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Jeff Tolonen Tom Sobelman

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1 Jeff Tolonen Tom Sobelman
In-N-Out Burger Jeff Tolonen Tom 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 & BK Limited menu (Burgers, fries, sodas, shakes) Consistent McDonalds has added 37 items since 1955 Made to order business model No freezers, heat lamps, or microwaves Produce delivered fresh every other day Due 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 location Minimize holding cost Own distribution system Private butchers, warehouses, truck lines Must improve system to expand beyond west coast and maintain strategic position EOQ & ROP Too 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 my Dear 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 Sobelman Operations Data Analyst Care Level Management Mobile: (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 costs Flow 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
Responsiveness Market driven business Key competitive priorities Low cost Quick delivery-response time Fresh Competitive product space Added quality Made to order Narrowed variety Focused strategy and processes Low flexibility Dedicated capital resources Maximize resource utilization McDonalds (gray) vs In-n-Out (black) MUST HIGHLIGHT STRATEGIC POSITION = MADE TO ORDER Quality

10 Strategic Positioning & Operational Effectiveness
The gluttonous customer dilemma Accept or reject order? Align processes with strategic position Consider resource availability Discuss: 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) CONTINUOUS FLOW (Oil Refinery) Product Variety Low Few Major Products Connected Line Flow (assembly line) Opportunity Costs Out-of-pocket High Why is INO a flow and not batch Give 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
Drive through Place order Assemble Order Order in queue Walk-in Prepare Fries Timing 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/peel potatoes Slice potatoes Load fries Cook fries In oil Unload fries Note: 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 Flow Flow unit = 1 customer Two inputs: Drive-through or walk-in Any number of items per customer Assume average order: Double-Double, Fries, drink Stable 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 grows ΔR= -11.0 ΔR=5.0 ΔR=1.0 ΔR=3.0 12:30pm 1:00pm 1:30pm ΔR(t) = Ri(t) – Ro(t) Time 12:30p 12:30-12:45p 12:45-1:00p 1:00-1:15p 1:15-1:30p Beginning Inv. * NA 15+2=17 19+3=22 21+2=23 10+2=12 Inflow Rate Ri* 24+10=34 23+7=30 12+6=18 16+16=32 Outflow Rate Ro* 19+10=29 Buildup Rate ΔR 5.0 1.0 -11.0 3.0 Ending Inventory* 14+1=15 Outflow 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 outflow Compare Iavg to I=RT, calculated later. Mention this was the busiest period from interview of local staff and 3 wks of observations Buildup 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 measure I= 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-through 1 7:15 14:45 2 7:40 8:30 3 8:01 14:15 4 9:15 17:10 5 6:52 15:10 6 13:02 13:12 7 7:18 12:15 8 5:46 13:45 9 7:41 11:35 10 7:36 10:40 Average (T) 8:02 13:07 Discuss flow time (T) Make observations: drive through is slower. Explain why: extra buffer time (same process times) => no effect on theoretical and effective capacities Walk-in is new to business model Calculate 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 Ri Also 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 T Flow time (T) increases with: Capacity utilization Interarrival variability I = R x T

17 Flow Rate and Capacity Analysis
Resource pool Unit Load (min per order) Worker (cashier) 0.5 min Register Worker (flipper) 3.5 min Grill Worker (fry cook) Fryer 5.5 min Worker (burger assembly) 0.25 min Counter workstation Worker (order assembly) Assume no rework (1 visit per order) See pg 112 Cook 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 pool Unit 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 min Min (16,3)=3 1 60 (3/0.5) x 1 x 60=360 Register 3 Worker (flipper) * 3.5 min Min(16,2)=2 20 (2/3.5) x 20 x 60= 685 Grill 2 Worker (fry cook) * Min(16,8)=8 (8/0.5) x 3 x 60 = 2880 Fryer (baskets) 5.5 min 8 (8/5.5) x 3 x 60 = 261 Worker * (burger assembly) 0.25 min Min(16,5)=5 (5/0.25) x 1 x 60 = 1200 Counter workstations 5 (order assembly) Effective capacity for an average order: dbl/dbl, fries, drink = (Cp/load) x batch x avail See pg 118 1 fry batch= 1 basket (3 orders) effective capacity= (units in pool/unit load) x load batch x availability Identify: 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 path Adjust strategic position Increase capacity with more resources To increase resources requires capital Low utilization during low demand Is the bottleneck a problem? Ri = 114 orders x 85%* = orders of fries per hour Effective capacity = orders per hour Lever1: flow time approach Dilemma: 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
Assemble Burger Assemble Order Load Prep Fries Cook Fries Unload Grill meat Will take no less than 6:45 to get your average order (dbl/dbl, fries, drink) Take Order -t 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 Time (min)

21 Flow Time – Take Fries off Critical Path
Assemble order Assemble burger Cook Fries (continuous) Unload Grill meat Will take no less than 4:30 (vs 6:45) to get your average order (dbl/dbl, fries, drink) Take Order -t 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 Time (min)

22 Flow Time – Take Fries & Grill off Critical Path
Assemble burger Assemble order Cook Fries (continuous) Unload Grill 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. Take Order -t 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 Time (min)

23 Levers for Managing Flow Time
Select Takes McDonald’s fast food strategic position and focus it to only a few items Eliminates 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 time Encourages knowing what you want before getting in queue Eliminate Drink 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 91 KEY 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 customization Burgers 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 management Avoid 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 variety Single line layout Describe effect on time in buffer Saves real estate Downside: deceivingly long line (customer does not realize it will move fast) Dual line layout: Choice of which queue to enter Slower queue (ie someone with a long or complex order) holds up all customers behind him Not possible to switch queues, so flow time is significantly slower for those who chose the slow line (cost: lost goodwill) Enlarge picture Lost goodwill over long wait time Prove which is better (use hypothetical statistics)

25 Levers for Managing Flow Time
Cultivate walk in business Assign priorities (balance inflow sources) Drive through Walk in Should 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.


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