Benihana Case Study

Kevin Tran Introduction to Business CRN 34152 Professor Zellerbach April 14, 2013

The goal of the case study is to maximize utilization, throughput time, and profit for the hours of operation using different methods of batching, restaurant setup, advertising campaigns and hours of operation. By manipulating each of these variables, I learned how throughput time, demand variability, capacity utilization and service time plays an integral part in the restaurant business. Batching affects throughput in a positive way in a restaurant such as Benihana. With batching, the restaurant is able to utilize every seat in both the bar and the dining room for maximum profit. In the simulation, customers who first come in are seated at the bar until there are eight customers to fill in a dining table. The customers at the bar are more likely to purchase drinks and appetizers while waiting for their tables. With the bar, they are able to keep customers satisfied as they wait for their table and increase revenue at the same time. With batching, you guarantee that the money paid for labor and products is well spent by having each dining room table filled with customers. With batching, the restaurant finds a happy medium between the bar and dining area for customers. The potential disadvantages of batching are with the different sizes of groups that come in. With batching, the restaurant waits until a group of 8 can be seated. But because of the wait, odd groups can wait a very long time to fill that eight person quota. Although batching does reduce the number of lost customers, there is will inevitably be a small amount of customers lost due to this wait time. Also, batching affects the comfort rating of the environment for customers. There are many customers who do not like to share tables, especially in American culture who will pay a premium if given privacy and exclusivity. (U.s. culture and values) Nevertheless, batching strategy on throughput works best if when demand highly exceeds supply. Batching affects profitability and utilization positively because it affects the cycle time, the amount of revenue generated from the bar and restaurant and also the amount of costs incurred. With batching, customers spend an average wait time of eleven minutes compared to without batching time of thirty-nine minutes. This gives the restaurant a smaller cycle time for the customer to walk into the door, sit at the bar waiting for a table, being seated at a table, eating and leaving the restaurant. Without batching, having only two customers and one chef at a dining table does not utilize the other seats that would have been used for potential customers which decreases profitability and efficiency. Because customers are not filling the seats, more chefs are needed at each table which increases the cost of labor without increasing any profits. In addition to the added cost of labor, having no batching increases the possibility of having lost customers. Once customers are seated, no other customer will be able to take the empty seats at the table. This further increases the amount of tables needed and chefs needed which leads to more wait time customers unsatisfied with the wait and potentially leaving. Having a bar in a restaurant is a good idea in this case because it has multiple purposes. First, a bar is able to serve drinks to customers who are looking to have a good time. The restaurant is able to generate revenue while customers are waiting for a table. The second

purpose is that a bar serves as a buffer area. The restaurant is able to entertain guests while they prepare for their table, increasing customer satisfaction. Keeping a customer engaged and content is one of the most important points of any business. The optimal number size for bar seats according to the simulation would be 79 bar seats and 11 tables with batching. The number of bar seats and dining table seats are almost equal which guarantees that if every bar seat is taken, then there will always be enough seats in the dining area to accommodate all the customers waiting in the bar. With having just a little more seats in the dining room than in the bar, the restaurant is able to always have customers being seated without waiting too long. But when running the simulation with having less bar seats than restaurant seats such as in the ratio of sixty-three bar seats to thirteen tables, the data showed a decrease in profits. Although the restaurant increases the amount of customers it is handling in the dining room, that also means that the restaurant is spending more money on labor and overhead costs. It also means that customers are spending less money in the bar area. It is also the same when the restaurant has more bar seats than dining seats. Because the bar area at maximum capacity exceeds the maximum capacity of the dining room, there is not enough space to accommodate those in the bar when one whole cycle time is done. There will be some customers who will wait longer and eventually leave. Benihana is a restaurant before it is a bar. Changing the length of dining time increases the profit by giving customers a specific time to dine, while also providing customers who are waiting a time they need to wait so they dont leave. It also allows the restaurant to accurately prepare batches of food for dining tables in a timely manner. With changing the opening dining time to forty-five minutes, it allows customers to eat comfortably while also cutting down on costs. By having customers eat for a shorter amount of time, it allows tables to be cleared for the upcoming peak time. During the peak hour or rush hour, changing the average dining time to 45 minutes ensures that you get the most customers in the least amount of time for maximum profitability. Peak time is when a restaurant has the most number of customers waiting to be seated and have a desire to eat. With a smaller dining time, more customers are able to be seated to dine which reduces the wait time, increases the profits gained from dining, and also utilize both areas of the restaurant with great efficiency. Before closing, customers who come in for a late dinner from 8pm to 10:30pm usually come in small groups, so allowing customers to eat for as long as they want before closing is profitable. Also by increasing the wait time during the late hours, customers will be waiting in the bar area longer, increasing bar profits. Details from the simulation states that a customer orders a drink in the bar area every twelve minutes, so if a customer isnt eating, they are more likely to drink. By changing the dining time, you are utilizing every seat and labor available in the most efficient manner which decreases the amount of customers lost and increases the amount of customers served. Service times are reduced, labor costs are minimized, throughput is maximized and customers are happy. One possible negative effect of changing the length of dining time is that by decreasing the dining time during certain hours, the restaurant lowers its profit made in the bar area. This is because more customers are being seated faster in the

dining area, giving them a smaller window for them to order drinks. But this possible negative can be mitigated by the setup of the restaurant. One of the challenges Benihana has to overcome is predicting the times their customers will arrive, number of people they will serve in an specific hour, and what they will order. Not all customers will arrive at the same time or will always be in even number of people. Ways to reduce demand variability would be to offer price incentives such Happy Hours at bars and restaurants. In the simulation, by having an earlier opening time as well as utilizing the advertising budget to promote happy hour and other promotions increases more customer served and increased profits. In addition to happy hour promotions, offering complementary services such as bars reduced demand variability. Through the bar service it facilitates batching and can eliminate the variability in the batch sizes. For an example, Benihana could offer happy hour during peak hours to customers who are willing to wait until post peak to be served. Using the awareness building advertisement method, the restaurant saw a small increase in profits. A possible reason why is because customers became more aware of the restaurant and the product it was providing the community. Using the discount promotion method lost money. By discounting the dinner price from ten dollars to eighty dollars and fifty cents, the amount of profit could not cover the costs of labor, advertising, and overhead. Using the happy hour campaign showed the most profit. By decreasing the price of drinks before 7 PM, more customers came in during the non-peak times. Although less profit was made on each drink, the dining profits increased. By changing the budget amount of advertising for each of these advertising campaigns, it only multiplied the effect the campaigns had on profits. As the budget increased, profits went up for the awareness and happy hour campaigns and profits went down for the discount promotions. From the data, 2.1x the normal budget spent on advertising was the optimal amount. As the budget increased after that number, too much money was being spent without a significant gain in profit. Below 2.1x, there was considerable profit to still be gained. It is a great idea to change different types of batching methods at different times because adjusting to any situation at any time is key to maximizing profits. During opening and rush hour, batching tables of 8 is the most effective because you utilize every table. With opening time, having a batch of eight allows the restaurant to cut down on costs. As mentioned before, having no batching at all decreases profits because once a group smaller than eight people sits down, that table is occupied. With peak hour, batching in groups of eight ensures that all tables are being utilized in maximum capacity and also allows waiting customers to have a accurate wait time. During the late dinner time, customers come in small parties or by themselves. So seating 4 at a table would be the most effective because of how small the number of customers are coming in at a slow rate. The best combination to maximize profitability is the combination of all the previous strategies used in the challenges prior. In the first challenge, batching utilized 55% of the dining room whiles no batching 42%. As stated previously, batching allows the restaurant to use less chefs, lowering costs and increasing profits. By having the restaurant setup at 79 bar seats and

11 dining tables, we maximized our profits. As the restaurant adds more tables, it increases its fixed costs so having an equal amount allows lower costs while also increasing the capacity of both the bar and dining room. With changing the dining times, having the opening and peak times set at 45 minutes and having closing time at 75 minutes allows throughput to be the most efficient during the first two sessions and the closing session customers to utilize the most out of the dining room. For advertising, using a happy hour approach with 2.1x advertising budget. This increased the amount of customers that came in before the peak dining time while also increasing sales. The final strategy used are the different batching methods for each dining time. Having the opening and peak dining times at 8 people per table allows optimal dining utilization while having the closing time at 4 per table allows smaller parties to sit and eat. By using these strategies, the restaurant made an average profit of $533.60 with a total cost of $3,908.50 and a revenue of $4,698.52. Further analysis showed that the table utilization rate went up to average of 71% but the average number of customers lost was 38. Since the lost of customers is not 0, it indicates that the strategies used did not maximize throughput time for the amount of customers that were coming in.

Works Cited
U.s. culture and values. (n.d.). Retrieved from http://www.yale.edu/oiss/life/cultural/americans/values.html