Presentation on theme: "Jeff Tolonen Tom Sobelman"— Presentation transcript:
1 Jeff Tolonen Tom Sobelman In-N-Out BurgerJeff TolonenTom Sobelman
2 Why In-N-Out? Everybody likes In-N-Out. Part of Southern California Culture.It’s a thriving “Mom & Pop” chain in today's corporate dominated “Mc World”.In-N-Out is always crowded and for some reason people don’t mind waiting.They have a unique business model.
3 In-N-Out Burger Family owned California, Nevada, Arizona only Accountable to customer, not shareholder$1.8 million average annual revenue per restaurant (2005)Rivals top chains: McDonalds & BKLimited menu (Burgers, fries, sodas, shakes)ConsistentMcDonalds has added 37 items since 1955Made to order business modelNo freezers, heat lamps, or microwavesProduce delivered fresh every other dayDue to private ownership – no data on inventory mgmnt (order costs, suppliers, costs of capital, reorder points)
4 Inventory Management Delivered fresh Daily or every other day, depending on locationMinimize holding costOwn distribution systemPrivate butchers, warehouses, truck linesMust improve system to expand beyond west coast and maintain strategic positionEOQ & ROPToo hard without insider info: cost per order, vendor info, holding cost, etc
5 Side Note About In-N–Out What happened after I ed In-N-Out Corporate?….NOTHING!!!The response to myDear Mr. Tom Sobelman: Thank you for taking the time to contact us. Your project sounds exciting! As you may know, In-N-Out Burger® is privately held and family operated. As such, the information you requested is not published. However, we sincerely appreciate your consideration, and wish you success in your future endeavors. Thanks again for your , and for your interest. Sincerely, Jeff Dreher Customer Service Representative
6 What it takes to get a call from In-N-Out Burger Corp. Customer In-N-Out,I’m finding your response, below, a little confusing. If the information that I was looking for was published- I wouldn’t have contacted you, rather, I would have had it already. I would much rather prefer a “yes we can” or a “no we can’t”. I am not competitor nor am I requesting specific information. I find the fact that you wouldn’t have time to talk to a student from a school of 35,000, that is central to 2 of your San Fernando Valley locations, difficult to fathom. If In-N-Out is unwilling to speak to me- that’s fine, however, I would like a less condescending reason as to why. Is it because the information that I am requesting is too sensitive is it because In-N-Out doesn’t have time for students? Tom SobelmanOperations Data AnalystCare Level ManagementMobile: (818)Office: (818)
7 Product Attributes (External) Cost: In-N-Out is relatively inexpensive. Comparable to any other burger joint.Response time: Slow compared to the competition. You get your food more than twice as fast at McDonalds & Burger King.Variety: Limited to burgers, fries, soda, and shakes.Quality: In-N-Out is the gold standard for fast food. All the ingredients are fresh and everything is made to order. Nothing is pre-made.Versus competencies?
8 Process Competencies (Internal) Cost: Kept low by owning distribution system and minimizing holding costsFlow time: Made-to-order business model slows flow time compared to the competition. You get your food more than twice as fast at McDonalds & Burger King.Flexibility: Cross-trained workers adds to flexibility, but highly dedicated capital resources limits it.Quality: Consistent product. Accurate, reliable, and maintainable processes.Versus competencies?
9 Strategic Positioning & Operational Effectiveness ResponsivenessMarket driven businessKey competitive prioritiesLow costQuick delivery-response timeFreshCompetitive product spaceAdded qualityMade to orderNarrowed varietyFocused strategy and processesLow flexibilityDedicated capital resourcesMaximize resource utilizationMcDonalds (gray) vs In-n-Out (black)MUST HIGHLIGHT STRATEGIC POSITION = MADE TO ORDERQuality
10 Strategic Positioning & Operational Effectiveness The gluttonous customer dilemmaAccept or reject order?Align processes with strategic positionConsider resource availabilityDiscuss: is it a good idea to accept an order of a customer who wants a hundred 100x100’s? or a corporate customer who offers to give you an avg. day’s worth of revenue for supplying nothing but fries? No, because “it doesn’t fit strategic position.” That strategic position is to serve many customers for low price, with maximum utilization. Such large orders creates wasted resources.Note: if you’re going to order a 100x100, don’t do it during the lunch hour. Unless: you order it ahead of time, in which case the store can plan to run a dedicated process (PWP) with appropriate staffing while carrying out its normal business model.
11 Process Architecture Process Flexibility Opportunity Costs JOB SHOP(Commercial Printer,Architecture firm)BATCH(Heavy Equipment,Auto Repair)FLOW SHOP(Auto Assembly,Car lubrication shop)CONTINUOUSFLOW(Oil Refinery)ProductVarietyLowFew Major ProductsConnected LineFlow (assembly line)OpportunityCostsOut-of-pocketHighWhy is INO a flow and not batchGive examples:Opportunity costs (if they had increased flexibility but did not offer variety – burgers only, no fries; or offer no made to order variations with the secret menu)Out-of-pocket costs (offered a variety with no process flexibility – i.e. each variation from secret menu had its own dedicated resources; this would be expensive to capitalize – this is why strict vegetarians cant be at peace ordering a grilled cheese b/c its made on the same grill as the meat)
12 The Process Flowchart Flow unit = customer Assemble Grill meat Burger DrivethroughPlace orderAssembleOrderOrder inqueueWalk-inPrepareFriesTiming at assembly is critical without the warming lamps. Quick response time comes from efficiency more than parallel processes.Prepping potatoes removed from critical path as a parallel process (unless ordered “dirty” style)(Batches)Clean/peelpotatoesSlicepotatoesLoad friesCook friesIn oilUnloadfriesNote: assemble order consists of making the burger with the grilled patty, boxing the fries, getting any drinks/cups (including shakes), box/tray order
13 Process Flow Measures Ro (t) Analyze Job Flow Flow unit = 1 customer Ri, drive through(t)Ri, walk-in(t)Ro (t)Analyze Job FlowFlow unit = 1 customerTwo inputs: Drive-through or walk-inAny number of items per customerAssume average order: Double-Double, Fries, drinkStable process (Ri = Ro)No unserved customers at closing time
14 Process Flow Measures I 23 1:00pm ΔR(t) = Ri(t) – Ro(t) Problem:When ΔR(t) > 0, line growsΔR= -11.0ΔR=5.0ΔR=1.0ΔR=3.012:30pm1:00pm1:30pmΔR(t) = Ri(t) – Ro(t)Time12:30p12:30-12:45p12:45-1:00p1:00-1:15p1:15-1:30pBeginning Inv. *NA15+2=1719+3=2221+2=2310+2=12Inflow Rate Ri*24+10=3423+7=3012+6=1816+16=32Outflow Rate Ro*19+10=29Buildup Rate ΔR5.01.0-11.03.0Ending Inventory*14+1=15Outflow per 15 min increment calculated as sum of: (inflow + beg. Inv - end inv.) divided by 4 quarters per hour (for each input source)Outflow during negative buildup rate is not equal to inflow due to beg inv plus inflow is still greater than outflowCompare Iavg to I=RT, calculated later. Mention this was the busiest period from interview of local staff and 3 wks of observationsBuildup represents room for improvement (if economically beneficial – cumulative effect)However, here Iavg is not going to be a real triangle, so ½ height is not necessarily a good measureI= solve for the area of each geometric shape per 15 minute interval* Drive-through + walk-in
15 Observed Flow Times Random Order (12:30pm-1:30pm) Walk-in (mm:ss) Drive-through17:1514:4527:408:3038:0114:1549:1517:1056:5215:10613:0213:1277:1812:1585:4613:4597:4111:35107:3610:40Average (T)8:0213:07Discuss flow time (T)Make observations: drive through is slower.Explain why: extra buffer time (same process times) => no effect on theoretical and effective capacitiesWalk-in is new to business modelCalculate averages
16 Customer Flow Variability ∞Key concept: Average flow time increases rapidly with capacity utilization and variability; as p increases, T approaches infinity (this is bad)Key Observation: longest lines were not necessarily the result of the largest RiAlso address how Little’s Law and above equation are related in that as T increases, so does Ii (I=RxT)Use examples of a 1am customer and a 1pm customer – where they fall on a curve (1pm is during high p and therefore has to wait for a long T)What if you could more accurately predict interarrival variability: you would use the lower curve and expect a much lower TFlow time (T) increases with:Capacity utilizationInterarrival variabilityI = R x T
17 Flow Rate and Capacity Analysis Resource poolUnit Load (min per order)Worker (cashier)0.5 minRegisterWorker (flipper)3.5 minGrillWorker (fry cook)Fryer5.5 minWorker (burger assembly)0.25 minCounter workstationWorker (order assembly)Assume no rework (1 visit per order)See pg 112Cook fries consists of sub-process done in batches of (#) orders per batch (all fries are 1 size, which adds to managers’ control of process and ability to minimize flow time)Fry cook loads and unloads (15 sec each, total labor of 30sec)
18 Flow Rate and Capacity Analysis (cont) Resource poolUnit Load (min per order)Units in pool(c)Load Batch(orders per batch)Availability (min per hour)Effective Capacity (orders per hour)Worker (cashier) *0.5 minMin (16,3)=3160(3/0.5) x 1 x 60=360Register3Worker (flipper) *3.5 minMin(16,2)=220(2/3.5) x 20 x 60= 685Grill2Worker (fry cook) *Min(16,8)=8(8/0.5) x 3 x 60 = 2880Fryer (baskets)5.5 min8(8/5.5) x 3 x 60 = 261Worker *(burger assembly)0.25 minMin(16,5)=5(5/0.25) x 1 x 60 = 1200Counter workstations5(order assembly)Effective capacity for an average order: dbl/dbl, fries, drink = (Cp/load) x batch x availSee pg 1181 fry batch= 1 basket (3 orders)effective capacity= (units in pool/unit load) x load batch x availabilityIdentify: 8 fry baskets (4 machines); 16 total workers (interchangeable); 3 orders of fries per basket (1 size orders)Discuss: workers per pool is the minimum of total workers and capital resources* 16 total interchangeable workers
19 Bottleneck Analysis Levers for fixing the bottleneck Take processes off critical pathAdjust strategic positionIncrease capacity with more resourcesTo increase resources requires capitalLow utilization during low demandIs the bottleneck a problem?Ri = 114 orders x 85%* = orders of fries per hourEffective capacity = orders per hourLever1: flow time approachDilemma: increasing # of capital resources (i.e. fryers or grills) will not decrease the process time! Sure, we would be able to pump out more per hour, but we only want to pump out up to the # of orders (96.9). Increasing the # of machines will only add an idle resource.Capacity is greater than orders! Why the holdup? (Effective capacity does not take buffers into consideration)*Based on observation
20 Flow Time – As is Load Prep Fries Cook Fries Unload Grill meat AssembleBurgerAssembleOrderLoadPrep FriesCook FriesUnloadGrill meatWill take no less than 6:45 to get your average order (dbl/dbl, fries, drink)TakeOrder-t0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.0Time (min)
21 Flow Time – Take Fries off Critical Path Assemble orderAssemble burgerCook Fries (continuous)UnloadGrill meatWill take no less than 4:30 (vs 6:45) to get your average order (dbl/dbl, fries, drink)TakeOrder-t0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.0Time (min)
22 Flow Time – Take Fries & Grill off Critical Path Assemble burgerAssemble orderCook Fries(continuous)UnloadGrill meat(delay)Will take no less than 1:00 (vs 6:45) to get your average order (dbl/dbl, fries, drink)Delay – similar to tshirts… keep grilling – assembly worker grabs as needed and makes it a hamburger, cheeseburger, dbl dbl, 100x100…How do you measure the loss of brand image and the bastardization of a strategic position? You may recall that recently, INO has been in the news as an heir to the family owned company considered expanding the variety.TakeOrder-t0.00.51.01.52.02.53.03.54.04.55.05.56.06.57.0Time (min)
23 Levers for Managing Flow Time SelectTakes McDonald’s fast food strategic position and focus it to only a few itemsEliminates customer initiated wait time (ie “gimme a minute…”)Customers know what they want before getting into queue“secret menu” off regular menu to avoid wasted timeEncourages knowing what you want before getting in queueEliminateDrink cups with customers (walk-in)Per tom’s interview, always made to order (never delay). Maybe hype, maybe critical to brand…Checked bullets = things they do now (for sure)Select: see pg 91KEY TO WHOLE PRESENTATION: TRADE-OFFS RELATED TO “DELAY” (impossible to gauge brand image in terms of $)Delay: Griller doesn’t have to know burger specifics – just keep doing what your doing without customizationBurgers can be on grill ahead of order (especially if extremely busy)strategic position strictly adheres to being “made-to-order”, delay compromises brand, quality, customer expectations
24 Levers for Managing Flow Time Drive through managementAvoid blockage (ie drive through line into street) & abandonment (customer gets frustrated and leaves)Bring the window to the customer (PDA guys)Possible without a mobile menu due to limited product varietySingle line layoutDescribe effect on time in bufferSaves real estateDownside: deceivingly long line (customer does not realize it will move fast)Dual line layout:Choice of which queue to enterSlower queue (ie someone with a long or complex order) holds up all customers behind himNot possible to switch queues, so flow time is significantly slower for those who chose the slow line (cost: lost goodwill)Enlarge pictureLost goodwill over long wait timeProve which is better (use hypothetical statistics)
25 Levers for Managing Flow Time Cultivate walk in businessAssign priorities (balance inflow sources)Drive throughWalk inShould we develop or dump?
26 Conclusion & Discussion We have presented an option, results must be weighed by decision makers whether or not they believe they can maintain their freshness with such changes. As analysts, we cannot make the decisions – we just present the options.