Case Focus: Café Kibbe

Cafe Kibbe adds North African flavours to traditional Mediterranean−Arab recipes. Located in a quarter
of the old city of Casablanca, Morocco, the restaurant attracts affluent locals and tourists. Cafe Kibbe
serves lunch and dinner seven days a week, and offers breakfast at weekends. Nabil al-Dhahabi, the
manager, has faced some difficulties with ordering the right amounts of food items for the restaurant.
Because of this, there are some weeks the restaurant has a surplus of menu items that are no longer
fresh, and must be discarded. At other times, the restaurant has experienced shortages of some items.
The fact that inventory accounts for an average cost of 26% of the restaurant’s total revenue
underscores the importance of managing inventory.

Nabil would like to find a way to ensure that he is maintaining the proper amount of inventory.
Customer counts at Cafe Kibbe have been declining recently, so one of Nabil’s greatest focuses is to
keep current customers and attract new customers. He believes that a key aspect of this is having all of
the items on the menu in stock. This way, discerning locals are satisfied and tourists have a positive
experience that they report to their friends and on tourism recommendation websites.

Online inventory systems are used to assist restaurant managers in determining on-hand inventory and
gauging how well the restaurant is controlling food costs. The fiscal week for Cafe Kibbe starts on
Saturday and ends on Friday of the following week (the weekend in Morocco is Saturday and Sunday).
Each Friday, the manager physically counts the inventory on hand and enters the data into the online
inventory system. The computer software system then compares the on-hand inventory for that week,
the amount of food ordered, and the inventory on hand for the end of the previous week with the sales
for the current week. By doing so, it is able to determine a total food cost. The manager compares this
cost with the benchmark cost to see how well the restaurant has been managing its inventory. This is
one of the most important numbers Nabil at Cafe Kibbe because it accounts for approximately 30% of
total costs in terms of the cost structure.

The computer software system also compares the total cost of food on hand with the total amount of
sales for that week and computes a percentage of on-hand inventories. As a guideline, comparable
fullservice restaurants in the same market segment have between 29% and 36% for the on-hand
inventory level. This level of inventory is considered an appropriate average to ensure quality food that
is fresh and within expiration. Lastly, it is better to keep the inventory at a minimum level to ensure the
accuracy and ease of inventory counts.

Cafe Kibbe has been running above average in terms of food costs. For this reason, the owners have
become concerned with the performance of the ordering system that Nabil is using at the restaurant.
Nabil has been using his intuition to decide how much product to order despite the fact that the product
order sheets provide a moving average usage of each product. Nabil bases his inventory management
on his intuition because he does not understand how to utilize the moving average forecasting
technique when placing orders. An additional complication with ordering inventory is that items are
often packed in multiple quantities, so he cannot order the exact amount that he needs. Nabil’s boss
requested that he create a more accurate way of ordering food and to report back to him in one month.
Nabil is worried that if he cuts inventory levels too low he will run out of products which may result in a
decrease in customer counts.
After Nabil met with his boss, he began to think about what changes he could make. He knows that
inventory has been a weak point for him, but he remembers one of his employees talking about
inventory management from one of his college courses. Nabil decides to ask the employee if he would
be willing to help him try and come up with a better way for him to order products. Nabil tells him how
the ordering system works, shows him the ordering form, and relates the above information.

Suppose you have been asked to work with Nabil to improve inventory ordering.

1. Describe the importance of inventory management as it relates to Cafe Kibbe.

2. What ordering system would be best for this situation?

3. Given the following information, provide an example of how much Moroccan harissa spice
paste seasoning should be ordered. You are doing the order for Thursday. Nabil would like a
service level of 95%, and you have found that there is a standard deviation of 3.5 units per
week, and a moving average weekly demand of 35 servings. The Moroccan harissa seasoning
comes in packs of two servings. There are currently three packs in inventory.

4. Given the above information and supposing an on-hand inventory of 12, determine the risk of
stock out at the end of initial lead time and at the end of the second lead time. The lead time is
two days and orders are placed once a week.

5. For items other than vegetables, fruits, fresh bread, and the like, which are sourced locally, the
supplier Nabil uses is located in Lebanon, where the owners of the restaurant are based. Why
might Nabil consider dealing with a nearby supplier instead of the one in Lebanon? What
reasons might there be for not switching suppliers?
Case Focus: Tai Din Fung and Sons Pte Ltd
Headquartered in Singapore, Tai Din Fung and Sons Pte Ltd is an industrial and real estate conglomerate
with operations across South-East Asia and further holdings in the Middle East and Europe. One of the
company’s divisions specializes in the assembly of display screens used in retail and industrial terminals.
The division also sells repair parts for its screens, both current production models and those no longer
being produced. Manufacturing is located in two facilities in Malaysia, with parts being sourced,
currently, from China, Japan, and Taiwan, as well as Malaysia.

The display division sells to external customers that have included Apple, Lenovo, NCR, and Siemens,
and also to some other divisions of Tai Din Fung and Sons. However, it is now a small player in a global
market. In recent years the display division has been in financial difficulty, facing fierce competition
while struggling to find its place in the booming touchscreen market. The division has lost money for
three of the last four years, with the last year’s loss being SGD 170,174 on sales of SGD 10,238,664.
Inventory levels have been steadily increasing to their present levels of SGD 1,264,340.

Besides manufacturing labour, the division employs 44 people. The management team consists of:
division president, VP of sales, VP of manufacturing, VP of finance, and VP of purchasing. Each
production facility is led by a team of three: a manufacturing manager, controller (finance), and
purchasing manager; each of these team members reports to their respective VPs. In each facility, an
assembly foreman, stockroom foreman, and quality engineer report to the manufacturing manager.

Current Inventory Control System

The division’s two in-house production facilities operate in similar ways. The current inventory control
system is surprisingly unsophisticated. It consists of orders for stock replenishment being made by the
stockroom foreman, the purchasing manager, or the manufacturing manager whenever one of them
observes that the inventory is low. An order for replenishment of inventory is also placed whenever
someone (either a customer or an employee in the assembly area) wants an item and it is not in stock.
Some inventory is needed for the assembly of the various types of displays. There are current and
accurate bills of material for these assemblies. The material needs to support the assembly schedule are
generally known well in advance of the build schedule. The majority of inventory transactions by
number are for repair parts and for supplies. Because of the varied use of the division’s products over
the years, there is a steady demand for repair parts. Further, some types of parts are sometimes
ordered by the printer or home security divisions of Tai Din Fung and Sons, which have assembly
facilities nearby in Malaysia.

Each factory stockroom is well organized, with parts stored in locations according to each vendor. The
number of vendors is relatively limited, with each vendor generally supplying many different parts. For
example, all the parts from Winbond Electronics Corporation, a manufacturer of memory chips and
integrated circuits, are stocked in the same location.

Because of the sales volume of repair parts, there are generally two employees working in the
stockroom: the stockroom foreman who reports to the manufacturing manager and an assistant to the
foreman. One of these two employees will handle external or internal customer orders, which are
forwarded by the division’s central office through its intranet computer system, or, especially for urgent
orders, made by phone.

The assembly area has some inventory stored on the shop floor. This inventory consists of low-value
items that are used every day, such as nuts, screws, and wires. These purchased items do not amount to
much dollar volume throughout the year. Unfortunately, oftentimes the assembly area is out of one of
these basic items and this causes a significant amount of downtime for the assembly lines.

Paperwork is kept to a minimum. An electronic sales slip listing the part numbers and quantities sold to
a customer (whether external or internal) is generally made out for each sale. If the assembly
department needs items that are not stocked on the assembly floor, then someone from that
department will enter the stockroom and withdraw the necessary material. No paperwork made out for
the items needed on the assembly floor.

There were 980 different part numbers purchased for stock last year and those purchases amounted to
SGD 3,414,075. An analysis of inventory records shows that SGD 2,206,684 was spent on just 179 of the
part numbers. Fortunately for Tai Din Fung and Sons’s display division, most of the items it purchases
are stocked by either the manufacturer or by a regional wholesaler. When it is discovered that a factory
is out of stock on an item, it generally takes only two or three days to replenish the stock. The exception
is certain delicate touchscreen components manufactured in Japan.

The Decision of the Board

Tai Din Fung and Sons operates its divisions as independent entities. Due to the display division’s recent
losses, the parent company’s auditing firm became concerned about the division’s ability to continue in
business. Recently the division sold off excess vacant land adjoining one of its manufacturing facilities to
generate cash to meet its financial obligations.

After the resignation of the division’s president, the board of Tai Din Fung and Sons has appointed a new
division president. The new president has identified many problem areas—one of which is improper
inventory control. He has retained you as a consultant to make specific recommendations concerning a
revised inventory control system. What are your recommendations and their rationale?
Adapted from: Case “Harvey Industries” by Donald Condit presented at Midwest Case Writer’s
Association Workshop, 1984. Copyright © 1984 Donald Condit. Reprinted by permission.

Grill Rite

Grill Rite is an old-line company that started out making wooden matches. As that business waned, the
company entered the electric barbecue grill market, with five models of grills it sells nationally. For
many years the company maintained a single warehouse from which it supplied its distributors.

The plant where the company produces barbecue sets is located in a small town, and many workers
have been with the company for many years. During the transition from wooden matches to barbecue
grills, many employees gave up their weekends to help with changing over the plant and learning the
new skills they would need, without pay. In fact, Mac Wilson, the company president, can reel off a
string of such instances of worker loyalty. He has vowed to never lay off any workers, and to maintain a
full employment, steady rate of output. “Yes, I know demand for these babies (barbecue grills) is
seasonal, but the inventory boys will just have to deal with it. On an annual basis, our output matches
sales.”

Inventory is handled by a system of four warehouses. There is a central warehouse located near the
plant that supplies some customers directly, and the three regional warehouses.

The vice president for sales, Julie Berry, is becoming increasingly frustrated with the inventory system
that she says “is antiquated and unresponsive.” She points to increasing complaints from regional sales
managers about poor customer service, saying customer orders go unfilled or are late, apparently due to
shortages at the regional warehouse. Regional warehouse managers, stung by complaints from sales
managers, have responded by increasing their order sizes from the main warehouse, and maintaining
larger amounts of safety stock. This has resulted in increased inventory holding costs, but it hasn't
eliminated the problem. Complaints are still coming in from salespeople about shortages and lost sales.
According to managers of the regional warehouses, their orders to the main warehouse aren't being
shipped, or when they are, they are smaller quantities than requested. The manager of the main
warehouse, Jimmy Joe (“JJ”) Sorely, says his policy is to give preference to “filling direct orders from
actual customers, rather than warehouse orders that might simply reflect warehouses trying to
replenish their safety stock. And besides, I never know when I'll get hit with an order from one of the
regional warehouses. I guess they think we've got an unlimited supply.” Then he adds, “I thought when
we added the warehouses, we could just divide our inventory among the warehouses, and everything
would be okay.”

When informed of the “actual customers” remark, a regional warehouse manager exclaimed, “We're
their biggest customer!”

Julie Berry also mentioned that on more than one occasion she has found that items that were out of
stock at one regional warehouse were in ample supply in at least one other regional warehouse.

Take the position of a consultant called in by president Mac Wilson. What recommendations can you
make to alleviate the problems the company is encountering?
RUBRIC FOR ASSESSMENT
Case Analysis Rubric
Criteria
Content (coverage of content:
demonstration of understanding of the
case, theory and application)
• Purpose and focus of case (set
context, focu, and expectations):
“The purpose of this case discusion
is to ...”
• Briefy description of the
theory (refresher to class of main
concepts)
• Description and explanation
of the case using theory
(familiarity and appropriate use of
terms): “Using this theory, here’s
what happened and why...”
• Intervention using theory (use
of theory in suggesting solution to
problem): “Using this theory, here
are some ways the situation could
have been prevented and
changed...”
• Conclusion/evaluation
(consideration of use and value of
theory in explaning and intervening
in this kind of case): here’s how
useful this theory was in examining
this kind of case...”
Presentation (presentation and skills)
• Presenter’s role (evident
teamwork, collaboration and
practice in presentation)
• Presenter’s style (not all
members make presentation)
• Class discussion (involving class
in discussion of case, theory,
application, utility, strengths and
weaknesses, etc.)
Insufficient Adequate
(absent, lacking, (accurate/complete but focus
incomplete, errors, on separate points rather than
inconsistent) integrating or discussing the
system)
1 2
• no mention of purpose • identify purpose of case
or focus for presentation and focus for
presentation: jumping discussion; overview of
right in case
• no discussion of theory • clear and thorough
or how it works coverage of the theory,
key terms, how it works
• description of case but • description of case using
without using terms terms and concepts
and concepts of theory appropriately
• intervention discussed • clear points of intervention
but unclear; terms, using terms, and practices
concepts or procedures but with separate parts of
not used well the problem
• no conclusion or utility • strengths and weaknesses
of theory discussed of theory applied to case
identified
• no graphics • graphics but hard to read,
interpret or do not clearly
follow explanation
• not all members make • each member presents
presentation separate section of
presentation
• barely audible, • audible, clear, interested
awkward speech or but lacking practiced
gestures, distracting smoothness and
habits or mannerisms enthusiasm; good eye
contact & matching
gestures
• little or no effort to • elicit questions from class
elicit questions or lead and discusses them
discussion
Excellent
(complete, thorough, articulate,
showing understanding of
relationships, among parts)
3
• purpose and focus clear with
suggested key issue and
highlights
• clear and thorough coverage
as well as noting why it was
picked for this case and how
well it fits
• description using terms and
concepts with emphasis on
how they explain the case
and are related to each other
• clear intervention using
terms, etc. with discussion of
how parts of problems and
intervention are related and
might affect each other
• strengths and weaknesses
identified, and alternative
theories or additional needs
suggested
• clear, legible, attractive
graphics that add value to
presentation by clarifying or
summarizing
• members present separately
but show smooth transition
and how they are related;
may contribute mutually
• coherent, articulate,
enthusiastic, confident,
appropriate nonverbals
• elicit questions and presents
questions for discussion to
class regarding case or
theory; good faciliatation
skills
• Reflection (thinking back on your
presentation, how you prepared,
delivered it, and how you worked
together – what you might have
done differently to improve it)
• little or no discussion • limited suggestions of how
of reflection presentation might have
been improved
• thorough consideration of
how presentation, graphics,
teamwork, and other
presentation efforts could
have been improved