Production management

PRODUCTION MANAGEMENT

 

 

 

 

“Production Management” practices of an organization that you know of, or have worked in. 

(Wyndham Hotel Group)

 

 

 

 

 

 

 

 

 

 

 

 

Individual Assignment,

Yuliana Lakhtina.

 

 

January, 2013

 

Tables of Contents

 

 

 

Abstract 3

Introduction 3

The body 4

Operation Management 4

Staffing and Organizational Chart (Cycle time) 6

Input- Transformation - Output Process 8

Yield/Revenue Management 9

Pricing 11

Room-Inventory Management 11

Wyndham Hotel Group 12

Lean Philosophy in Hospitality 13

Conclusion 15

Bibliography 16

 

 

 

 

 
 

 

 

 

Abstract

This document’s goal is to identify and describe the way operation and production management practices can be used for the properties improvements and costs savings.  As hotel companies manage and operate their business, they should focus on several strategies such to achieve the goal. There will be described in text how production management approaches influence hospitality industries.

Introduction

Hospitality industry has been always one of the most growing businesses in the world. People travel all the time and that is why this part of the business is always in the process of development. Nowadays, there are different types of the accommodation available for the customer, which makes it a very competitive industry. However, hotels are still staying the most preferable and comfortable choice for the travelers.

I had a great experience working at the hotel-Wyndham Grand Plaza Royal Hangzhou in China, which is a part of the world known Wyndham Hotel Group.

It is the world's largest provider and franchiser of a diverse field of travel-related products and services for businesses and individual consumers, with brands in lodging franchising, vacation ownership, vacation rentals and vacation exchange. It is composed of more than 7,000 hotels under 13 brands spanning 50 countries and 6 continents, competing in brand markets ranging from economy to upscale Wyndham Hotel Group brands (Baymont Inn & Suites, Days InnHawthorn Suites, Howard Johnson, Knights InnMicrotel, Ramada, Super 8 Hotels, Travelodge, Wingate Inn,  Wyndham Hotels & Resorts, Wyndham Grand Collection). 
 

 

The body

Operation Management

The hotel industry is a billion dollar industry that mostly depends on the availability of free time and disposable income.  The hospitality industry covers a wide range of organizations offering food service and accommodation, meeting and events, gaming, entertainment, recreation and tourism services (STR Global, 2012).

To be succesfull in the large hospitality industry and to lead a big company like Wyndham Hotel Group it is very important to think about its management operations. In order to stay competitive on the market, managers need to use specific strategies which create and control the process of transformation inputs into services and goods. It is series of small operations which work as a function.The use of the right operations helps not to only improve the quality and service of the hotel company, but drive down the costs. They have to follow the Input-Transformation-Output process to maximize their revenue. Moreover, in case with the hotel industry, we are dealing not with only the core product, but also with complementary services which play an essential role for the industry. Thus, in the hotel business 80% job depends on the services, the rest 20% are products whaich refer to the manufacturing sphere of the business. This has an important impact for the quality management  in the tourism and hospitality industries, in that the level of the manufacturing sector is less influencible. However, to provide total customer satisfaction, managers should pay attention to the collaboration of both. 
 
Tangible & Intangible resources

Many ‘manufacturers’ provide service and many service firms make products. Managers of service organizations need to work hard to eliminate unexpected negative surprises and make sure the guests get what they expect. Getting more into details, we have to concentrate on intangibility and tangibility of the products and services.

 

 

 

 

 

 

 

Figure1.  Tangible and Intangible Characteristics

 

 
Only focusing on the tangible aspects will not bring a success to the company, that is why in Wyndham Grand Plaza Royal, management was also oriented on service delivery to the hotel guests. More and more hotels nowadays have a special department concentrated on the Guests’ Relations in order to satisfy customers’ needs.

To be successful, companies in hospitality industries offer a combination between both, tangible and intangible elements.  For example, if take airlines, the transportation would be a form of the intangible service while other aspects like, food, seats, pillows or blanquettes would be the tangible elements. Similarly, hotels offer atmosphere in the lobby which clearly you cannot touch or store and at the same time, there are elements like design, comfortable furniture, architecture which are part of the services.

The service cannot be shown, touched or stored, leisure industries will only able to deliver the service. The specialty of this industry is that there are services which cannot be displayed, tested or evaluated before the purchase itself.

Quality control over a tourism, hospitality and leisure service requires the monitoring of processes and the attitudes of all staff. Consumers expectation change according to different situations, for instance, when guests go to McDonalds they requires good quality food with quick service on the other side, guests at fancy restaurants expect a good food with personalized service. Unlike a bad product, bad service cannot be replaced. But we can improve our services through training the human resources, adopting new techniques, new systems and procedures. Wyndham Grand Plaza used an ongoing process to the improvement achieve this goal. Their success is Service Triangle. Service triangle consists of strategy, system, and people. Strategy means clear cut formula for delivering best goods and services to customers. In this case, system is the way of developing resources for delivering services to customers. The last most important part is people who create a service culture which make the customer satisfied.

The staff will need make a big effort to make the guest forget about the bad experience. That is why there is also a strong human resource dimension to the process, For example, in many hotels front-desk staff may take responsibility for agreeing tariffs and so must have the skills to so. Any obstacle in the way of achieving customer satisfaction must be removed. They know that, if the customer liked the service, he/she will be back which will show the loyalty and every manager knows that loyalty has never been harmful to the property. Bateson and Hoffman (1999) discuss the work of these key members of staff in terms of their boundary spanning roles, responsibilities that provide the critical link between the organization and the environment in which it operates including, crucially, its customers. They noted that “strategically, contact personnel can be the source of product differentiation”.  That is why increasing hotels profitability is depending on the managers and whole staffs performance.

Staffing and Organizational Chart (Cycle time)

As we have determined that services are the most important aspect for the hospitality industries, we should also understand that people, employees who deliver those services are very valuable for the organization. The revenue and the reputation depend on the workers of the property.. It is necessary for each employee to know their own responsibilities and be a professional at the job they are doing. Depending on how good the staff does the job, the work process develops.

If one employee did not accomplished the task at the right time the whole company could suffer because of this. The Life Cycles are very important not only for manufacturing producers but for services companies as well. The Life Cycle is a total time spent from the beginning to the end of the operation or process.

In this case, staff is a major key point of the property. A simple example is a responsibility sharing, for instance, at Front Desk.  If a night shift staff did not finish their work or did not do it a proper way, then the morning and afternoon shift will have problems during the day. First of all, they will spend more time on trying to correct the mistake or to finish the job and second of all, if they will not notice the problem in the beginning, they can lose their profits. Moreover, it is a routine process, as while redoing someone else’s job they will lose their time for doing theirs. The longer the cycle time the more complicated process is and the more costs hotels will have in the future.

Figure2.  Cycle time table

 

All the operations in the travel, leisure and hospitality industries are connected one to another, same for the people.  All the departments have their own duties and tasks, that is why at the Wyndham Grand Plaza all the responsibilities were divided in order to reach their objectives as soon as possible with a maximum profit. 

Figure3. Organizational Chart

 

 

Input- Transformation - Output Process

All the companies use Input-Transformation-Output system to provide goods and services but at the same time, they can vary depending on the operations the particular industry uses. This system identifies process inputs (the information, ideas, resources and raw materials), steps (actions) which needed to be taken to achieve the results which are outputs. If the value of what customers pay for the outputs is more than the cost of the inputs, then the business can be said to have “added value”. There are different types of inputs which can be transformed into outputs. They need to be the right kind of inputs, in the right mix.  
There are some examples what can be an input:

Labour –people involved in the business: employees, suppliers etc. 
Natural resources - actual land, energy etc. 
Capital –physical assets such as machinery, computers, transport which are used during production, the investments that are required in order for the business activities to take place. 
Materials –process the materials to transform their physical properties. Most manufacturing operations are like this but some operations store materials, such as in warehouses. 
Information –process the information to transform their informational properties. Some change the possession, for example market research companies sell information. Some store it, for example libraries. Telecommunication companies, for example, change the location of the information.

Figure3. Input –Transformation - Output Chart

 

 

Speaking about the Hospitality Business in particular, there is a very large number and a variety of inputs/outputs that occur in daily operations. We should pay more attention to the one the most valuable input: Consumers. The output of the process should be: tangible and intangible, in our case, both-goods and services, where the life of a service is often much shorter. To do the transformation in a right way, many firms use Benchmarking - continuously gather date on customers. It helps to evaluate and measure the quality, time and cost needed for the process.

Yield/Revenue Management

The hotel industry is getting more complex and competitive business nowadays. It is extremely difficult managerial task to adjust prices, to deal with distribution, and to apply yield strategy to generate higher revenues. That is why the revenue management (it is also called yield management) techniques are widely used across the hospitality industry. Nevertheless, it was first found and applied by airline industry, the hotels are also making use of it, and Wyndham is not an exception. Wyndham Hotel Group is an enormous hotel chain that enlists the help of Revenue Management computer system, but the procedure and the output are the same.

“Basically, yield management is the process of allocating the right type of capacity to the right kind of customer at the right price so as to maximize revenue or yield”, says Kimes (1989, p.15). But this kind of management is not necessary and is not applicable to every type of firms. There are also some requirements to be met. They are: fixed capacity, perishable inventory, segmentation of demand into clearly identified partitions, product is sold well in advance, demand fluctuates substantially, and marginal sales costs are low but marginal production costs are high (Kimes, 1989).

Figure4. Revenue Management table

Taking all the points into considerations, hotels are included in the category where yield management is adopted. In such a case, it concerned with the number of rooms that should be sold at various levels. Kimes (1989) differentiate two parts hat yield management consists of: pricing and room-inventory management.

Pricing

In today’s hypercompetitive business environment, pricing is the strongest determinant of profit. When the product what is sold is with fixed capacity and cannot be sold the other moment but now, the differentiation of the price for different segments of customers becomes crucial.

It is important to think what people would pay for a certain quantity of product relative to a market price. The more the price he is willing to pay comparing to the market price, the more the customer surplus.  Basing on this, the closer the real price to the price that people are willing to pay, the higher the profit. But people from different segment are not ready to pay the same price, so we need to understand the value of the customer to the company. In the recent past, the room’s price was fixed calculating the process cost, but nowadays the trend is to introduce another variable, the perception of the customer value (Tranter, et al., 2008).

There is no point in pricing at such high level that nobody would buy hotel’s services or products, on by the other hand, there is neither point in pricing at such low level that everybody would buy the hotel’s services or products (Tranter, et al., 2008).

It must have a middle point between these two extreme pricing values. Tranter, et al. (2088) states that there are two things that the hotel should know to price at a correct level and generate the maximum revenue. First, how much it is the customer disposed to pay for the service or product, that’s called the Customer Value, and second, at what price is the hotel disposed to sell to one customer, evaluating the customer’s worth for the hotel. 

Total Customer Value = Perceived Value – Total Acquisition Cost

Customer Worth = (Primary Revenue + Ancillary Revenue – Acquisition Cost) x Propensity to consume

 

To right pricing the hotel has to learn to price to each segment customer to one concrete price, learning to avoid denies and regrets in the reservation process to maximize revenues. If customers moving from their dedicated segment to a lower-revenue segment this is called cannibalization. To avoid cannibalization it is needed to set fences, i.e. restrictions which should make it impossible to freely move from segment to segment.

Room-Inventory Management

Challenging issues for optimal capacity allocation are fixed manufacturing capacity and a highly diversified product portfolio compounded with pronounced fluctuations in demand and profitability (Martínez and Arredondo, 2010).

When focused on controlling inventory, Revenue Management is mainly concerned with how best to price or allocate capacity. When performing room-inventory management, it comes down to trade off between setting the booking limit too high and setting it too low. The right allocation will help to avoid spoilage, having empty rooms although customers were turned down, and dilution, selling capacity to for a lower rate although demand existed at a higher rate.

First, a company can discount products in order to increase volume. By lowering prices on products, a company can overcome weak demand and gain market share, which ultimately increases revenue so long as each product sells for more than its marginal cost (McGill and van Ryzin, 1999). On the other hand, in situations where demand is strong for a product but the threat of cancellations looms (e.g. hotel rooms or airline seats), firms often overbook in order to maximize revenue from full capacity (McGill and van Ryzin, 1999). Overbooking’s focus is increasing the total volume of sales in the presence of cancellations rather than optimizing customer mix.

There are several approaches exist to control room-inventories, which are normally dictated by the computerized system that is used. The most common are booking limits, protection levels, standard nesting /theft nesting, bid prices, displacement Cost. To operate any of this control, a hotel must have historical demand information available by market segment (Kimes, 1989).

Wyndham Hotel Group

Returning back to Wyndham Hotel Group, they are not accidentally one of the leading professionals in what they do.  Wyndham Exchange & Rentals, part of the Wyndham Worldwide (NYSE: WYN) family of companies, recently won an award for its superior revenue management and pricing practices by the Institute for Operations Research and the Management Sciences (INFORMS)(Wyndam Worlwide, 2011).

 “The new system improved customer satisfaction, increased transactions and revenue for Wyndham Exchange & Rentals", stated by Wyndam Worlwide (2011).

 

Lean Philosophy in Hospitality

No doubts, Revenue management is very important for the Leisure and hospitality industries. Organizations need to look broadly into all functions and dynamics for improvement including setup reduction, strategic pricing, supplier influences, inventory and interface between departments. But nowadays, to stay competitive on the market, properties around the world should take into a consideration different techniques in operations as well. Hotels struggle with labor shortage (talking about the difficulty of attracting people to work nights/weekends, long hours), lagging wage rates and impressive turnover. Despite this, companies have problems with evaluating construction and remodeling costs, operational costs and debt. Moreover, this business is dependent on a consumer. That is why companies should constantly go back to changing demographics and seasonality.

Wyndham Grand Plaza Royal applies some of the world’s best operational tools and philosophies such as Lean, Six Sigma and the Theory of Constraints to deal with all difficulties that a hotel can face.

These tools help to achieve better results for the company. They improve overall labor performance, balance capital costs with resulting long term operating expense, rolling out standardized processes across all the properties. Of course, each of the operations has an amazing impact on the hotel, but I would like to address my attention to the, in my opinion, most significant and the most powerful one, Lean production.

• The term ‘lean production’ was first introduced by Womack, Jones and Roos in the book ‘The Machine that Changed the World’ in 1990 (Russell & Taylor, 2006, p685). The origin of this philosophy is Japanese. The purpose is to eliminate or to reduce to the least possible measure all forms of losses and wastes of energy, raw material, time, work, production resources. Some of the most popular terms used for lean production include Just-in-time, Kaizen, Kanban and TQM, to name but a few  Its core principles are based around ‘doing more with less’(Russell & Taylor, 2006, p.685).  
  The Japanese guru Taiichi Ohno, former Chief Engineer for Toyota, has identified seven types of waste which should be reduced or eliminated (Womack and Jones, 2003).   
  
• Transport (moving products that are not actually required to perform the processing)
• Inventory (all components not being processed)
• Motion (people or equipment moving or walking more than is required )
• Waiting (waiting for the next production step)
• Overproduction (production ahead of demand)
• Over Processing (results from poor tool or product design creating activity)
• Defects (the effort involved for fixing defects)

 
In order to fight all this wastes, Lean created five-step process: 
Figure5.  Lean’s principals

 

Even thought, most of the time, when it comes to Lean manufacturing, people could think about product mainly, Lean’s philosophy principles must be applied for the services industries too. In this case, again, employees are the key of success.

For example, all hotel duties should be divided by all personnel. This allows the enterprise to operate with minimal staff and reduce costs while maintaining high quality. Thus, receptionists, in their free time could go to the areas needing assistance like housekeeping or restaurant. Dinner and breakfast at the restaurant can be buffet style, which reduces staffing requirements. Investing in proper cleaning equipment can save time and effort when it comes to the hotel’s daily cleaning.

These small changes can be very challenging but at the same time help companies become more customer-focused, flexible, and profitable. Moreover, once the changes were made, the management should always think about the continuous improvement. Reduced cycle times have given companies, the ability to deliver every time at the same costs to the business (Abdi, Sohrab, & Mohammad, 2006). 
It helps customers continue to get the best service by focusing on how they can save during production and costs reduction.  Hotels should use lean to improve different supply chain processes, such as space utilization at their properties. In today's competitive hotel environment with a lot of pressure to gain shorter product life cycles and with changing customer demands,  a Lean production should be adopted to meet new customer demands ( Lindsay, 2012).  
As soon as the Lean philosophy is in place and every employee of the hotel understands its techniques and rules, it will be a benefit for every department of the property.

Conclusion

In today’s changing hotel environment, it is important to apply costs saving operation. Wyndham Grand Plaza Hotel managers should pay more attention to the changing customers’ demands, how it will influence the costs and what techniques must be used to reduce these costs. It will help them to control expenses on the every level at each department. Since the delivery of the quality service always involves people, this is an issues part for the staffing. It concentrates on the interactions between guests and staff, which are called customer relationships that are the building blocks of the quality hotel service (Lazer & Layton, 1999, p. 1). Cost minimization with the help of right strategies for the staff is an obvious benefit. For employees, this system allows to gain experience in all aspects of hotel operations and gives them an opportunity to have direct input in the continuous improvement. Moreover, by using Total Quality Management, Lean Philosophy, different strategies for input-transformation-output process guarantees meeting guests’ demands and satisfaction, while minimizing different types of wastes.