Submit a report of no more than one page answering the following question:
Read the Quinte MRI case, and identify steps/resources in the Quinte MRI’s own process (i.e., not including processes outside of Quinte MRI’s own operations such as transcription etc.), and develop a flowchart of the process. Calculate the capacity for each resource in the flowchart. Assume that the average time to print and collect films for a patient is 4 minutes.
Where is the bottleneck in Quinte MRI’s process?
Hint: What are the major resources that are being utilized in the process? They are the technologist, and the MRI machine. Estimate the capacity for each major resource in your chosen unit of analysis (e.g., patients per unit of time).

Please develop a flowchart of the National Cranberry’s process with major steps. Then, calculate the capacity for each step in the flowchart. Please keep it simple; the flowchart can be simplified, but should contain the major steps and relevant information.
Now, assume an incoming flow of 18,000 bbls/day, arriving equally spaced over 12 hours, with a 70%/30% mix (wet/dry). Where is the bottleneck in the process?

S w

9B02D024

QUINTE MRI

David Wright and Kevin Saskiw prepared this case under the supervision of Professors Carol Prahinski and John Haywood-Farmer
solely to provide material for class discussion. The authors do not intend to illustrate either effective or ineffective handling of a
managerial situation. The authors may have disguised certain names and other identifying information to protect confidentiality.

Ivey Management Services prohibits any form of reproduction, storage or transmittal without its written permission. Reproduction of
this material is not covered under authorization by any reproduction rights organization. To order copies or request permission to
reproduce materials, contact Ivey Publishing, Ivey Management Services, c/o Richard Ivey School of Business, The University of
Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.

Copyright © 2002, Ivey Management Services Version: (A) 2009-11-3

0

On June 12, 2002, David Wright and his colleague, Kevin Saskiw, business development co-ordinators at
Quinte MRI in Belleville, Ontario, were trying to decide what to propose regarding the magnetic resonance
imaging (MRI) facility at Benton-Cooper Medical Center (BCMC) in Palmer, New York. Both men were
frustrated and confused. Although the BCMC facility was only six weeks old, it already had a waiting list
of 14 days for MRI scans. Because of this backlog, physicians had begun to refer their patients to
competing MRI clinics. Dr. Syed Haider, Quinte MRI’s chief executive officer, expected Wright’s and
Saskiw’s recommendations and action plan in two days.

QUINTE MRI

Quinte MRI, Inc. was a small (annual revenues of $1.5 million),1 but growing, international service
provider specializing in medical diagnostic technologies, including MRI, nuclear medicine, ultrasound,
computerized tomography (CT) scanning, bone densitometry, mammography and teleradiology services.
The company helped design, install and operate scanning centres, and provided continued training and
support for data interpretation. It maintained a variety of exclusive or partnership business arrangements
with both fixed-site and mobile service turnkey operations. Quinte MRI’s equipment and components
were from many leading manufacturers.

Quinte MRI’s founder, Dr. Syed Haider, received his PhD in electron spin resonance and nuclear magnetic
resonance from the University of Wales. After a short time as professor at the University of Guelph, he
became a physics and chemistry teacher at Centennial Secondary School in Belleville, Ontario, in 1968.
When he retired 30 years later, he started Quinte MRI. Haider firmly believed that the residents of small
communities deserved the same level of health services as residents of large urban centres. However, MRI
systems in small communities were rare. Haider’s first attempt to establish an MRI facility (in Belleville)
was unsuccessful because Canadian regulations prohibited private-sector MRI. Thus, he turned to the
Caribbean and the United States.

1All currency in this case is expressed in United States dollars. In June 2002, the Canadian dollar traded at about US$0.63.

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Page 2 9B02D024

Quinte MRI had established facilities in five locations: the company headquarters in Belleville; a
partnership arrangement with a radiologist in Laval, Quebec; and private MRI clinics in St. Louis,
Missouri, the Cayman Islands, and Palmer, New York. With the exception of the Palmer facility, Quinte
MRI held an interest of less than 20 per cent in each clinic. In June 2002, the company employed a total of
about 20 people.

Quinte MRI served three distinct client groups:

1. Hospitals seeking to outsource their diagnostic imaging services were particularly interested in service

reliability, access to the diagnostic equipment 24 hours per day, seven days per week and reasonable
cost.

2. Physicians wanting to be partners in an independent diagnostic imaging centre saw cash flow,
accessibility to the equipment and the strength of the relationship with their diagnostic imaging partner
as major criteria.

3. Individuals wanting to operate their own diagnostic imaging centre, using Quinte MRI as a consultant
in developing and carrying out the necessary steps to establish the clinic, wanted freedom from the
hassles involved with establishing the business and were willing to pay a 10 per cent project
development fee.

SCANNING TECHNOLOGY2

Various scanning technologies produced high quality images of the human body. The most obvious
imaging technique was to use a camera to capture a visual image on photographic film. Although this
technology was simple, it could be invasive, as surgery or probes were required for images of internal
tissues, and it was normally limited to the wavelength range of visible light.

Modern scanning began in 1895 with the discovery that tissues absorbed X-rays. Although X-ray
technology was relatively easy to use and gave high-resolution scans, the rays were penetrating and
potentially dangerous,3 and gave unclear images of some body features. They were particularly suited for
examining tissue abnormalities, such as fractures, malignant tumors and respiratory diseases.

The 1970s saw the first of an explosion in imaging techniques, all of which relied on computers to help
gather and analyse scanning data in electronic form. Computerized tomography (CT) relied on a series of
X-rays from various angles that were combined to provide a three-dimensional picture from which two-
dimensional images from any angle and at any depth could be derived. In positron emission tomography
(PET), the patient ingested a positron-emitting radioactive substance that could be monitored as it
proceeded through the body. In the closely related technique known as single-photon emission computed
tomography (SPECT), the ingested active component emitted high-energy photons. In ultrasound (US),
sound waves were bounced off tissues or objects inside the body; the reflected sound waves were
converted into an image.

MRI relied on the fact that diamagnetic nuclei (those with magnetic moments) interacted with strong
magnetic fields to create their own small magnetic fields. The induced fields were studied using variable

2Much of the material in this section was adapted from the Web site:

www.whitaker.org/94_annual_report/over.html, September 20, 2002.
3Although X-rays were potentially dangerous, the low intensity of the radiation and the short duration of typical scans had
effectively eliminated the danger to patients. However, medical personnel faced a much higher risk, as they received
repeated exposure to this radiation.

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Page 3 9B02D024

frequency electromagnetic signals. At a certain frequency, the induced field resonated with the
electromagnetic signal; this resonance was measured. Water comprised some 70 per cent of the human
body, making hydrogen, which was diamagnetic and thus gave an MRI signal, the most common atom in
living tissue. Although MRI did not involve the radiation danger of many other scanning techniques, it
could heat up the tissues if the radio frequency was too intense. Also, because ferromagnetic materials —
those containing iron, nickel or cobalt — interacted strongly with magnetic fields, people with screws,
plates or other ferromagnetic materials such as pacemakers or metal fragments in their bodies could not be
scanned with MRI. Doing so gave poor resolution scans and could be dangerous to the patient.

The many types of scans were valuable and complementary because they relied on different physical
phenomena and gave different information. Although X-ray scans differentiated among tissues based on
their density, MRI differentiated based on the tissues’ water content. Whereas X-rays and MRI gave
information about internal structures, PET, SPECT and US could be used to observe biochemical
processes, such as metabolism and fluid flow, as they occurred.

Active research continued in scanning technology and techniques. Although conventional MR machines
were multi-purpose and expensive, many newer ones were smaller, cheaper, tailored for a particular part of
the body and more patient-friendly, with reduced noise and open on one side to reduce the patient’s
feelings of claustrophobia. Other research streams aimed to (1) improve the MRI image and scanning
depth capabilities by modulating the frequency of the electromagnetic signal; (2) broaden the scanning
technique to other diamagnetic atoms, such as carbon, sodium and phosphorus; (3) develop ways to
monitor body processes with MRI, (4) combine two or more scanning techniques; and (5) expand the ways
in which these technologies could be applied.

Image quality depended critically on the strength of the magnet and the time required to produce the
image. In 2002, the newest generations of magnets approved for clinical use were 3.0 Tesla, whereas the
previous standard had been 1.5 Tesla and 0.7 Tesla for the closed and open MRI unit, respectively.4
Exhibit 1 shows a photograph of a 1.5 Tesla short-bore MRI system. A typical exam took from 30 to 45
minutes, although some exams could be completed in 10 minutes.

MRI had become increasingly popular within the medical profession. In 1998, an estimated 11.9 million
MRI procedures had been performed in the United States; by 2001, this number had risen to 18 million
procedures. In addition to growth in the number of scans, the number of hospital and non-hospital
scanning sites had risen from 4,490 in 1998 to 5,550 in 2001.5

MRI equipment represented a significant investment. In 2002, the approximate cost of an MR machine
was $1.5 million to $3.5 million. In addition, the facility required space6 and the equipment required
shielding from magnetic fields. Installation, including shielding, cost $250,000 to $500,000 depending on
the extent of renovations required. The typical reimbursement from United States insurance companies
was $700 per scan. Exhibit 2 shows operating costs, which Quinte MRI’s managers believed were
conservative, for a typical MRI facility.

4By way of comparison, a 1.0 Tesla magnet had a magnetic field about 20,000 times stronger than the Earth’s natural
magnetic field.
5Van Houten, Ben, IMV Census Shows MRI Growth, Decisions in Imaging Economics, 15 (8), August 2002, page 8.
6For example, a model facility proposed by General Electric occupied 167 square metres gross and 154 square metres net.

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BENTON-COOPER MEDICAL CENTER

Benton-Cooper Medical Center was a private, not-for-profit, 144-bed community hospital and regional
cancer centre that provided primary care to the nearly 16,000 residents of Palmer and regional services to
the 118,000 people in Adelaide County, which was in a largely rural area. BCMC had an active medical
staff of more than 40 physicians, representing over 20 specialties.

Although Creston, another Adelaide County community of 19,000, about 40 kilometres from Palmer, had
two 200-bed hospital facilities with MR machines, BCMC’s administrators believed that there was an
opportunity to compete successfully with a third MR machine. The primary reason for this view was that
there appeared to be enough demand — in the United States the annual scan rate was approximately 68 per
1,000 people and the cancer rate in Adelaide County was somewhat higher than the national average.
Second, the administrators anticipated that overall demand for MRI scans in Adelaide County would
continue to grow at approximately 15 per cent per year. However, they recognized that the number of
scans depended critically on the number of doctors practising various specialties. Because the MRI centre
would get referrals from the hospital doctors and promotional support for advertisements with the local
print and radio stations, the administrators believed that they would be able to generate sufficient volumes
for their own fixed MR systems. In conjunction with the hospital administrators, Quinte MRI staff
developed the monthly demand forecasts shown in Exhibit 3, which reflect seasonality owing to doctor
vacation schedules and statutory holidays. And finally, the administrators were concerned that if they did
not have an MR machine, BCMC would become a second-rate hospital.

During the winter of 2001-02, BCMC decided to replace its MRI service provider because the medical
centre wanted to increase the number of days of operation beyond the current two days per week. As they
searched for a replacement, the administrators became aware of Quinte MRI’s impressive capabilities, such
as availability for 24 hours per day and seven days per week, and Haider’s integrity and personal
attentiveness.

In February 2002, BCMC’s chief executive and board approved the outsourcing of MRI services to Quinte
MRI. The agreement specified that Quinte MRI would own 100 per cent of the MRI centre, including
imaging equipment, and would be responsible for most of its operation and management, including the
hiring and salary of MR technologists to conduct the actual procedures. Quinte MRI would bill the
hospital on a fee per scan basis. In the negotiation process, the anticipated average revenue was adjusted
based on the expenses that would be covered by BCMC. The hospital would pay the salary and expenses
of the radiologist, who would analyse the MRI scan and report the results. The hospital would also
schedule the MRI clinic. It would charge Quinte MRI $140 and $5 per scan, respectively, for these two
activities. The imaging suite was housed in a trailer connected to a hospital corridor. The other required
functions were housed inside the hospital, some distance from the scanning suite. Exhibit 4 shows a
layout of the radiology department. The MRI clinic began operations on May 1, 2002.

At the hospital’s request, Quinte MRI leased one 1.5-Tesla General Electric (GE) short-bore high-speed
MRI system, as shown in Exhibit 1. Although the rated capacity of the machine was two patients per
hour, the actual number of scans in any period of time would depend on the types of exams being
performed. For example, as shown in Exhibit 5, an abdominal MRI scan without contrast was projected to
take 30 minutes, whereas an abdominal scan with contrast was projected to take 45 minutes. Contrast,
which provided a more detailed image, was usually required in about 25 per cent of scans.

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THE SCANNING PROCESS

To receive an MRI scan at BCMC, patients first had to receive a referral from their doctor. The scanning
process commenced when the patient or doctor’s assistant contacted the MRI scheduling department to
arrange an appointment. Although the expected lead time for referred patients was 48 hours, some
patients, called “walk-ins,” required a scan that day.

When the scheduling department received a call, the receptionist wrote the patient’s name and type of
procedure on a form with eight time slots, each for a one-hour increment. Exhibit 6 gives the schedule for
June 12.

Upon arrival at the MRI clinic for their appointment, patients checked in with the receptionist at the front
desk and waited for the MR technologist to escort them to the MR machine in the magnet room. Some
patients had difficulty walking or were confined to stretchers or wheel chairs. As the patients were
escorted, the MR technologist asked questions to determine whether there were any health reasons that
would prevent the patients from having an MRI. Patients who indicated possible health risks were further
tested. The technologist took approximately five minutes to pick up the patient and determine if there were
health conflicts. Patients not fit for the MR test were sent home. In such cases, the machine sat idle.
During the first month of operation, an average of 1.2 patients per day were rejected for these reasons. In
addition to checking possible health risks, the MR technologist ensured that patients were not wearing
clothes with metal components. If the clothes had metal, the patient was required to change into a hospital
gown at the change room, which took an additional four minutes, on average. Approximately 25 per cent
of patients were in this category.

Once in the magnet room, the MR technologist took one minute to provide a brief orientation and verify
the paperwork. Patients would lie on a movable bench protruding from the bore, or tunnel, of the MR
machine. A surface coil was positioned around the part of the patients’ anatomy of interest, such as the
head, and the patients were then moved into the bore where the scanning began. It took approximately
four minutes to position the coil and move the patient into the bore. The MR tunnel was relatively small,
dark and noisy, which caused a feeling of claustrophobia in some patients. In addition, during scans it was
important for patients to remain as motionless as possible. The MR technologist was responsible for
conducting a set number of procedures to obtain the images requested by the referring physician. These
procedures took a specific amount of time that was easily measured and consistent. For a 30-minute
scheduled MRI scan, the actual time in the MR tunnel was 16.5 minutes. While the scans were in progress,
the MR technologist sat in the tech room and entered the patients’ information into the hospital information
system so that the patients could be tracked. Data entry took one minute, on average.

Upon finishing the MRI scan, the MR technologist printed the MRI films and removed the patient from the
machine. The technologist then took two minutes to escort the patient back to the front desk, stopping at
the change room, if needed, for approximately four minutes. At the receptionist’s desk, the MR
technologist checked off the patient’s name on the log to confirm that the task had been completed. Then,
the technologist greeted the next patient. Throughout the day, the receptionist printed the confirmations
and reports for billing purposes.

Because each patient required between four and 16 sheets of film per MRI scan, averaging eight sheets,
and it usually took 45 seconds to print each sheet, the MR technologist waited until after the fifth or sixth
patient before collecting, sorting, labelling and then transferring the film to the radiologist’s office on his or
her way to pick up another patient. The radiologist took approximately five minutes to read the patient’s
film and dictate a diagnosis into a recorder. The dictation was transferred electronically to the transcription

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department, where it was typed. The transcription department was located in a building adjacent to the
hospital. One to three hours after they received the transcription, the transcription department returned the
typed diagnosis to the radiologist for final approval.

About every two hours, the radiologist verified and signed a group of transcriptions as a break from
reading images. Once approved, the signed transcriptions and MRI films were transferred to the
scheduling department, where a copy of the signed diagnosis was printed. The original transcript report
and the MRI films were attached to the patient’s files, and together they were sent to the basement for
filing and storage. The copy of the transcription report was sent to the referring physician.

IMPLEMENTATION ISSUES

Now that the BCMC MRI clinic had been in operation for six weeks, Haider was becoming increasingly
concerned about its performance. The MRI clinic was not meeting promises made by Haider and GE to
scan patients at a rate of two per hour. The hospital’s administrators continued to complain about the MR
machine’s low productivity, the strain resulting from the MR technologist’s heavy overtime schedule, and
the loss of patient referrals from doctors within the hospital and in the surrounding community. Doctors
expected to receive the transcription report within two days of their request. BCMC, Quinte MRI’s
customer, was dissatisfied because the backlog had exceeded 14 days by early June and doctors had begun
to refer patients to competing clinics to obtain more timely MRI scan results.

On June 11, 2002, Haider asked Wright and Saskiw to address the problems. Wright and Saskiw were
halfway through the two-year honors business program at the Richard Ivey School of Business, at The
University of Western Ontario, London, Ontario. Both of them were seeking challenges in entrepreneurial
environments and wanted to avoid positions in large corporate environments, which limited business
exposure and responsibility. They viewed the opportunity of summer jobs at Quinte MRI not only as being
consistent with this career goal, but also as an opportunity to assist Wright’s long-time family friend,
Haider, by applying some of the tools they had learned. Although none of Quinte MRI’s employees had a
job description, Wright and Saskiw understood that, as business development co-ordinators, their job was
to establish new relationships with doctors and investors, review existing operations and make and
implement recommendations to improve operations.

MR TECHNOLOGIST

Before operating an MRI machine, most MR technologists had earned a two-year degree in radiological
technology. If the technologist planned to work solely with MRI, the minimum education requirement was
a one-year MR technician diploma. In upstate New York, MR technologists earned approximately $32 per
hour; MR technicians earned about $25 per hour.7 Employee benefits typically added an additional 20 per
cent to salary figures. After earning a degree and finding employment, new MRI technologists were
typically trained by their employer on its MR systems for about three weeks.

Jeff Sinclair, BCMC’s sole MR technologist, was scheduled to work 40 hours per week, Monday through
Friday, 7:30 a.m. to 4:30 p.m. The first half hour of each day was occupied with setup and debugging of
the equipment, called “phantom scanning.” During May, Sinclair had worked an additional 40 hours at a
rate of 1.5 times his regular hourly wage. Although the MR machine was scheduled for one scan per hour,

7As a comparison, in 2002, the United States Department of Labor established the minimum wage rate at $5.15 per hour. In
upstate New York, an assistant for an MR technologist would earn about $10 per hour.

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Page 7 9B02D024

it was not meeting that rate (see Exhibit 7). When Wright asked Sinclair about his productivity, Sinclair
responded:

Due to poor communication between the patient and the scheduling department, many
patients fail to show up on time or cancel their appointment at the last minute. At the
other extreme, patients experience frequent delays at the clinic. Some wait as long as an
hour before I can start the MRI scan. I alternate between sitting on my butt for an hour or
two to running around frantically attempting to placate angry and impatient customers.

I’ve got to deal with a lot of mistakes in the scheduling department. Patients are booked at
the wrong times and they aren’t being screened properly. I’m getting patients that
shouldn’t receive an MRI — but they are scheduled and I have to deal with them. Since
they had to take a day off work, they get angry when I send them home. And I’m sitting
here twiddling my thumbs! The scheduling department really causes me a lot of
headaches. They write down that I’m supposed to do scan A, but when the patient gets
here, the form says do A and B. Another time there were only three appointments
scheduled for a day, and the scheduling department thought the day was full because they
couldn’t understand what other people had written on the form. The previous MRI
provider handled all of the scheduling. Now, however, the scheduling department is
expected to buck up and cope with the additional workload.

In addition to the scheduling department, I’ve got to put up with the radiologist. He wants
the images right after each patient is scanned. There is no way I can do that. It takes way
too much time. I do it when I have a slow moment.

I’ve been putting in a lot of overtime since I started here and, to be frank, I am getting sick
of it. The money is nice, but I have a family and my son is experiencing some medical
problems. I need to be there for him. I really don’t want any more hours.

Things are improving a bit, though. I was originally trained on equipment from GE, but
during May, the clinic used a Siemens unit. It took me a while to get used to it. Now,
we’ve got our GE equipment and I’m much happier with it.

Monica Zimmerman, manager of the radiology department, was concerned that Sinclair was working too
hard and for too long. She was pressuring Wright and Saskiw to hire another MR technologist to alleviate
Sinclair’s load and improve the lead-time. She believed that the most appropriate move would be to add a
partial second shift in the late afternoon and early evening hours.

In considering this option, Saskiw said:

Hiring another MR technologist is a big decision for Quinte MRI. While Jeff worked a lot
of overtime in May, he hasn’t worked much overtime yet in June — even though we are
doing more scans. Hiring another MR technologist would increase our costs, since we
would have to pay $38 per hour plus benefits for someone to come in for the second shift,
and it might mean more idle time. It would alleviate the problem of allowing Jeff vacation
time, or leave for illness or other extenuating circumstances. As it is now, it would take a
while to get an MR technologist through a temporary employment agency specializing in
medical personnel, and we would have to pay at least $60 per hour. In addition, using that
source would eliminate our control of quality. The bottom line, though, is that we lose

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Page 8 9B02D024

over $6,000 in revenue for every day we are down. Whatever the decision, two things
need to be considered — Quinte’s relationship with BCMC, which is getting fragile due to
the backlog, and providing quality patient care. There is a shortage of good MR
technologists, especially in rural areas, so I think it will be virtually impossible to find
someone competent enough who would be willing to work part time.

In attempting to solve the problems at BCMC, Wright was focused on trying to find the bottleneck. From
his reading of The Goal, he remembered a boy named Herbie, who hindered his boy scout troop’s ability to
reach its destination quickly during a hike. Wright commented:

Finding Herbie is our first order of business. I know that if we can find out where he is,
then we can take the appropriate action and make him more efficient. We are committed
to keeping things simple and moving quickly because we are working within such a short
time frame. I know decisions have to be made and action taken, and we can’t sit around
waiting for Herbie to find us. We need to hunt him down. But, where is he?

We are tossing around the idea of developing a pay-for-performance system for Jeff so
that he has an incentive to work harder and faster. Jeff is our most valuable asset at the
clinic and he needs to be treated that way. We need to find a way to maximize his
consistency so we are able to maximize the number of scans performed. I know we can
grow the number of patients that we can handle in an eight-hour shift. But, if we continue
to follow the same process, we won’t be able to continue to grow.

I am worried since we have only two days to provide a detailed action plan on how to
solve the problem. Haider expects us to identify the problem and outline, in detail, the
steps that should be taken to solve the capacity issues. He also expects us to make any
additional recommendations to improve the performance of the MRI clinic. I wonder
what would make sense here.

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Page 9 9B02D024

Exhibit 1

AN IMAGE OF A 1.5-TESLA SHORT-BORE, HIGH-SPEED MRI SYSTEM

Source: GE Medical Systems.

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Page 10 9B02D024

Exhibit 2

TYPICAL ANNUAL OPERATING COSTS OF AN MRI CENTRE

Leases
Equipment $240,000
Building 50,000
Salaries and wages
Radiologists 140 per scan
MR technologist 60,000
Support staff 30,000
Office manager 45,000
Other
Medical supplies 50 per scan
Insurance 15,000
Leasehold improvements 10,000
Utilities 15,000
Advertising 15,000
Maintenance 110,000
Miscellaneous unforeseen expenses 100,000
Total annual operating expenses $690,000 plus variable costs per scan

Assumptions:
Revenue per scan $700
Number of referred scans per year 1,600
Number of walk-in scans per year 600
Operating days per year 2

50

Effective tax rate 25%

Source: Quinte MRI files.

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Page 11 9B02D024

0
50

100

150

200

250

300

May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr

Exhibit 3

FORECAST OF SUSTAINABLE DEMAND FOR MRI SCANS
AT BENTON-COOPER MEDICAL CENTER

Source: Quinte MRI files.

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Page 12 9B02D024

Exhibit 4

LAYOUT OF THE RADIOLOGY DEPARTMENT

Note: This diagram is approximately to scale.

Source: Hospital files.

Computer Room

Tech Room Hydraulic Ramp

Magnet Room

Change Room

Radiologist’s Office

Scheduling Department

Waiting Room Reception Desk

Entrance

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Page 13 9B02D024

Exhibit 5

TIME SCHEDULED FOR TYPICAL PROCEDURES, IN MINUTES

Procedure Time Procedure Time

Abdomen with contrast 45 Lumbar spine with contrast 30
Abdomen without contrast 30 Lumbar spine without contrast 30
Abdomen with and without contrast 45 Lumbar spine with and without contrast 60
Bone marrow 60 Magnetic resonance angiogram (MRA), chest 60
Brain with contrast 60 MRA, abdomen 60
Brain without contrast 30 MRA, head with contrast 30
Brain with and without contrast 60 MRA, head without contrast 30
Breast, bilateral 60 MRA, head with and without contrast 45
Breast, unilateral 60 MRA, lower extremity 90
Heart 60 MRA, neck with contrast 30
Chest-mediast with contrast 60 MRA, neck without contrast 30
Chest-mediast without contrast 30 MRA, neck with and without contrast 45
Chest-mediast with and without contrast 60 MRA, pelvis 60
Cervical spine with contrast 60 MRA, upper extremity 90
Cervical spine without contrast 30 3-D reconstruction 15
Cervical spine with and without contrast 60 Orb, face, neck with contrast 60
Lower joint extremity with contrast 30 Orb, face, neck without contrast 30
Lower joint extremity without contrast 30 Orb, face, neck with and without contrast 60
Lower joint extremity with and without contrast 60 Pelvis with contrast 30
Lower extremity with contrast 30 Pelvis without contrast 30
Lower extremity without contrast 30 Pelvis with and without contrast 45
Lower extremity with and without contrast 60 Tempero mandibular joint 60
Upper joint extremity with contrast 30 Thoracic spine with contrast 30
Upper joint extremity without contrast 30 Thoracic spine without contrast 30
Upper joint extremity with and without contrast 60 Thoracic spine with and without contrast 45
Upper extremity with contrast 30
Upper extremity without contrast 30
Upper extremity with and without contrast 60

Source: Jeff Sinclair’s estimates.

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Page 14 9B02D024

Exhibit 6

THE SCHEDULE FOR WEDNESDAY, JUNE 12

Note: The patients’ names, phone numbers and doctors have been omitted for reasons of confidentiality.

Source: Company files.

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Page 15 9B02D024

Exhibit 7

DATA ON PERFORMANCE SINCE STARTUP ON MAY 1, 2002

Date Number of Scans Number of Patients Rejected Hours Worked1

May 1 (Wednesday)2 2 8.0
2 (Thursday)2 5 2 10.0
3 (Friday)2 5 8.0
4 (Saturday) 0 5.0
5 (Sunday)
6 (Monday) 8 14.0
7 (Tuesday) 4 4 9.0
8 (Wednesday) 10 11.0
9 (Thursday) 6 2 9.0
10 (Friday) 4 2 7.5
11 (Saturday)
12 (Sunday)
13 (Monday) 7 2 9.5
14 (Tuesday) 9 9.0
15 (Wednesday) 11 1 11.5
16 (Thursday) 9 2 7.5
17 (Friday) 6 1 8.0
18 (Saturday)
19 (Sunday)
20 (Monday) 10 2 9.0
21 (Tuesday) 12 1 11.5
22 (Wednesday) 11 1 10.0
23 (Thursday) 13 2 11.0
24 (Friday) 10 2 9.5
25 (Saturday)
26 (Sunday)
27 (Monday)3
28 (Tuesday) 10 8.0
29 (Wednesday) 16 12.0
30 (Thursday) 7 6.0
31 (Friday) 10 2 12.0
June 1 (Saturday)
2 (Sunday)
3 (Monday)4 0.0
4 (Tuesday) 7 3 7.5
5 (Wednesday) 12 12.0
6 (Thursday) 12 2 12.0
7 (Friday) 6 5.5
8 (Saturday)
9 (Sunday)
10 (Monday) 14 1 8.5
11 (Tuesday) 14 11.0

Source: Company files.

1Overtime was calculated based on weekly, not daily, hours worked.
2From May 1 to May 4, Sinclair was conducting application and hospital safety training, in addition to his MRI duties.
3May 27 was Memorial Day, a national holiday.
4On June 3, the clinic was closed to allow for the removal of the Siemens MRI equipment and the installation, testing and
training on GE MRI equipment.

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688-122 National Cranberry C

ooperative, 19

96

2

Table A Data on U.S. Cranberry Harvest

Production/Utilization (in barrels)a Average Price

Crop Year
Acreage

Harvested
Barrels

per Acre Production
Fresh
Sales Process

(all uses, $ per
barrel)b

Five-Year Average
1960-1964 26,022 23.7 615,000 466,844 148,256 22.12
1965-1969 25,434 24.9 643,300 380,965 253,335 31.00
1970-1974 26,205 31.3 822,580 381,320 436,060 34.30
1975-1979 24,842 39.8 983,660 439,170 532,070 23.42
1980-1984 21,448 51.2 1,096,160 427,520 543,860 21.5

4

1985-1989 20,778 62.6 1,300,120 468,340 755,750 24.00
1990-1994 20,988 73.7 1,546,120 327,980 1,169,360 38.24

Annual
1990 20,640 69.6 1,436,800 389,600 1,033,200 31.00
1991 20,760 77.0 1,598,600 328,000 1,249,600 34.32
1992 21,220 66.2 1,404,300 278,300 1,034,900 37.20
1993 21,135 69.4 1,467,800 301,900 1,111,200 41.24
1994 21,185 86.1 1,823,100 342,100 1,417,900 42.20
1995c 21,445 95.1 2,038,600 367,000 1,418,600 36.

10

Source: Annual reports of Crop Reporting Board, Statistical Service, USDA.

Note: Data gathered on five states—Massachusetts, New Jersey, Oregon, Washington, and Wisconsin.

a Differences between production and utilization (fresh sales and process) represent economic abandonment.

b Beginning in 1964 the series represents equivalent returns at first receiving station, fresh and processing combined. Years
prior to 1964 represent season average prices received by growers for all methods of sale, fresh and processing combined.

c Preliminary figures for 1995.

Some significant trends are observable in Table A. Probably the most important trend was the
increasing surplus of cranberries produced over those utilized. This surplus was serious enough by
1993 for the growers to resort to the Agriculture Marketing Agreement Act of 1937. Under this act,
growers can regulate and control the size of an agricultural crop if the federal government and more
than two-thirds of the growers agree to a plan for crop restriction. In 1993, 87% of the growers agreed
(making it binding on the others also) that no new acreage was to be developed over the next six
years and that each grower would have a maximum allotment at the end of six years equal to the
average of the grower’s best two years from 1993 through 1998.

In 1995 the growers resorted to the Agriculture Marketing Agreement Act once again. Under the
Cranberry Marketing Order of 1995, the growers and the government agreed that 10% of the 199

5

crop should be set aside. The set aside berries (berries that are either destroyed or used in a way that
will not influence the market price) amounted to more than 200,000 barrels (bbls). (A barrel of
cranberries weighs 100 lbs.) Handlers physically set aside 10% of the berries before harvesting, under
the supervision of a committee of growers and representatives from the Department of Agriculture.

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688-122

3

Water
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688-122 National Cranberry Cooperative, 1996

4

The handling of process fruit at RP1 was highly mechanized. The process could be classified
into several operations: receiving and testing, dumping, temporary holding, destoning,2 dechaffing,3
drying, separation, and bulking and bagging. The objective of the total process was to gather bulk
berries and prepare them for storage and processing into frozen fresh berries, sauce, and juice.

Process Fruit Receiving

Bulk trucks carrying process berries arrived at RP1 randomly throughout the day as shown in
Exhibit 1. The average truck delivery was 75 bbls. When the trucks arrived at RP1 they were
weighed, and the gross weight and the tare (empty) weight were recorded. Prior to unloading, a
sample of about 30 lbs. of fruit (0.3 bbl.) was taken from the truck. Later, this sample would be run
through a small version of the cleaning and drying process used in the plant. By comparing the
before and after weight of this sample, it was possible to estimate the percentage of the truck’s net
weight made up of clean, dry berries. At the same time, another sample was taken to determine the
percentage of unusable berries (poor, smaller, and frosted berries) in the truck. The grower was
credited for the estimated weight of the clean, dry, usable berries. (See Exhibit 2 for total 1995
deliveries of process berries.)

At the time the truck was weighed, the truckload of berries was graded according to color. Using
color pictures as a guide, the chief berry receiver classified the berries as Nos. 1, 2A, 2B, or 3, from
poorest color (No. 1) to best (No. 3). There was a premium of $1.50 per bbl. paid for No. 3 berries,
since color was considered to be a very important attribute of both juice products and whole sauce.
Whenever there was any question about whether or not a truckload was No. 2B or No. 3 berries, the
chief berry receiver usually chose No. 3. In 1995 the $1.50 premium was paid on about 450,000 bbls.
of berries. When these berries were used, however, it was found that only about half of them were
No. 3’s.

To improve this yield, Schaeffer was considering the installation of a light meter system for color
grading. This system was projected to cost $40,000 and would require a full-time skilled operator at
the same pay grade as the chief berry receiver.

Temporary Holding

After a truckload of process berries had been weighed, sampled, and color graded, the truck
moved to one of the five Kiwanee dumpers. The truck was backed onto the dumper platform which
then tilted until the contents of the truck dumped onto one of five rapidly moving belt conveyors.
Each of the five conveyors took the berries to the second level of the plant and deposited them on
other conveyors capable of running the berries into any one of 27 temporary holding bins. Bins
numbered 1-24 held 250 bbls. of berries each. Bins 25, 26, and 27 held 400 bbls. each. All of the
conveyors were controlled from a central control panel.

It usually took from 7 to 8 minutes to back a truck onto a Kiwanee dumper, empty its contents,
and leave the platform. At times some trucks had to wait several hours, however, before they could

2Destoning was the separation of foreign materials, such as small stones, that might be mixed in with the berries.

3Dechaffing was the removal of stems, leaves, and so forth that might still be attached to the berries.

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National Cranberry Cooperative, 1996 688-122

5

empty their contents. These waits occurred when the holding bins became full and there was no
place in the receiving plant to temporarily store berries before further operations.

The holding bins emptied onto conveyors on the first level of the plant. Once the bins were
opened, the berries flowed onto the conveyors and started their way through the destoning (dry
berries only), dechaffing, drying (water-harvested berries only), quality grading, and either bulk
loading or bagging operations.

Destoning, Dechaffing, and Drying

Holding bins 25-27 were for wet (water-harvested) berries only. Holding bins 17-24 could be
used for either wet or dry berries. Wet berries from these bins were taken directly to one of the three
dechaffing units (destoning was unnecessary with water-harvested berries) which could process up
to 1,500 bbls. per hour each. After dechaffing, these wet berries were taken to one of the three drying
units where they were dried at rates up to 200 bbls. per hour per dryer.

Holding bins 1-16 were for dry berries only. Berries from these bins were routed through one of
three destoning units, each of which could process up to 1,500 bbls. of berries per hour, before going
through a dechaffing unit. Frequently, both wet and dry berries were processed at the same time
though the system. The wet berries would be processed through the part of the system that included
the dryers, while the dry berries were processed through the area containing the destoning units.
National Cranberry’s current plant layout had two dechaffing units dedicated to wet berries, and one
to dry berries.

Superintendent Walliston had told O’Brien that, with an increasing percentage of wet berries
coming to the plant, it might make sense to convert some of holding bins 1-16 so they could be used
for wet berries also. This would cost $10,000 per bin. Or, perhaps, he had mentioned, a few new
dryers might be needed. These would cost $60,000 each. He wondered what the benefits might be of
adding more dryers and whether those benefits would warrant the cost.

Quality Grading

After destoning, dechaffing, and drying, berries were transported to large take-away conveyors
that moved berries from the first level of the receiving building to the third level of the adjoining
separator building. Here these take away conveyors became “feed conveyors” as they were now
feeding berries into the jumbo separators (see Figure B). The jumbo separators identified three
classes of berries—first quality berries, potential second-quality berries, and unacceptable berries.

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688-122
6

Figure B

The s
bounce hi

RP1 Separa

separation pro
igher than po

ator Building

ocess was a s
or cranberrie

simple one th
s (see Figure

hat was based
C for a drawi

Nati

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t that good cr
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Cooperative, 19

ranberries wi
ess).

96

ill

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This document is authorized for use only by MICHAEL PISCETELLI in Operations Management, Spring 2020 taught by YI XU, University of Maryland from Nov 2019 to May 2020.

Nation

Fi

T
and w
water
secon
separ
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secon

E
declin
was p

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C
onto a
the sh

nal Cranberry Co

igure C Sep

he first-qualit
were transpor
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nd-quality ber

ated the strea
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ach of the thr
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Conveyors car
any one of the
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ooperative, 1996

parator Opera

ty berries we
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could be mo

ation

nt directly on
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he first level
the Bailey m

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me principle a
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lines could p
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from the sepa
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nto one of thr
The unaccep
and were flo
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nto second-qu
as the jumbo
close to 12%.

process up to 4
ased. It was
each line.

arator buildin
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berries into b

ree take-away
ptable berries

oated off to th
cond level of

uality berries
separators. O
.

450 bbls. per
estimated tha

ng into the shi
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bagging stati

y conveyors o
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Over the year

hour, but the
at the average

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6

on the second
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three convey
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688-122

7

d level
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y mills
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essing
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berries
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688-122 National Cranberry Cooperative, 1996

8

truck stations. The berries left RP1 in bulk trucks for shipment directly to the finish processing plant
or in bins for storage at freezers with bulk storage capability.

Scheduling the Work Force

During the harvest season—September 1 to December 15—the process fruit side of RP1 was
operated seven days a week with either a 27-member work force or a 53-member work force,
depending on the relative volume of berry receipts. Will Walliston explained to Mel O’Brien,

Last year, trucks arrived at 7:00, and we only staffed the dumpers and the bins, and then started
the rest of the operation at 11:00. This year, with an increase in the percentage of wet berries that we
expect, we’re going to have to fire up the operation, on peak days, with two shifts – one from 7:00 to
3:00, and one from 3:00 to 11:00. I’m hoping that’ll cut into last year’s huge overtime expenditures and
will limit the extra capital that we’ll need to spend. But, that’s what your report will help me decide.

There were 27 employees at RP1 who were employed for the entire year; all others were hired for
the season only. The 27 non-seasonal employees were all members of the Teamsters Union, as were
15 seasonal workers. Seasonal workers could work only between the dates of August 15 and
December 25 by agreement with the union. Most seasonal workers were employed via a state
employment agency that set up operations each fall. The employment agency helped in placing
seasonal workers in the receiving plant and in harvesting jobs with the local growers. The pay rate
for seasonal workers in the process fruit section was $8.00 per hour. They were paid the overtime
rate of 1-1/2 times their straight-time rate for anything over 40 hours per week. The straight-time pay
rate for the full-year employees averaged $13.00 per hour.

When it was necessary to work beyond 11 p.m., a crew of only eight or nine workers was
required to run the holding bins empty and do bulk loading. Although dry fruit could be held in the
bins overnight, it was considered undesirable to hold wet fruit any longer than necessary, so wet fruit
was always run out before shutting down. The plant never ran more than 22 hours a day, since at
least 2 hours were required for cleaning and maintenance work. (Downtime due to unscheduled
maintenance was very small; said Walliston: “We ran 350,000 bbls. through the wet system in 1995
and we were down a total of less than 8 hours.”)

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Nation

Exhib

nal Cranberry Co

bit 1 Log of

ooperative, 1996

Total Deliver

ries on Septemmber 23, 19955

6688-122

9

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688-122 National Cranberry Cooperative, 1996
10

Exhibit 2 Deliveries of Process Berries 1995

Day

Total Deliveries
(scale weight

in bbls.)
Delivered

Wet Color No. 1 Color No. 2 Color No. 3

9/1–9/19 44,176 54% 6% 72% 22%
9/20 16,014 31 0 44 56
9/21 17,024 39 0 35 65
9/22 16,550 39 0 22 78
9/23 18,340 42 2 22 76
9/24 18,879 41 0 21 79
9/25 18,257 36 0 14 86
9/26 17,905 45 0 10 90
9/27 16,281 42 0 18 82
9/28 13,343 38 0 15 85
9/29 18,717 43 1 11 88
9/30 18,063 59 1 9 90
10/1 18,018 69 1 11 88
10/2 15,195 60 2 18 80
10/3 15,816 60 3 12 85
10/4 16,536 57 5 21 74
10/5 17,304 55 2 26 72
10/6 14,793 46 7 32 61
10/7 13,862 61 3 39 58
10/8 11,786 56 0 36 64
10/9 14,913 54 0 33 67
10/10–12/10 238,413 75 0 22 78

Total barrels 610,185 58 1 25 74

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