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
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 (Slack, Chambers, & Johnston, 2007). 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 (Hollins & Shinkins, 2006). 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 (Hollins & Shinkins,
2006).

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 (Slack,
Chambers, & Johnston, 2007). 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 (Slack, Chambers,
& Johnston, 2007). 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 (Hollins
& Shinkins, 2006). 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 (Hollins & Shinkins, 2006). 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 (Ngai, Suk, & Lo, 2008). 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 (Slack, Chambers, & Johnston, 2007). However, a
fundamental problem with the restaurant industry is that a large number of
suppliers, particularly suppliers for finer products or local goods (Murphy &
Smith, 2008). 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
(Murphy & Smith, 2008). 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 (Slack, Chambers, &
Johnston, 2007). 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 (Smith & Xiao, 2008).

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 (Hollins & Shinkins,
2006). 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 (Slack, Chambers, & Johnston, 2007). 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) (Slack, Chambers, & Johnston, 2007). Then, the
restaurant will need to make agreements with its suppliers in order to create the
connections required to manage the JIT supply chain (Slack, Chambers, &
Johnston, 2007). 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 (Murphy & Smith, 2008; Ilbery & Maye, 2009). In this case, one effective
approach may be to create special relationships with suppliers, in order to gain
access to limited supplies of foods (Murphy & Smith, 2008). 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 (Chang & Jones, 2007). 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 (Murphy & Smith, 2008). 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 (Slack, Chambers, & Johnston, 2007).

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 (Slack, Chambers, & Johnston, 2007). 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 (Slack, Chambers, & Johnston, 2007). 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 (Lai & Baum, 2005).
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

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Written by Kathryn Forest