Benihana Cost F08 25-Jun-2008
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Transcript of Benihana Cost F08 25-Jun-2008
ANDERSON Core Ops
Service Process DesignService Process DesignBenihana of Tokyo
Cost Structure Basics
Business model: the restaurant as a process
Inventory & risk pooling
Maximizing ROI thru designing for short flow time
ANDERSON Core Ops
Need to look at Cost Structure
Fixed costs are independent of unit volume produced.– Capital Equipment, Brick & Mortar, Energy, Administrative
Overhead
Variable costs are dependent on unit volume produced.– Materials
Warning: Sometimes the division between these two classes is fuzzy– Labor, Energy in refinery, Data can be per record or per database
Cost structure allows us to separate all operating costs into 2 types:
ANDERSON Core Ops
Cost Structure vs. Revenue Graphs
0
5
10
15
20
25
0 5 10 15 20
unit sales (000s)
$M
illio
n
Dell PC:
FC = $1M;
VC/unit = $1K/unit
• Assume that the target Profit for Dell $100/unit at target sales of 10,000 units
Per-unit cost at target sales volume?
Target price?
ANDERSON Core Ops
Cost Structure vs. Revenue Graphs
0
5
10
15
20
25
0 5 10 15 20
unit sales (000s)
$M
illio
n
Microsoft Visual C++:
FC = $10M;
VC/unit = $100/unit
• Assume that the target Profit for both Dell & MS is $100/unit at target sales of 10,000 units
Per-unit cost at target sales volume for VC++?
Target price for VC++?
(20,21)
(0,1)
DELL TCDELL Revenue (20,24)
ANDERSON Core Ops
Breakeven Utilization: Dell & MicrosoftBreakeven Utilization: Dell & Microsoft
What is the breakeven volume for Dell?
What is it for Microsoft?
ANDERSON Core Ops
Contribution Margin RatioCost structure determines the sensitivity of profit to sales uncertainty:
Downside Upside Swing(Sales=0) (Sales=20K)
Dell
MS
Defn: Contribution Margin Ratio is the percent marginal (economic) profit per unit. Or CMR = (Price – VC/unit)/Price
Dell’s CMR: MS’s CMR:
ANDERSON Core Ops
Operating LeverageAnother, more inclusive, measure of the sensitivity of profit to sales uncertainty is the operating leverage:
Defn: Operating Leverage is the ratio of contribution margin to profit @ a planned volume; Or OL = (P-VC/unit) / (unit profit) @ a planned volume
Dell’s OL:
MS’s OL:
Warning: Operating leverage is sometimes defined differently!
ANDERSON Core Ops
Closing the Loop with ROI If the time horizon is short enough and cost of capital low enough:
Project Duration in Years
where = Cost Margin Ratio, = price,
= quantity sold, FC = fixed cost of project,
= Salvage Value of investment
CMR Q P FC SVAnnualized ROI
FC SV
CMR P
Q
SV
s at end of project
ANDERSON Core Ops
The Big Picture
To improve ROI through improved business models requires excellent process design tailored to the intended market.
Benihana’s business model was revolutionary. Much of this was due to its outstanding process design combined with a novel re-conceptualization of restaurant marketing.
ANDERSON Core Ops
Benihana of Tokyo – SynopsisBenihana of Tokyo – Synopsis
What is the Benihana value proposition?
Who is their target market segment?
What are some critical success factors from a customer point of view?
ANDERSON Core Ops
Cost AnalysisCost Analysis
What are the fixed costs?
What are the variable costs?
Will Benihana have a higher or lower operating leverage relative to conventional restaurants?
Benihana Average of
Labor Costs 10-12% 30-35% Op. Expenses
Food Costs 30-35% 38-48% CGS
Bevrg. Costs 20% 25-30% CGS
Rent 5-7% 5-9% Op. Expenses
Promotion 8-10% 0.75-2.0% Gross/Op. Exp.
Construction higher lower
ANDERSON Core Ops
Cost FactorsCost Factors
1) Lower labor costs:
2) Lower food costs:
3) Lower beverage costs:
ANDERSON Core Ops
Cost Factors (continued)Cost Factors (continued)
4) Lower rent:
5) Higher advertising and promotion:
6) Higher construction costs:
ANDERSON Core Ops
An Aside on Inventory
Assume on any day Benihana would like have at most a 1% chance of running out of any particular ingredient. If demand is normally distributed then, from the cumulative normal distribution we will need the mean plus 2.32 standard deviations of demand for this ingredient to achieve a 99% “service level.”
Assume mean demand for beef is 100#/day, the standard deviation is 30#/day. How much beef should they have on hand in their inventory after receiving their daily order in the morning? How much filet?
Assume that they discontinue filet and that all of those customers order beef instead. Assuming the demands are independent, how large a beef inventory should they have on hand now?
ANDERSON Core Ops
Dining in Under an HourDining in Under an Hour
(Note: FT = L/thruput. This is known as Little’s Law.)
What does the dining process look like?
1. Seating
2. Assemble drink order/Give menu
3. Present drinks/Take order
4. Chef setup
5. Food preparation
6. Eating
7. Dessert
8. Deliver check
9. Collect money
10. Return change/Get credit card signature
Dining time =
ANDERSON Core Ops
Dining in Under an HourDining in Under an Hour
What makes a 45 minute dinner possible?
ANDERSON Core Ops
Takeaway
When designing a process,
there is NO substitute for deep
process knowledge!!!
But there are some common
principles that often work to
maximize ROI…
ANDERSON Core Ops
Benihana Business Model
Limited Menu Minimize Flowtime Minimize Waste Minimize Inventory Minimize Space Highly Motivated & Trained Workforce
ANDERSON Core Ops
Service Process DesignService Process DesignBenihana of Tokyo
Cost Structure Basics
Business model: the restaurant as a process
Inventory & risk pooling
Maximizing ROI thru designing for short flow time