Case Scenartio: The G-Roy Hotel
(from Management Dilemmas: The Theory of Constraints Approach to Problem Identification and Solutions, Eli Schrageheim, CRC Press, 1999. Page 2-3.)
Roy has planned his new business initiative very carefully. He decided to move into the tourism and resort business, starting with his own hotel at Lake Yuma. Beautiful scenery, peaceful weather, easy access, and old-fashioned, expensive hotels are the only competition. Roy thought that establishing prices 25 percent lower than his competitors would attract many more visitors throughout the year. Coupled with his ideas for keeping costs down, he planned an impressive facility: 400 rooms, two convention halls, a beautiful private beach, and a gourmet restaurant, which was considered an important key to success.
The G-Roy Hotel opened in March 1997. The advertising campaign worked very well. Rooms for the first six months were almost booked up even before the grand opening. Another financial success seemed to await Roy. However, demand dropped sharply. By September, occupancy had dropped to a mere 50 percent compared with the 70 percent occupancy of his conservative competitors during the same month. Because Roy's whole business strategy was to fill up the hotel during the off-peak periods, the prospects of the G-Roy Hotel seemed gloomy indeed.
Roy sat in his office alone. All the reports about the G-Roy Hotel's activities were laid out before his eyes. He had no doubt that the answer to the question "What really went wrong with G-Roy?" was buried somewhere in the huge file of customers' complaints rather than in the business analysis his assistants wrote. The complaints were arranged in categories. There were 204 complaints about the restaurant, 166 complaints about the slow response of the elevators, 127 complaints about the small size of the rooms, 125 complaints about the queue at check-in and check-out, 94 complaints about the cleaning and service of the rooms, 10 complaints about malfunctions of some devices in the rooms, and 7 complaints about improper language by certain employees.
Roy thought about the basic assumptions behind his planning. He assumed that the customers of such a nice resort would be willing to have smaller rooms than customary in exchange for a substantial reduction in price. He was quite prepared for the complaints about the room sizes. It was the other complaints that surprised him. The biggest surprise was the res¬taurant. The vast majority of the complaints were that it was very difficult or even impossible to get a table. Roy had visited many resort hotels and found that on average, only 53 percent of the guests used the restaurant for dinner or lunch, during the two hours when most people eat their meals. He decided to plan the restaurant for 58 percent of the total occupancy of the hotel. Still, people complained that they had to wait too long for tables, even though a careful check had confirmed that only 53 percent of the guests tried to eat at the restaurant during the peak dinner times.
Roy felt angry. He knew the clients were right, but he had tried his best to establish an excellent dining facility. He had hired two notable chefs to run the restaurant. He paid them enormous salaries, but all he got in return were complaints that the kitchen was too small and the pressure was too high.
The elevators were a similar story. The three elevators were carefully calculated to serve 400 rooms on 12 floors. Why were they not enough? Sure, in the first three months there were some troubles with one of the elevators, but that elevator was fixed. The number of complaints was somewhat reduced, but new complaints continued.
So, what is wrong with the G-Roy Hotel? Is it impossible to design a hotel that will not simply waste money?
Required to do:
Question 1: What is limiting the G-Roy Hotel from making more money? What is the system constraint(s) for this organization (IDENTIFICATION)? Explain your answer completely (do not just list the constraint(s)).
Question 2: What SHOULD be the constraint of a Hotel? Is this the case with the G-Roy Hotel? Defend and explain your answer.
Question 3: Apply the Constraint Theory concept of SUBORDINATION to problems with (a) the elevators? To (b) the restaurant? To (c) registration, and to (d) checkout?
Question 4: Would it be wise to plan excess capacity and capability in all parts of the system, even if all of the hotel's rooms are fully occupied, such that service is never compromised? Explain your answer completely.
Question 5: Suppose a Tour Operator suggests that the G-Roy Hotel reserve 10 rooms throughout the whole year for a mere 50 percent of the regular rate (assume the regular rate is $100 per night). How should the hotel manager go about deciding whether or not to do this? Explain completely.