pools in the centre of the island. All buildings in Bermuda, including hotels, collect water from their roofs and store it in cisterns located under or beside the buildings. Some of the major hotels also buy brackish water which is piped in and used for non-human consumption purposes.
This case has been prepared solely to provide material for class discussion for BUAD 332 Property Management at Okanagan University College. The author does not intend to illustrate either effective or ineffective handling of a management situation. The author has disguised certain names and other information to protect confidentiality. No form of reproduction, storage or transmittal of this case without written permission is allowed. Copyright © 2004, Michael Conlin. Electrical power is generated by a private utility company located on the north side of the capital city of Hamilton. It is distributed by overhead transmission lines. The company’s generators have proven to be sufficient to meet all of the island’s demands. Disruption in supply seldom occurs and is only really effected during hurricanes or serious storms.
Because of its location, Bermuda’s main economic activity for most of the 20th century had been tourism. Beginning in the late 1970’s, financial management began to grow in significance and the end of the century, had surpassed tourism as the dominant economic sector. However, as of the early 1990’s, it was still unclear that this would turn out to be the case. Indeed, the tourism and finance sectors were engaged in a battle for dominance, including appeal to the Bermudian population in terms of career development.
The College had been established by the Bermuda Government in 1975. Its general mission was to provide general and technical education for the island’s high school leavers in the areas of trades, secretarial science, and business administration and hotel operations. For the first five years, the College was housed in a group of former British military buildings dating back to the 1860’s. The buildings were located on Prospect Hill, 1 mile northeast of the city of Hamilton. These facilities were less than adequate in a number of ways, not the least of which was their deteriorating physical condition.
Oliver Hollingsworth had been hired when the College was created and charged with making the buildings usable by students, teachers and administrators. Although he did not have any formal management or engineering education, he had been involved in the building trades for about 20 years. After his first five years with the College, it was generally considered that he’d done a good job in keeping the old buildings safe and usable.
In that first five year period, enrolments at the College had grown to more than 1,000 students, quite a large number considering that the population of the island was only about 50,000. The Department of Hotel Technology represented one of the largest groups of students at the College, numbering around 150 in five programs, including hotel reception, housekeeping, culinary preparation, bartending and food service. In the 1980’s, the tourism industry represented approximately 50% of the island economy. Virtually all of the College’s graduates took jobs in the island’s wide range of hotels and resorts.
With the growth in enrolments and the importance of the tourism industry, the Bermuda Government agreed that a new campus should be built to accommodate the growing number of students and in particular, those enrolling in hospitality programs. As part of its commitment, the Government acquired a large piece of land on the island’s South Shore, right beside the famous Elbow Beach Hotel. This property was located in the parish of Paget, about 4 miles southwest of Hamilton. The strategic plan called for a phased development consisting initially of a Hotel Department teaching and laboratory building and a small, beach front commercially operated resort hotel.
The College’s enabling legislation, The Bermuda College Act, stipulated that the College would be guided by a Board of Governors consisting of nine persons appointed by the Government. Since its inception, the Board had consisted of prominent Bermudian business people and professionals, each of whom brought particular skills to bear on the challenges and problems of a new and growing public institution. In particular, the Board had always had at least two Governors appointed from the leadership of the island’s tourism industry.
In 1992, the two tourism Governors were Stuart Gaskill, the owner and operator of the island’s most successful cottage colony, and Paul Vinicombe, another owner and operator of one of the island’s oldest cottage colonies. Both of these men had many years of experience managing small, luxury resorts located on beaches. They were generally considered to be two of the island’s best hotel operators.
The Board had created the Hotel Management Committee in the late 1970’s to oversee the development and construction of the Stonington Beach Hotel. By the early 1990’s, the Committee consisted of three Governors; Dr Archibald, the College President; Tom Vincent, the Dean of the Faculty of Hotel and Business Administration; and Bill van der Plog, the Hotel General Manager. Stuart Gaskill was the Chairman of the Committee. He was very supportive of the College and its mission and particularly of the Hotel. He had championed the planned refurbishment with the Board and the Government which would have to provide the funding.
THE STONINGTON CAMPUS
The First Development Phase: 1975-1980
In the period 1975 through to 1980, work commenced on the new campus with the construction of both the Department of Hotel Technology teaching building and the Hotel. Named the Stonington Beach Hotel after the stretch of beach on which it was built, the Hotel opened in August, 1980. It consisted of four accommodation blocks with a total of 64 rooms all facing the Atlantic Ocean and a central building housing the Hotel’s public areas including:
• a 100 seat fine dining room which was named The Norwood Room after Robert Norwood, the original surveyor of the island in the 1700s. The Norwood Room, like most fine dining rooms on the island, specialized in guerdon and flame silver service;
• a fully equipped commercial kitchen which supplied The Norwood Room, special functions at the Hotel, and limited room service. The kitchen also served as a training facility for senior culinary students at the College;
• guest reception and administration facilities. The Hotel Assistant Manager and Controller, Rosemary Phelan, had her office in this wing of the central building;
• a small guest Library with a wood burning fireplace;
• a 20 seat Boardroom which was used by College managers and Governors. It was also rented out to the public;
• and on the ocean side of the central building, a freshwater pool and a patio capable of accommodating approximately 200 guests.
The grounds around the Hotel were landscaped in the traditional Bermuda style with grass and planted palm trees. There was also a paved pathway from the central building leading to the four accommodation wings and down to Stonington Beach. The Beach was approximately 30 feet below the Hotel and its surrounding grounds and was often washed away during the winter season. In the spring, land crabs infested the coastal areas of the island, a phenomena unique to Bermuda, but one which resulted in the Hotel grounds being riddled with holes dug by the crabs.
Bermuda was considered to be one of the most prestigious tourism destinations in the world. Over 90% of the island’s visitors came from the Northeastern United States, had an average age of 55 and average family income which placed them in the top 10% of Americans. Very importantly from the perspective of the hotel industry, over 60% of tourists were repeat visitors with many having come to Bermuda once or twice a year for decades.
The Hotel opened to considerable public acclaim and was a commercial success almost from the day it opened. Exhibit 1 provides some performance data. Exhibit 2 shows the College’s Organizational Chart and the position of Bill’s Hotel in that structure.
Bill van der Plog was the Hotel’s first General Manager and by 1993 was considered by the College’s Board to be a key element of the Hotel’s success. Bill came to the Stonington with 20 years of extensive experience managing resort properties in Bermuda, Jamaica and the Bahamas, culminating with his appointment as General Manager of the famous Paradise Island Resort and Casino in Nassau. He had been educated in hotel operations and management in Europe and was a graduate of the prestigious Ecole Hoteliere de Lausanne in Switzerland.
The Hotel Technology building was a large structure with two training kitchens, a student cafeteria, a simulated fine dining restaurant open to the public, six classrooms, male and female locker rooms including showers, a small library and Departmental offices.
The Second Development Phase: 1975-1990
By 1990, the Stonington Campus was about 80% completed. Since the opening of the Hotel and the Hotel Technology teaching building in 1980, five more buildings had been constructed including:
• The Administration Building which housed the College’s senior management, accounting and personnel functions, Adult and Continuing Education, and the information technology department;
• The Student Centre which housed the College cafeteria, student support services and a large atrium used for public meetings. This building was attached to the Hotel Technology building and the Department’s training kitchens served the College cafeteria;
• The Arts and Sciences Building which housed classrooms, a 120 seat auditorium, foreign language labs, and study halls used primarily by students enrolled in Arts and Sciences programs;
• The Bermuda College Library;
• and The Faculty Office Building which provided office space for the College’s Deans and teaching faculty.
The Administration Building, the College Library and the Faculty Office Building incorporated elevators. All the other buildings on the Stonington Campus were single or two story structures and did not have elevators. Because of cost cutting in the construction of all the buildings, only parts of some buildings were airconditioned.
The main road into the Stonington Campus served both the academic buildings and the Hotel. As a result, the landscaping for the entire campus was a primary consideration. Hotel guests got their first impression of the resort from the academic buildings as they drove down toward the beach.
The Third Development Phase: 1990 onwards
By the early 1990’s, most of the College’s programs were taught and delivered at facilities located on the Stonington Campus. However, the technical and automotive trades where still located on the Prospect Campus in facilities housed in the old military buildings. Enrolment in these programs was approximately 150 students or about 10% of the College’s overall enrolment of 1,500.
The final building to be constructed on the Stonington Campus was the Trades Building which would house classrooms, garages, workshops and other facilities relevant to teaching and training in the trades. The building was expected to be ready for use by 1994, at which time, equipment would be moved from Prospect down to the Stonington Campus. In the meantime, full support, including property maintenance services, would continue to be needed at Prospect.
With the completion of the Trades Building projected to open in 1994, the entire Stonington Campus development plan would be completed. The College did not have any plans for further development on the site. There had been some consideration at Board level about building student residence halls but this was still at the discussion stage. Any action in this area would start no sooner than the late 1990’s.
Tourism in Bermuda dated back to the mid 1800’s. Initially, it was a winter retreat for very wealthy Americans and Europeans, many of whom stayed on the island for several months at a time. In the late 1800’s, several luxury hotels were built to accommodate this rather exclusive class of visitors, the most famous being the Hamilton Princess, now managed by the Canadian Fairmont Hotel group. Beach and ocean front activities were non-existent, in keeping with the fashion norms of that time.
By the early 1900’s, some properties were built on beaches as more tourists came to the island and the interest in ‘sand, surf and sun’ activities began to develop. Because of the exclusive nature of the clientele, the uniquely Bermudian ‘cottage colony’ concept grew in popularity. These resorts were almost all built on beaches and provided guests with individual accommodation in ‘cottages’ usually located around a central building housing food and beverage services. Indeed, Paul Vinicombe’s property, which he inherited from his family. was one of the first such resorts built in Bermuda, dating back to the 1920’s.
After World War II, with the building of the airport by the United States Air Force and the advent of public airplane travel, tourism increased dramatically. The exclusivity of the clientele diminished somewhat and the focus of touristic activity on the island increasingly became centred on waterfront activities. Responding to this increase, a large number of hotels and cottage colonies were built around the island’s coast and by the mid-1970’s, tourism had become the dominant force in the island’s economy.
Tourism in the 1990’s
By the mid-1980’s, visitors to the island began to exceed 500,000 annually. This contributed to the expansion of the island’s tourism infrastructure with more and more hotels and resorts being constructed. This in turn created enormous pressure on hoteliers in terms of increased competition for both clients and employees. As a result, profitability from hotel properties began to fall. After 10 years of operation, the Stonington Beach Hotel was also beginning to feel the pressure on profitability.
And then in the early 1990’s, the First Iraqi War broke out and tourism to Bermuda took a serious downturn. By 1993, the industry was showing signs of recover but had not yet regained the heady levels of a decade earlier. Just as concerning, profit margins had not recovered to the levels of the early 1980’s.
THE HOTEL MANAGEMENT COMMITTEE
It was in this competitive environment that the Hotel Management Committee began in mid-1993 to consider its alternatives for responding to the changes in the market and their impact on the Hotel. As it began its deliberations, the Committee also took into consideration that the Hotel hadn’t received any refurbishment since opening in 1980. The industry standard for major refurbishments was usually based on 10 year cycles.
The Committee’s first step was to ask Bill van der Plog for an assessment of the Hotel’s current state in terms of the physical plant and the current arrangements for property management. The Committee also wanted input regarding the implications for a refurbishment from a marketing perspective.
As he waited for Oliver to arrive, Bill began to list in his mind all the elements he would need to consider in order to meet the Committee’s request. In addition, he was conscious of some of the issues which the Governors on the Board might have a particular interest in. For example, he knew that when Stuart Gaskill first took over the management of his cottage colony about 10 years earlier, he battled an outbreak of salmonella poisoning that almost killed several of his guests and took over six months to eradicate.
As part of his report, Bill would have to make as assessment as to whether the current provision of property services was workable and effective. At times, emergency maintenance for the Hotel was delayed due to demands placed on Oliver’s department by other parts of the College, both at the Stonington and Prospect Campuses. Regular maintenance procedures were scheduled well in advance and for the most part, were performed on time.
He would also have to indicate to the Committee how important refurbishment of the property was for the Hotel’s economic performance and what features were needed if the Hotel were to become more competitive. Nothing specific came to mind but he knew that his competitors were planning on new and innovative developments such as spas and health club facilities.
He also knew that the Committee would need to know when the refurbishments should be done. Clearly, any refurbishment of a hotel property results in disturbance for guests and even the loss of revenue through the closing of rooms or public areas. Bill knew the Committee would be keen to minimize any revenue loss.
Oliver’s role in his report would be very important. Much of the assessment of the current status of the property would be carried out by Oliver. The Committee would also value any input which Oliver made concerning the overall issue of property services management. Finally, Oliver would likely become the project manager for the refurbishment. Bill had an effective working relationship with Oliver but had on occasion, gone over Oliver’s head to the President Archibald when he felt the Hotel wasn’t getting the attention it deserved. How this would affect their relationship in the future, Bill did not know.
As Bill continued to think about the job ahead of him, he realized that far from being a simple matter, the assessment that the Committee had asked him to make was very complex with far reaching consequences for the Hotel. He knew that the first job was to list all the issues that needed his attention in this assessment and to be prepared to make recommendations to the Committee.
Stonington Beach HotelPerformance and Selected Data
Jan Feb Mar Apr May Jun Jly Aug Spt Oct Nov Dec
Monthly Occupancy(% of Rooms Rented) 20 32 40 75 85 99 99 99 80 65 40 65
Average Daily Rate/Room(US$) 289 292 350 360 410 410 420 425 390 350 295 305
College Teaching Terms Winter Winter Winter Winter Fall Fall Fall Fall
Bermuda College Organizational Chart
You are required to analyze the case from the perspective of a consultant to Bill van der Plog. (attached)
You are to write a report to Bill and including appendices and tables, which discusses your analyze and recommendations.
Your task is to identify the key issues which Bill faces as he considers what to recommend to the Board. Obviously, specific issues related to the status of the property will be of primary concern. However, your analysis should include consideration of finance, marketing, human resources, and organizational structure implications as they apply to the property.