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Just-In-Time (JIT) Inventory Management in a Restaurant - Executive Summary (example paper)




This report examines the application of just-in-time (JIT) inventory management practices to a restaurant scenario. The restaurant used for comparison is open seven days per week, serving a prix fixe set menu during lunchtimes and an open menu in the evening and overnights. The report examines specific elements of JIT inventory management, including Kanban, design flow, total quality management (TQM), waste elimination, vendor management, and product and process design, in order to determine how well the JIT process will work in this environment. This report relies on existing empirical evidence of the use of JIT in the hospitalities and restaurant inventories as well as studies examining the issues faced within the restaurant supply chain. It concludes that the use of JIT in this restaurant setting is not impossible, but in order to implement it properly and realize the benefits from its implementation it will probably be necessary to engage in significant business process re-engineering. Otherwise, it is likely to result in product shortages and overages due to poor forecasting or waste within the organization. In the short-term, the JIT implementation may be more expensive for the organization due to the expense of business process re-engineering and creation of supplier relationships. However, in the long term it is likely to save money due to reduced waste.

Table of Contents

JIT Management Research

Executive Summary1
Introduction3
Findings and Analysis4
Benefits and Drawbacks of JIT4
Path to JIT Adoption6
Short-term and Long-term Effects8
Conclusions9
Bibliography11

Introduction

The Just-in-time (JIT) inventory strategy is an inventory management strategy that aims to have as much finished product or intermediate goods as required by a company at the right time, thus reducing inventory costs and wastes without negatively impacting customer supply. The JIT inventory management methodology uses signals, or Kanban, which automatically trigger the replenishment of inventory, cut down on inventory ordering in anticipation of reduced requirements, and improve financial outputs of the business. Basic elements of the JIT inventory management process include design flow, total quality management (TQM), waste elimination, vendor management, and product and process design. While JIT is more commonly used in manufacturing processes rather than end-user facing retail environments, there has been some research into JIT management practices in the restaurant, hotel, and service environment.

This research focuses on the case study of JIT implementation in a restaurant as a means of analyzing the positive and negative aspects of JIT implementation as well as potential pitfalls. The restaurant is open seven days per week. During the lunch rush, it serves a set menu with specific choices, while in the evenings and weekends it serves customers from a short a la carte menu. This restaurant is considering implementing JIT inventory management process in order to achieve the potential benefits of JIT, including productivity improvements, waste elimination, delivery of supplies at the right quantity and the right time, minimum use of facilities, equipment, materials and human resources, employee involvement, teamwork, and simplification. However, the organization must also be able to avoid the potential pitfalls of JIT, including inappropriate inventory management levels and increasing waste due to inappropriate business processes.

Findings and Analysis

There were three areas for analysis in this research. These included:

1.What are the potential benefits and drawbacks to a JIT management system?
2.How can JIT management be adopted by the restaurant?
3.What will be the short-term and long-term effects of JIT management for the restaurant?

Each of these issues is considered in more detail below.

Benefits and Drawbacks of JIT

The main benefits of JIT have been well identified within the literature. A carefully planned implementation of JIT can immediately provide increased teamwork and employee involvement, as the organization works together to find areas of waste to target and work out ways to reduce waste in that area. This results in a simplification of the inventory management system, as well as business processes involved in inventory management. Supplier relationships and data regarding the business are used to identify specific areas where inventory improvements are required. This management process is then used to ensure that the right deliveries occur at the right time to keep the business running until the next delivery. This results in the reduction of waste within the organization, as well as increased efficiency as the inventory management process requires less use of human resources and space. For example, in this case, if the restaurant were to have its fresh foods delivered on a JIT basis, it could devote less space to food storage, and reduce its waste due to spoiled food or food that is not ordered by its patrons, without running out of food and losing the opportunity for a sale. The process of JIT inventory management would also increase the involvement of the firm's employees, through the continuous improvement and total quality management aspects, thus increasing organizational commitment.

However, there are also some challenges involved in the use of JIT in the restaurant industry, as well as some drawbacks to JIT in general. One general drawback is that the implementation of JIT, if it is not integrated into a framework of lean management practices such as total quality management and continuous improvement, it can be expensive and counterproductive as it will not be able to achieve the efficiency gains that are one of its major benefits. The JIT management process also requires significant data input that the restaurant may not currently have if it does not have an up to date management system. There are some systems in use within the restaurant industry that provide JIT data for ordering as well as production; these range from handheld PDAs that connect to central ordering systems to RFID tags on conveyor-belt sushi (kaizenzushi) in order to automatically trigger inventory ordering practices as well as provide detailed data ordering. A further issue is the problem of integrating supplier data and creating supplier relationships. Manufacturing JIT practices work well because suppliers and buyers federate their ordering systems in order to automatically generate inventory production levels down the supply chain, thus ensuring that the entire supply chain can use the most effective manufacturing strategies. However, a fundamental problem with the restaurant industry is that a large number of suppliers, particularly suppliers for finer products or local goods. These suppliers often do not have the ability to assure supply under the requirements of the JIT system, may lack computer systems required to federate supply with the restaurant, or may have a highly seasonal inventory. Thus, it may be difficult for the restaurant to implement a full JIT process, although it is likely that suppliers of staple and prepared products can accommodate the demands. JIT also requires considerable business process re-engineering, and the restaurant's processes may need to be significantly redesigned in order to fit with JIT practices. This includes not only inventory management practices (which is obvious), but also food production, waste management, and quality control practices, all of which will be necessary to improve the firm's performance. Thus, the firm is not guaranteed to achieve the benefits of JIT adoption, and must be careful to ensure that it is in appropriate condition for the transition prior to beginning.

Path to JIT Adoption

The way in which JIT can be adopted depends on the type of industry. A restaurant industry is a mixed industry, in which both services and products are combined as a single offering to the end consumer (Jiang, 2009). The main points of JIT within this industry can be identified in Jiang's (2009) case study of the Starbucks organization, in which standardized training is used to provide consistency in service, and JIT management of inventory is used for forecasting, scheduling, ordering, and delivery of goods (Jiang, 2009). However, there are some issues applying the Starbucks model to a single restaurant. Specifically, while the Starbucks organization has a large number of locations and manages its own production from larger suppliers, a single restaurant is not likely to be able to leverage their suppliers to this degree. However, if the restaurant is considered to be a culinary tourism destination, the restaurant might be able to gain access to better support from its suppliers in this respect.

The first step will be creating a way to gather data to provide forecasting capabilities for the restaurant. For the lunch menu, as it is a set menu, the restaurant would only need to know the number of customers it would serve each day, which can be roughly determined using historical data. However, more complex data for the a la carte menu would need to be gathered, including the relative popularity of each dish. The next step in JIT inventory management will be business process re-engineering in order to increase the simplicity of the business processes (Bates, n.d.). The goal of business process re-engineering is to identify areas of waste and inefficiency within the organization and improve working processes to reduce these inefficiencies prior to implementing JIT (Bates, n.d.). For example, the organization could examine its menu and eliminate unpopular items, reduce the complexity of dishes, and reduce the number of ingredients in use.

The next step will be to implement business analysis systems, such as data collection systems and automated ordering and inventory systems, in order to allow for effective JIT ordering, or upgrading systems in order to allow for the collection of this data. During this process it will also be necessary for the restaurant to determine which products should be sourced this way, and for which products a continued traditional method would be more appropriate (if any). Then, the restaurant will need to make agreements with its suppliers in order to create the connections required to manage the JIT supply chain. This may be problematic when sourcing local food or gourmet food, as these food supplies are in greater demand and less supply than standard foods. In this case, one effective approach may be to create special relationships with suppliers, in order to gain access to limited supplies of foods. However, standard food suppliers will be much simpler to connect with, as these suppliers are used by large-scale JIT practices such as flight food provisions and large cafeterias and chains as well as smaller suppliers. Following implementation of the JIT inventory management process, the restaurant should also use practices like total quality management (TQM) and continuous improvement to support ongoing efficiency improvements as well as identifying areas where JIT practices could be applied in other contexts. Furthermore, ongoing supplier relationship management should be used in order to ensure that the supply chain remains consistent and available, especially for rarer ingredients.

Short-term and Long-term Effects

In the short-term, the JIT implementation as planned will cost the restaurant money. The implementation of information technology systems to facilitate inventory management, ordering, and prediction can be expected to be expensive for the restaurant, even if enacted on a small scale, and the restaurant may need to provide incentives for the suppliers of choice to allow them to implement these costs as well. The restaurant may already have close relationships with suppliers, but it may also not have these close relationships, and thus it will need to be formed. The restaurant may also face increased costs from refitting freed inventory holding space for other purposes, employee training, and other cost centres.

However, in the long term, if the restaurant implements JIT effectively, the restaurant can expect its costs to be reduced and its efficiency to rise. Immediate or near-term benefits that will be realised include a reduction in waste from over-ordering, without an attendant loss in sales from inability to meet customer demand. However, these immediate benefits can also be expected to increase over time, as the restaurant's employees participate in programs such as TQM and CI, which are intended to provide ongoing process improvements as employees identify problems and areas of improvement. However, if these processes are not implemented in conjunction with the JIT process, there is the potential that the JIT will not meet its promise in the long term, and may prove to be difficult to maintain.

One area that could be explored is the use of JIT labour supply as well as inventory. This has been used effectively in the hotel service sector, and the use of employment agencies to provide temporary labour can be highly effective at reducing costs in case of uneven operating conditions. However, this should be considered after the inventory implementation, and should be a mid to long-term goal rather than immediate. This could be examined as one of the ongoing improvement processes engaged in during TQM and CI processes.

Conclusions

This report has indicated that the implementation of JIT practices could be put into place by the restaurant, if the restaurant is willing to undergo some business process re-engineering in order to ensure that the business processes are consistent with the demands of JIT, and if the restaurant can access sufficient predictive information regarding its expected business levels for each day to make it possible to order the appropriate materials. If the firm does engage in this activity, it may be able to reap significant benefits, including the reduction (if not elimination) of food and inventory waste, reduced costs and increased productivity, and reduction in use of facilities materials and human resources. The restaurant can also expect to have simplified inventory processes and reduction in the costs associated with the restaurant. Although there are some elements (such as spices and seasonings, as well as durable equipment) that may not be able to be integrated into a JIT supply chain for the restaurant, with appropriate coordination with suppliers all fresh foods should be able to be included in this practice. However, without the redesign of business practices and careful consideration of what can and should be ordered in a JIT fashion, the implementation may fail and have strong negative effects on the restaurant.

Bibliography

Bates, J. (n.d.). Business process re-engineering & business process outsourcing - what the procurement professional needs to know. Retrieved November 26, 2009, from The Chartered Institute of Purchasing & Supply.

Chang, Y., & Jones, P. (2007). Flight catering: An investigation of the adoption of mass customization. Journal of Hospitality and Tourism Management , 14 (1), 47-57.

Hollins, B., & Shinkins, S. (2006). Managing Service Operations: Design and Implementation. London: SAGE Publications Ltd.

Ilbery, B., & Maye, D. (2009). Retailing local food in the Scottish-English borders: A supply-chain perspective. Geoforum , 37, 352-367.

Jiang, X. (2009). The relationship between manufacturing and service provision in operations management. International Journal of Business and Management , 4 (3), 183-189.

Lai, P., & Baum, T. (2005). Just-in-time labour supply in the hotel sector: The role of agencies. Employee Relations , 27 (1/2), 86-102.

Murphy, J., & Smith, S. (2008). Chefs and suppliers: An exploratory look at supply chain issues in an upscale restaurant analysis. International Journal of Hospitality Management , 28, 212-220.

Ngai, E., Suk, F., & Lo, S. (2008). Development of an RFID-based sushi-management system: The case of a conveyor-belt sushi restaurant. International Journal of Production Economics , 112, 630-645.

Slack, N., Chambers, S., & Johnston, R. (2007). Operations Management (5th ed.). London: Financial Times Prentice Hall.

Smith, S., & Xiao, H. (2008). Culinary tourism supply chains: A preliminary examination. Journal of Travel Research , 46, 289-299.

Written by Kathryn Forest