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OM5 C15 IM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
16
14. Describe some examples of poka-yoke in consumer products or manufacturing or
service processes different from the ones cited in the chapter.
Poka-yoke (POH-kah YOH-kay) is an approach for mistake-proofing processes
using automatic devices or methods to avoid simple human error. Students can find
numerous examples similar to those described in the text, and should try to derive
15. Refer to the automobile repair flowchart in Exhibit 7.5 in Chapter 7. Identify three
activities where a potentially serious service error may occur, suggest performance
measures for each of these three activities in the flowchart, and poka-yokes that
might prevent such errors from occurring.
One of the most obvious potential errors is the accuracy of the mechanic diagnosing
the problem (s). Missing a serious problem or misdiagnosing it could lead to an
accident, even death. Metrics such as the number of call backs or returns or
Accurate bills and customer appointments are other good points in the flowchart to
Case Teaching Note: Sunshine Enterprises
Overview
An entrepreneur, Abby Martin, must make short- and long-term decisions about how to
manage and grow her restaurant business. The short-term issue is how to handle an extra
$25 tip on a customer’s bill the customer says he did not authorize. The long-term
OM5 C15 IM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
17
decision is whether to pursue an aggressive growth strategy by adding twenty restaurants,
do nothing, or something in between. Also, enough information is available in the case to
compute the value of a loyal customer. The case assignment questions focus the
student’s attention of these issues. Students are asked to draw a cause-and-effect diagram
(Chapter 15) and compute the value of a loyal customer (Chapter 3). The first case
question can be eliminated if you have not covered Chapter 15, the third question can be
eliminated if you have not covered Chapter 3. This case takes about 45 minutes to teach
on the board.
Case Questions and Brief Answers
1. Draw a cause-and-effect diagram for the possible causes of the $25 tip service. Select
one possible root cause from your diagram and explain how you would investigate
and fix it.
The case presents the following information w/r to possible causes of the $25 tip
service upset.
The customer is responsible to tip properly, add the bill and tip correctly, write
The employee is responsible to type the bill in the register/computer correctly, go
The restaurant manager is responsible to investigate the store’s receipt history and
The credit card company, a third party provider in this value chain, is responsible
The cause-and-effect diagram (not shown) should have at least four major branches –
customer, employee, manager, and credit card Company with appropriate sub-
branches. The fishbone diagram provides a “framework for root cause analysis.”
Students may add other sub-branches and possible root causes based on their
OM5 C15 IM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
18
2. What is the average value of a loyal customer (VLC) at Abby’s restaurants (see
Chapter 3)? What is the best way to increase revenue given your VLC analysis?
If you do not cover OM2 Chapter 3 then skip this assignment question. There is more
Lunch prices - $10 to $20 and dinner prices $20 to $30 so if we assume lunch and
dinner are equally likely the average meal price is ($15 + $25)/2 = $20. The
In Chapter 3 the equation is VLC = P*CM*RF*BLC (Equation 3.2) so as a base case
we have VLC = ($20)(.35)(6)(13.3) = $558.6 per year. Therefore, Sunshine
Example Data Table "What Ifs" w/r to Repurchase Frequency
and Customer Defection Rate
560
0.02
0.04
0.06
0.075
0.08
0.1
0.12
1
560
0.02
0.04
0.06
0.075
0.08
0.1
0.12
1
$350
$175
$117
$93
$88
$70
$58
2
$700
$350
$233
$187
$175
$140
$117
3
$1,050
$525
$350
$280
$263
$210
$175
4
$1,400
$700
$467
$373
$350
$280
$233
5
$1,750
$875
$583
$467
$438
$350
$292
6
$2,100
$1,050
$700
$560
$525
$420
$350
7
$2,450
$1,225
$817
$653
$613
$490
$408
8
$2,800
$1,400
$933
$747
$700
$560
$467
9
$3,150
$1,575
$1,050
$840
$788
$630
$525
10
$3,500
$1,750
$1,167
$933
$875
$700
$583
11
$3,850
$1,925
$1,283
$1,027
$963
$770
$642
12
$4,200
$2,100
$1,400
$1,120
$1,050
$840
$700
$175
$117
$93
$88
$70
$58
OM5 C15 IM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
19
One lesson from this type of analysis is at one visit per year and a 12% customer
defection rate the VLC is only $58 while at 12 visits per year and a defection rate of
The following Excel Data Table shows that price is a more powerful variable in the
VLC computations than decreasing operating costs (i.e., increasing contribution to
Example Data Table "What Ifs" w/r to Price and Contribution Margin
$560
0.2
0.25
0.3
0.35
0.4
0.45
0.5
$10
$160
$200
$240
$280
$320
$360
$400
$15
$240
$300
$360
$420
$480
$540
$600
$20
$320
$400
$480
$560
$640
$720
$800
$25
$400
$500
$600
$700
$800
$900
$1,000
$30
$480
$600
$720
$840
$960
$1,080
$1,200
$35
$560
$700
$840
$980
$1,120
$1,260
$1,400
$40
$640
$800
$960
$1,120
$1,280
$1,440
$1,600
These data tables are for faculty; undergraduates are not expected to do such tables; MBAs
maybe.
3. Critique the current “informal” quality control system. What changes and
improvements do you recommend if Sunshine expands to 20 restaurants?
The current quality control system is typical of entrepreneurs with a limited number
of sites. They focus on face-to-face interaction with customers and employees, and
As the business grows and adds more sites, the nature of the quality control function
changes considerably. Firms like McDonalds and Bonefish define and monitor
OM5C15 IM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
20
One way to provide a framework for deciding whether to expand to twenty sites or
Strategy A is to keep the number of goods and services roughly constant and expand
the number of sites. McDonald’s and others fit this general strategy using a great deal
Strategy B is to keep the number of sites roughly constant and focus on providing
superior goods and services. This is the strategy that Abby adopted. For Sunshine
There are many successful businesses that have followed Strategy A or B. Strategy C
is difficult, if not impossible, to implement successfully. Here, a business is
Number of Site Goods &
Services
Strategy A
Strategy
B
Strategy
C
Number of
Sites
OM5 C15 IM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
21
Whether to franchise or not is another management growth decision. Strong
franchising agreements allow the business to grow more rapidly than they otherwise
4. What are your short- and long-term recommendations? Explain your rationale for
these recommendations.
Students must decide exactly how to handle the service upset, whether to expand or
Short-term Actions
Resolve the $25 tip service upset (how, step by step, who does what and
when)
Use Seven Tools and check sheets for restaurant quality control (train, teams,
etc.)
Do a short customer survey that sits on each table (design, collect, and analyze
Long-term Actions
Hire secret dinner’s to audit restaurant performance – food and service quality
OM5 C15 IM
© 2013 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly
accessible website, in whole or in part.
22
Postscript (you may or may not want to reveal this)
The short-term service upset was solved by the following action (service recovery)
plan. (1) The restaurant manager investigated the $25 tip error and found the waiter
had miss-typed it in the register. (2) The manager credits the customer’s credit card
for $22.50. (3) The customer was called and the manager apologized, obtained the
customer’s address and mailed him a free lunch/dinner coupon. (4) The waiter was a
core member of their staff and the manager believed the service upset was an honest
mistake so no action was taken against the employee. (5) All restaurant managers
were informed of the service upset and all employees were told to double check bills
and tip amounts when possible (i.e., disseminate this service upset and recovery
lesson at one site to all sites, learn from mistakes).
Abby Martin, the entrepreneurial owner of six restaurants and a hotel, decided not to
expand on the west coast of Florida over the long-term. She decided that the current
size of her businesses allowed her to monitor, control, and manage them effectively.
If they expanded to more restaurants she recognized accounting and financial control
systems would need to be standardized, marketing and advertising would need a
corporate and local emphasis, and operating and training policies and programs would
need to be standardized. It was best to focus on a fixed set of business sites and do
the very best with building customer loyalty and increasing revenue, and build
capability for the next business cycle upturn.
The management and system skills to manage a few sites (Sunshine Enterprises)
versus multiple sites (McDonald’s, Olive Garden, etc.) are very different. Many
entrepreneuriers make the fatal mistake of expanding sites rapidly without adequate
controls or losing control due to weak franchise agreements. Abby recognized these
pitfalls of expansion and focused on premium service at a small number of sites that
were controllable and profitable.
One lesson is an informal quality control approach/system is not scalable to multiple
sites!
