Team 1 Term Project In-N-Out Burger Jeff Tolonen

Team 1 Term Project: In-N-Out Burger Jeff Tolonen Tom Sobelman 1

Team 1 Term Project: In-N-Out Burger Why In-N-Out? q Everybody likes In-N-Out. q Part of Southern California Culture. q It’s a thriving “Mom & Pop” chain in today's corporate dominated “Mc World”. q In-N-Out is always crowded and for some reason people don’t mind waiting. q They have a unique business model. 2

Team 1 Term Project: In-N-Out Burger Family owned – California, Nevada, Arizona only – Accountable to customer, not shareholder q $1. 8 million average annual revenue per restaurant (2005) – Rivals top chains: Mc. Donalds & BK q Limited menu (Burgers, fries, sodas, shakes) – Consistent – Mc. Donalds has added 37 items since 1955 q Made to order business model – No freezers, heat lamps, or microwaves – Produce delivered fresh every other day q 3

Team 1 Term Project: In-N-Out Burger Inventory Management Delivered fresh – Daily or every other day, depending on location – Minimize holding cost q Own distribution system – Private butchers, warehouses, truck lines – Must improve system to expand beyond west coast and maintain strategic position q EOQ & ROP – Too hard without insider info: cost per order, vendor info, holding cost, etc q 4

Team 1 Term Project: In-N-Out Burger Side Note About In-N–Out q q What happened after I emailed In-N-Out Corporate? …. NOTHING!!! The response to my email: 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 e-mail, and for your interest. Sincerely, Jeff Dreher Customer Service Representative 5

Team 1 Term Project: In-N-Out Burger What it takes to get a call from In-N-Out Burger Corp. Customer Service @ 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) 665 -9851 Office: (818) 595 -8251 E-mail: tsobelman@carelevel. com 6

Team 1 Term Project: In-N-Out Burger Product Attributes (External) q Cost: In-N-Out is relatively inexpensive. Comparable to any other burger joint. q Response time: Slow compared to the competition. You get your food more than twice as fast at Mc. Donalds & Burger King. q Variety: Limited to burgers, fries, soda, and shakes. q 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. 7

Team 1 Term Project: In-N-Out Burger Process Competencies (Internal) q Cost: Kept low by owning distribution system and minimizing holding costs q Flow time: Made-to-order business model slows flow time compared to the competition. You get your food more than twice as fast at Mc. Donalds & Burger King. q Flexibility: Cross-trained workers adds to flexibility, but highly dedicated capital resources limits it. q Quality: Consistent product. Accurate, reliable, and maintainable processes. 8

Team 1 Term Project: In-N-Out Burger Strategic Positioning & Operational Effectiveness q Market driven business – Key competitive priorities Responsiveness » Low cost » Quick delivery-response time » Fresh q Competitive product space – Added quality » Made to order – Narrowed variety q Focused strategy and processes – Low flexibility Quality » Dedicated capital resources » Maximize resource utilization 9

Team 1 Term Project: In-N-Out Burger Strategic Positioning & Operational Effectiveness q The gluttonous customer dilemma – Accept or reject order? » Align processes with strategic position » Consider resource availability 10

Team 1 Term Project: In-N-Out Burger Process Architecture Process Flexibility High JOB SHOP pp o Co rtun sts ity (Commercial Printer, Architecture firm) O BATCH (Heavy Equipment, Auto Repair) (Auto Assembly, Car lubrication shop) Low O CONTINUOUS FLOW ut -o f Co -po sts cke t FLOW SHOP Connected Line Flow (assembly line) (Oil Refinery) Low High Few Major Products Product Variety 11

Team 1 Term Project: In-N-Out Burger The Process Flowchart Flow unit = customer Grill meat Drive through Place order Order in queue Walk-in Assemble Burger Assemble Order Prepare Fries (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 12

Team 1 Term Project: In-N-Out Burger Process Flow Measures Ri, drive through(t) Ri, walk-in(t) q Ro (t) Analyze Job Flow – Flow unit = 1 customer » Two inputs: Drive-through or walk-in » Any number of items per customer u q Assume average order: Double-Double, Fries, drink Stable process (Ri = Ro) – No unserved customers at closing time 13

Team 1 Term Project: In-N-Out Burger Process Flow Measures I 23 Problem: When ΔR(t) > 0, line grows ΔR= -11. 0 ΔR=5. 0 ΔR=1. 0 ΔR=3. 0 1: 30 pm 1: 00 pm 12: 30 pm ΔR(t) = Ri(t) – Ro(t) Time 12: 30 p 12: 30 -12: 45 p 12: 45 -1: 00 p 1: 00 -1: 15 p 1: 15 -1: 30 p Beginning Inv. * NA 15+2=17 19+3=22 21+2=23 10+2=12 Inflow Rate Ri* NA 24+10=34 23+7=30 12+6=18 16+16=32 Outflow Rate Ro* NA 19+10=29 Buildup Rate ΔR NA 5. 0 1. 0 -11. 0 3. 0 Ending Inventory* 15+2=17 19+3=22 21+2=23 10+2=12 14+1=15 * Drive-through + walk-in 14

Team 1 Term Project: In-N-Out Burger Observed Flow Times Random Order Walk-in Drive-through (12: 30 pm-1: 30 pm) (mm: ss) 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 15

Team 1 Term Project: In-N-Out Burger Customer Flow Variability ∞ q Flow time (T) increases with: – Capacity utilization – Interarrival variability I = R x T 16

Team 1 Term Project: In-N-Out Burger Flow Rate and Capacity Analysis Resource pool Unit Load (min per order) Worker (cashier) 0. 5 min Register 0. 5 min Worker (flipper) 3. 5 min Grill 3. 5 min Worker (fry cook) 0. 5 min Fryer 5. 5 min Worker (burger assembly) 0. 25 min Counter workstation 0. 25 min Worker (order assembly) 0. 25 min Counter workstation 0. 25 min 17

Team 1 Term Project: In-N-Out Burger 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 0. 5 min 3 1 60 (3/0. 5) x 1 x 60=360 Worker (flipper) * 3. 5 min Min(16, 2)=2 20 60 (2/3. 5) x 20 x 60= 685 Grill 3. 5 min 2 20 60 (2/3. 5) x 20 x 60= 685 Worker (fry cook) * 0. 5 min Min(16, 8)=8 3 60 (8/0. 5) x 3 x 60 = 2880 Fryer (baskets) 5. 5 min 8 3 60 (8/5. 5) x 3 x 60 = 261 Worker * (burger assembly) 0. 25 min Min(16, 5)=5 1 60 (5/0. 25) x 1 x 60 = 1200 Counter workstations 0. 25 min 5 1 60 (5/0. 25) x 1 x 60 = 1200 Worker * (order assembly) 0. 25 min Min(16, 5)=5 1 60 (5/0. 25) x 1 x 60 = 1200 Counter workstations 0. 25 min 5 1 60 (5/0. 25) x 1 x 60 = 1200 * 16 total interchangeable workers 18

Team 1 Term Project: In-N-Out Burger Bottleneck Analysis q 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 q Is the bottleneck a problem? – Ri = 114 orders x 85%* = 96. 9 orders of fries per hour – Effective capacity = 261. 0 orders per hour *Based on observation 19

Team 1 Term Project: In-N-Out Burger Flow Time – As is Assemble Burger Load Prep Fries Assemble Order Cook Fries Grill meat Unload 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) 20

Team 1 Term Project: In-N-Out Burger Flow Time – Take Fries off Critical Path Assemble burger Cook Fries (continuous) Assemble order Unload Grill meat 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

Team 1 Term Project: In-N-Out Burger Flow Time – Take Fries & Grill off Critical Path Assemble burger Cook Fries (continuous) Assemble order Unload Grill meat (delay) 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

Team 1 Term Project: In-N-Out Burger Levers for Managing Flow Time q Select – Takes Mc. Donald’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 q u Encourages knowing what you want before getting in queue Eliminate – Drink cups with customers (walk-in) 23

Team 1 Term Project: In-N-Out Burger Levers for Managing Flow Time q 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) 24

Team 1 Term Project: In-N-Out Burger Levers for Managing Flow Time q Cultivate walk in business q Assign priorities (balance inflow sources) – Drive through – Walk in 25

Team 1 Term Project: In-N-Out Burger Conclusion & Discussion 26