Playa Dorada Tennis Club - Building New Courts

Overview

Playa Dorada Tennis Club is part of a larger supply network of Playa Dorada, Inc. (PD Inc.) whose most profitable business is selling and managing real estate near their hotel and spa resorts. The tennis club focused on in the case serves as one of the many incentives for customers to vacation at or buy property from PD Inc. Douglass Hall, the tennis director has the bittersweet job of coming up with an expansion plan to address the insufficient capacity of the tennis courts. He needs to set both short-term and long-term solutions for the tennis facility he is responsible for, as well satisfy his colleagues in Marketing, Operations and Finance. The PD tennis facility can be related to a production line, where the process of providing tennis courts for guests does not change (and only requires minimal set up time for ball machines). Hall's challenge, in both the near and distant future, is to increase capacity utilization by smoothing the extreme peaks of demand for court space created daily and seasonally by the muggy Florida weather.

Building new courts

The first solution to increase capacity that Hall is considering is to build four new courts. Since the number of resort guests is expected to double, there is severe need to expand the current court capacity because the popularity of tennis is increasing day by day. It is also mentioned in the case that customers are not happy with the current court capacity as they are facing difficulties in reserving court time. As per the analysis given in the case, tennis was the second largest activity of repeat visitors; therefore it is recommended to expand court capacity. However, any additional expansion beyond four would require new site, staffing and facilities, consequently adding significant operational costs. Thus, the optimal option is to build four new courts within the available space in the existing site. Building four new courts would cost $192,000, ($48,000 x 4 as mentioned in the case). But, we also have to consider if this cost would bring more revenue and whether it would be profitable if implemented. The detailed economic analysis of when to build these new courts is given below in the short-term and long-term strategies with economic analysis. From this analysis, we come to know that Hall should consider building new courts to meet demand in the winter of 2008, not before then.

Figure 1 Monthly Capacities vs. Demands

Short-term vs. Long-term Strategies with Economic Analysis

According to the operating summary of 2006 (Table 1) and the forecasted demands for the next two years (Table 2), we come up with the chart (Figure 1 above) indicating the current and future monthly capacities vs. forecasted monthly demands in the next two years. The future capacity here refers