Introduction

Fitness Plus is a full-service health and sports club in Greensboro, North

Carolina. In year 2005, membership has increased to a point where customer
complaints about overcrowding and unavailability of equipment. Past research
indicated that individuals work out an average of 60 minutes per visit. Fitness Plus
would like to know the utilization level of existing capacity and decide what to do to
next. In addition, the downtown area just received a major facelift, many businesses
and offices were moving back to the city causing resurgence in activity. There are
new competitors who just entered the market owing to increase in population which
are YMCA, Oasis and Gold’s Gym. YMCA is focusing on providing low cost
services, Oasis caters to young adult who above 16 years old and Gold’s Gym
providing weight and cardiovascular training only.

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Question 1

What method would you use to measure the capacity of Fitness Plus? Has Fitness
Plus reached its capacity?

In the cases of Fitness Plus, Input Measures of Capacity is more appropriate to be

used to measure the capacity of Fitness Plus. This is because Fitness Plus is operating
in a flexible flow process which involving high product variety and process
divergence. i.e., members choose their own workouts.

There are 3 primary activities that support by the club which are fitness, recreation,
and relaxation. However we are able to measure the input for only 6 of the following
activities. The focus will be on the three areas of most customer complaints centered:
aerobics, cardiovascular, and nautilus areas during peak periods.

Facilities Input Measure of Assumption

Capacity
Aerobics 35 people per hour Assuming individuals work out an
Cardiovascular 29 pieces of equipment
average of 60 minutes per visit
per hour
Nautilus 24 pieces of equipment
per hour
Free Weight - -
Racquetball courts 16 people per hour 8 racquetball courts and 6 tennis
Tennis courts 12 people per hour
courts available. Assuming 2
people playing for 60 minutes per
visit to each court.

Facilities Usage (%) Average Peak hour Capacity Peak hour

(mph) (mph) per hour Cushion
Aerobics 30% 3 9 35 74.3%
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Cardiovascular 40% 4 11 29 62.0%
Nautilus 25% 3 7 24 70.8%
Free Weights 20% 2 6 - -
Racquetball court 15% 2 4 16 75%
Tennis court 10% 1 3 12 75%
140% 15 40 116
Year 2000
mph= members per hour

Facilities Average Capacity Average Utilization

(mph) per hour = (10∕88) x 100%
Aerobics 3 35 = 11.4%
Cardiovascular 4 29
Average Capacity Cushion
Nautilus 3 24
= 100% - 11.40%
10 88 = 88.6%

Facilities Peak hour Capacity Peak hour Utilization

(mph) per hour = (27∕88) x 100%
Aerobics 9 35 = 30.7%
Cardiovascular 11 29
Peak hour Capacity Cushion
Nautilus 7 24
= 100% - 30.70%
27 88 = 69.3%

mph
Slow Period 8
Average 15
Peak hour 40
mph= members per hour

Year 2005
mph= members per hour

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 Facilities Usage(%) Average Peak hour Capacity Peak hour
(mph) (mph) per hour Cushion
Aerobics 30% 5 17 35 51.4%
Cardiovascular 40% 7 23 29 20.7%
Nautilus 25% 4 14 24 41.7%
Free Weights 20% 4 11 - -
Racquetball court 15% 3 9 16 43.8%
Tennis court 10% 2 6 12 50%
140% 25 80 116

Facilities Average Capacity Average Utilization

(mph) per hour = (16∕88) x 100%
Aerobics 5 35 = 18.2%
Cardiovascular 7 29
Average Capacity Cushion
Nautilus 4 24
= 100% - 11.40%
16 88 = 81.8%

Facilities Peak hour Capacity Peak hour Utilization

(mph) per hour = (54∕88) x 100%
Aerobics 17 35 = 61.4%
Cardiovascular 23 29
Peak hour Capacity Cushion
Nautilus 14 24
= 100% - 61.4%
54 88 = 38.6%

mph
Slow Period 10
Average 25
Peak hour 80
mph= members per hour

Year 2000 2005

Slow Period (mph) 8 10
Average (mph) 15 25
Peak Period (mph) 40 80
Average Capacity Cushion 88.6% 81.8%
Peak hour Capacity Cushion 69.3% 38.6%
Looking at the capacity table of year 2000 and 2005, it would seem that the club areas
of aerobics, nautilus and cardiovascular could easily accommodate average demand

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where capacity cushion of year 2000 and 2005 are 88.6% and 81.8% respectively.
Although average peak hour demand of aerobics, nautilus and cardiovascular have not
exceeded maximum capacity, there are complaints on these areas at year 2005
because more capacity cushion are needed during peak hour. As we notice that peak
hour capacity cushion for aerobics, nautilus and cardiovascular have been declined
dramatically from 69.3% to 38.6%. The complaints for aerobics and nautilus might
due to the reason that some members use more than one area of the club within the
average hour spent in Fitness Plus. Many members may also workout for more than
one hour. To overcome this problem, a larger capacity cushion is needed to provide
more buffers. The suggested peak hour capacity cushion is 69.3% where there is no
complaint at year 2000.

Question 2

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Which capacity strategy would be appropriate for Fitness Plus? Justify your answer.

Step 1: Estimate future capacity requirements

Year 2000 2005

Slow Period (mph) 8 10
Average (mph) 15 25
Peak Period (mph) 40 80
Average Capacity Cushion 88.6% 81.8%
Peak hour Capacity Cushion 69.3% 38.6%

Facilities Peak hour Capacity

Aerobics 17 35
Cardiovascular 23 29
Nautilus 14 24
54 88
Demand and Capacity of Year 2005

There is no mention of complaining during year 2000 where the peak hour
capacity cushion is 69.3%. Current capacity measured as inputs for the Nautilus,
cardiovascular, and aerobics fitness areas is 88 members per hour. To get 69.3% peak
hour capacity cushion like in 2000, with an average of 54 members per peak hour of
year 2005, the capacity would have to be increased to 176 members per hour.

Capacity Cushion = (Max Capacity- Output rate) x 100%

Max Capacity

0.693 = (X-54/X)
0.693X = X-54
54= 0.307X
X= 176

Hence, capacity would have to be increased to 176 members per hour

Peak
An hour Utilization
alternative Limit
calculation as follows,
= 100% - 69.3%
= 30.7%

Peak hour Utilization

30.7%= (54∕X) x 100% 6
0.307 = (54/X)
X= 176
The following tables show the forecast demand for year 2010:

Year 2010
Slow Period (mph) 12
Average (mph) 35
Peak Period (mph) 120
Forecast demand for year 2010

Facilities Usage (%) Peak Hour (mph)

Aerobics 30% 26
Cardiovascular 40% 34
Nautilus 25% 21
Free Weight 20% 17
Racquetball court 15% 13
Tennis court 10% 9
140% 120

Facilities Peak hour Capacity

Aerobics 26 35
Cardiovascular 34 29
Nautilus 21 24
81 88

Current capacity measured as inputs for the Nautilus, cardiovascular, and aerobics
fitness areas is 88 members per hour. To get 69.3% peak hour capacity cushion like in
2000, with a forecast average of 81 members per peak hour of year 2010, the capacity
would have to be increased to 263 members per hour.

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 Capacity Cushion = (Max Capacity- Output rate) x 100%
Max Capacity

0.693 = (X-81/X)
0.693X = X-81
81= 0.307X
X= 263

Hence, capacity would have to be increased to 263 members per hour in next 5 years

Desired Desired
Capacity 2005 Capacity 2010
176 263

Estimated capacity requirements can also be calculated by using the equation below.
However, assumptions were made in this case study to further investigate the capacity
required by Fitness Plus as no direct figures provided.

Number of machines required = [Forecast # customers/year] x Customer time per machine

hrs avail from machine per yr less desired capacity cushion

Number of facilities required = [ 81/hour]x 1 hour

88 –[88x0.693]

= 81
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= 3

From the equation, Fitness Plus needs 3 times the size of its current capacity to fully satisfy
customer by year 2010.

Step 2: Identify gaps by comparing requirements with available capacity

Customers of Fitness Plus have been complaining about the overloading as a

result of unavailability of equipment centered on the Nautilus, cardiovascular and

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aerobics fitness areas. This is due to the rapid growth of membership and especially
high demand on peak hours. Apparently, these overcrowded areas are the main causes
of complaints.

The main issue that we need to figure out in this step is the gap between the
current capacity and desired capacity. By looking on the analysis above, the desired
capacity for year 2005 is 176 members per hour while the required capacity forecast is
up to 263 members per hour. In order to satisfy the increasing demand of customer,
Fitness plus may have to expand two additional facilities by year 2010. Therefore,
Fitness Plus needs to recognize their customers’ needs and develop strategies to fulfill
the gaps between current capacity and desired capacity.

At the same time, Fitness Plus has to understand the constraints and further analyze
the alternatives to close the gaps. There are 2 constraints in practice:

 Financial resources are not available to expand the existing facilities and
open a new facility at the same time.

 Limited amount of land at the current side

Step 3: Develop alternatives plans for reducing the gaps

There are two extreme strategies for expanding capacity which are the expansionist
strategy and the wait and see strategy.

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Wait-and-See Strategy

Wait-and-see strategy involves the expansion in smaller frequent jumps which

means expansion in smaller increments. In other words, facility expansion typically
occurs in a series of small steps that lag behind demand. This strategy follows the
demand, so it reduces the risks of overexpansion based on overly optimistic demand
forecasts, obsolete technology or inaccurate assumptions regarding the competition.
There are two options by applying wait and see strategy which are

 Expand the capacity of the facility

 Extend business hours

Expansion of the existing facility at Fitness Plus could only provide small boost
in capacity due to the constraints of limited land at current site. Furthermore, it may
foster the development of a new layout for the facility. Expansion of existing facility
may increase the space, equipment and peak capacity of some areas and reduce or
eliminate others. The expansion of the existing facility will take four months to be
completed. The facility risks of losing business if the market place expands faster than
projected.

Another option of applying wait and see strategy is to extend business hours. The
increasing operation hours could spread demand over the longer hours. However, it
might not appropriable in the case of Fitness plus because most of the complaints are
due to peak hours centered on Nautilus, cardiovascular and aerobics fitness areas.
Expansionist Strategy

Expansionist strategy involves large and infrequent jumps in capacity. This

strategy stays ahead of demand. This means that the capacity actually lead the

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demand. In the case of Fitness Plus, the only option of applying expansionist strategy
is to

 Build an additional facility.

This new facility will eliminate the overloading at the Nautilus, cardiovascular
and aerobics fitness areas. This is because these popular areas will be transferred to
the new facility that will be designed to accommodate large number of members.

Besides, the new built facility will have the potential to increase its market share
since the population is foreseeing to be increased in near future. By building a large
sufficient capacity facility, Fitness plus stay ahead of its competitors in the market.
Apparently, this strategy is suitable for long-term expansion plan.

Step 4: Evaluate each alternatives in qualitative and quantitative

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 The alternatives are based on both qualitative and quantitative terms, including
capacity strategy, market competition and financial analysis with cost estimates and
cash flows. The first alternative is wait-and-see strategy and the second alternative is
the expansionist strategy. The expansionist strategy involves building a new facility
and the wait-and-see strategy involves expanding the existing facility or expands
operating hours. Below are the qualitative measures for both strategies:

Wait and See Strategy

Advantages Disadvantages
Maximum Utilization Big Loss if demand increase significantly
Lower Cost
Adaptive to new technology

Expansionist Strategy
Advantages Disadvantages
Stay Ahead in Market Risky
Satisfy High Demand High Cost
Retain Customers
Applicable for Long term

Wait-and-See

Expand the capacity of the existing facility.

As we can see from the data, the average number of members arriving per hour
varies a lot between the slow periods and peak times. The peak hour capacity cushion
in 2000 was 69.3%. There is no mention of complaining during year 2000. However,

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the peak hour capacity cushion in 2005 has dropped to 38.6% and there are
complaints. Current capacity measured as inputs for the Nautilus, cardiovascular, and
aerobics fitness areas is 88 members per hour. To get 69.3% capacity cushion like in
2000, with an average of 54 members per peak hour of year 2005, the capacity would
have to be increased to 176 members per hour. Particular consideration need to be
focused on the cardiovascular area where peak time capacity cushion is just 20.7% at
year 2005. Because of the limited amount of land at the current facility and significant
increase in forecast demand, expansion of existing facility from 88 to 176 members
per hour is probably not feasible.

Extend business hours

Operation Hours
Monday through Thursday 6:30 a.m. to 11:00 p.m.
Friday and Saturday 6:30 a.m. to 8:00 p.m.
Sunday 12:00 p.m. to 8:00 p.m.

The club is currently open 101 hours per week. Expand the operating hours could
spread out the number of customers during the day. However, peak times will still
exist and that is where customers complain about overcrowding and unavailability of
equipment. Thus, extending business hours is not a good solution.

Expansionist Strategy

Build an additional facility

Competition of fitness clubs already exists in the downtown market since a major
facelift in downtown. A new YMCA fitness centre and 2 other new health and fitness

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facilities had opened in year 2004 with only 10-15 minutes away from Fitness Plus.
However, members are still coming to Fitness Plus and brought complaints of
overcrowding. It shows that Fitness Plus is still having favorable position in the
market. According to the data, Fitness Plus needs to have capacity of 176 members
per hour (69.3% Capacity Cushion) in year 2005 and forecast capacity of 263
members per hour (69.3% Capacity Cushion) by 2010 to satisfy every customer
during peak hours. Building a new Fitness Plus club at downtown area will encourage
some of the current members who are closer to downtown start using facility in the
new location. It would solve the problem of overcrowding during peak hours and
hence reduce the number of unsatisfied customers. When the demand has been
fulfilled, Fitness Plus may avoid customers from switching to other service provider
like YMCA.

In addition, the resurgence of activity in the downtown area has brought

increasing population and new businesses. They can have the new facility ready by
November given that building an additional facility would take 6 months. By then,
Fitness Plus could engage the market aggressively by attracting potential members
who are closer to downtown especially on enrollment month- January next year. The
new facility acts as a platform to get a piece of market in downtown hence strengthen
their base of customers. With this strategy, Fitness Plus is able to monopolize the
market in long term.

Besides, presence of sizable economies of scale in areas of operation is the

biggest advantage. Fitness Plus enjoys cost advantages if they expand a new facility
due to higher volume of operation. It builds a barrier to prevent new entrants move in
the market because new entrants might not be able to compete with Fitness Plus in
term of member fees. More often than not, new entrants would not enter on large
scale which involves big money investment which is costly and extremely risky.

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 Therefore, the best choice would be the expansionist strategy given the steady
population increase and higher demands. This capacity strategy will keep Fitness Plus
ahead of customer demand. Since Fitness Plus is competing in full range of services
compare to the YMCA, they should take initiative to implement its long term plan
before other competitors so that would limit the possibilities of competitors to expand.
Competitors may have to consider the increasing risk of overburdening the market
with excessive capacity.

Question 3
How would you link the capacity decision being made by Fitness Plus to other types
of operating decisions?

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 Fitness Plus’s decision to adopt expansionist strategy plan by building a new
facility rather than renovating existing facility will definitely affect their operating
activities and operating decisions in the future. In fact, the company’s operating
decisions may have to be restructured or redesigned to accommodate the expansion of
a new facility in order to meet customers’ demand. Fundamentally, there are 4 other
aspects of operating activities that we should focus into.

Competitive Priorities

Basically the decision to build a new health and fitness facility must be well
aligned with the competitive priorities of Fitness Plus. There are four dimensions of
competitive priorities which are cost, quality, time, and flexibility. We know that
Fitness plus is a services based business where quality of the services are
tremendously important in building up core competency of the company. In other
word, it is the competitive priorities of Fitness Plus that will eventually decide the
operating decisions that they will engage in. As a health and fitness center, high
degree of customer contact is vital and unavoidable. Therefore, level of service
provided in both new and current facility should be monitored closely to assure top
and consistent quality of services. Those who have sign up for membership are more
likely to continue the services and have an engagement to Fitness Plus. Consequently,
the ability to build a good customer base in the early periods of operations is
advantageous to the company in the long run.

The few aspects of services that we would like to emphasize are politeness,
courtesy, helpfulness, cooperation, and the quality of equipments in each facility. It is
essential to practice such positive characteristics in Fitness Plus. A good customer
relationship management acts as a platform in attracting new customers as well as
retains current members of the club. The problems emerged in the club should be
taken care of by providing immediate assistance and support from the staff whenever

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necessary. Besides, Fitness Plus should have top quality in other facilities and services
such as bathroom, spa, unlimited one-on-one training and nutritional guidance. For
instances, bathtub should be equipped with a special system of nozzles with
adjustable angle depending on the needs of bather, with a choice of massage. They
may have music in rest room for relaxing the body and soothe the nerves. Personal
trainer and appropriate nutritional guidance should be provided to customers for
systematic training. Consequently, quality of services should always be consistent
from time to time.

In a nut shell, expand decisions have to be aligned with competitive priorities in

order to strengthen their core competencies and therefore position the club in
advantages.

Processes Analysis

Processes Analysis is necessary in Fitness plus to improve or maintain the

effectiveness and efficiency of process flow. One of the reasons to analyze process is
to reduce budgeting amount and allocating resources more effectively. When they
build an additional facility, it involves large investment of capital and higher
operating cost. In fact, redesigning of processes flow may needed to improve the
overall performance. The operating cost that needed for human resources rises due to
the expansion. They have to hire new personnel in the new health and fitness center
such as gym instructors and general janitors. Moreover, new facility would need
professional staffs to perform their duty. It is essential to provide trainings for the
staffs as they should possess adequate competence and knowledge to respond to any
reasonable and foreseeable emergency situation that threatens the safety of its
members. Regard as Fitness Plus may not have as much of resources available after
the expansion, resources and operating cost should be reduced wherever possible
without affecting the effectiveness of business operating activities.

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Layout design

The daily operating activities of the current facility should have reflected the
usage and demand level for each activity. According to the usage pattern, the main 3
fitness activities are highest in demand where they often got floated in population.
Therefore, greater attention should be given in considering these fitness activities’
layout. It is suggested that Nautilus, cardiovascular and fitness areas should have
larger allocation of space in the new facility so it could satisfy customers better with
more available equipments.

In addition, layout of the new facility must be designed by considering the usage
of each health and fitness activity, numbers of new equipments, duration of each
activity demanded, non-peak and peak periods of customer usage. The allocation and
scheduling of every activity should be appropriately determined so that every
customer will be entitled to receive a fair share of usage regardless non-peak or peak
hours. Specifically, layout should be designed in the way that provides required
capacity cushion, possess sufficient flexibility for increasing demand of customers.

Break even analysis

Finally, the capacity expansion decision requires close coordination with the
company’s marketing activities. Break-even analysis must be performed to evaluate
the decision of building additional facility. There are 3 answers that Fitness Plus
needs for making better decisions.

1. Is the predicted demand volume of service sufficient to break-even?

2. What are the minimum new members needed to be break even the cost?
3. How does price level affect the break even volume?

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 With the data collected from break-even analysis, Fitness Plus may plan for
strategies to promote the new facility and attract new customers. The expansion of
new facility would fail if the cost could not be break even. Therefore, Fitness Plus
should increase their marketing effort and develop unique marketing activities to
attract new potential customers. For examples by introducing cheaper membership
that only be allowed to check in during low period, offering short term fitness project
and family membership’s package. They have to be sensitive to the changing demand
and then develop strategies to satisfy customers’ needs from time to time. Ultimately,
draw new customers to join the membership club as well as retaining current
members.

On the other hand, Fitness Plus should consider the effect of changes in
membership fees. The decision to charge higher fees to cover for the costs of new
facility may raise dissatisfaction and leads to profit losing as a result of low demand.
They should monitor closely on the effect of price and demand on break even volume.
If lower member fees could bring more customers and profits, instead, Fitness Plus
may consider charging a lower fee to attract more customers to the new market area.
If the data turn out different, they shall consider a markup in member fees.

In conclusion, decision of building addition facility will need some adjustments

of operating decisions and activities in Fitness Plus. Any expansion generally entails a
greater outlook into the future and represents a long time investment. Therefore, it is
important to ensure that every department collaborates closely with one another to
achieve the desired outcome.

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