How do you operate a popular restaurant in NY?

I must confess that I am a fan of Balthazar. For those who have not heard the name, it is a french brasserie in the SoHo neighborhood of New York. I think their onion soup is sublime, fries are delicious, and profitroles are absolutely the best. However, this is an operations blog, so, here fittingly comes an article from the NY Times magazine, nicely describing why Balthazar is so good.

For starters, I knew that the restaurant business is extremely competitive and labor intensive, but this article is eye-opening in a few aspects. First off, the restaurant is literally a 24 hours a day operation:

For now, everything is quiet at Balthazar. The last guests from the night before left just a few hours ago, and the nighttime porters are still finishing their thorough scrub of the restaurant. But the delivery trucks are starting to arrive all over again, idling on Crosby.

Second, the sheer volume of the food they serve is impressive:

By the end of the day, the rotating staff of six cooks behind the line will have produced 111 steak frites, 90 French onion soups, 88 Balthazar bar steaks, 69 burgers, 68 omelets, 62 goat-cheese tarts, 56 chicken paillards, 51 chicken clubs, 48 seared salmon fillets, 46 heirloom-tomato salads, 45 sides of fries, 44 chicken-liver-and-foie-gras mousses, 43 duck confits, 40 grilled dorades, 39 steaks au poivre, 39 eggs Norwegian, 38 steak tartare appetizers (plus 16 entrees), 32 escargot, 32 moules frites, 29 grilled trout — the list, pulled from the P.O.S. terminals, goes on and on and on.

 

The day referred to in the article is a relatively slow one with 1247 people eating there (normally it is 1500). Mind you that the restaurant has only 180 seats, so the table turnover is essentials. Accounting for less than 100% utilization, each table has to be turned about 10 times, multiplying that by 90 minutes average dining time means that all tables are completely busy for 15 hours a day!

Third the margins – here we can get only an estimate, but it is impressive:

During the busy season, Balthazar spends $90,000 a week on food to feed some 10,000 guests.

So the cost of food is $9 per customer. Average check I reckon, is no less than $50. That does amount to a quite a markup, that allows decent pay for waiters, food runners and bus boys.

The key to all of this – is, not surprisingly, a careful process design:

Has Wall Street overreacted to LULU quality issues?

Last couple of weeks have been eventful for CEOs, COOs, and quality managers. Boeing is trying to fix faulty batteries in their 787, Fisker Automotive is in dire straits and expected to file bankruptcy after quality issues with their car batteries. And another company is about to face harsh consequences of quality mismanagement — a yoga-oriented retailer Lululemon Athletica.

Ten days ago Lululemon (LULU) made an announcement of the quality issues with their yoga pants, and lost $600M or 7% of their $9B market capitalization. Ouch. More details and numbers in this video.

What fascinates me in this situation is how the stock market reacts to these kind of events. During the earnings call LULU has reported that the pants issue is going to cost them ~$15M in revenue, which seems not too big of a deal given that their latest quarter revenue was $485M. Later on they made an amendment saying that more pants currently in production and sea-shipments are affected, so that greater revenue losses are expected, but they still should be confined to the 2nd quarter. Still, they are not going to lose all Q2 revenue – so are the markets overreacting in slashing $600M from LULU’s value? Let us try a quick calculation.

The new world approach to orange juice

The world of winemaking has two big philosophies: the old world wine (usually French), and the new world wine (California, South America, Australia, etc.). The former emphasizes the region of wine, while the latter highlights the grape variety. Aiming to achieve the consistent taste year after year, grapes of the new world wines are often sourced from different regions and blended appropriately. Basically, the same approach, but elevated to the next level, goes into production of orange juice by Coca Cola, as the recent Bloomberg Business Week article describes (hat tip to Jonathan Baird for sharing the link). The picture below pretty much explains it all.

There are some interesting aspects of the OJ production process that I think Coca Cola has borrowed from the Toyota production system. First, they emphasize working together with growers, so that oranges are grown to the exact specifications. Coke even instructs farmers when to pick oranges. And after that, juice from different batches is blended to achieve the right level of sweetness and acidity. All of that is done so that the taste of the juice is as consistent as possible.

Interestingly, while the approach works for a large bottler, like Coca Cola, it might also present an opportunity for smaller Old World style juice producers. Think Chateau de Miami OJ style. Maybe we’ll even see Coca Cola and the likes adopt regional juice varieties in the future.

Logistics of the “El Plato Supremo”

This might be one of geekier post about the Superbowl. What has always intrigued me about it, is the halftime show. And not even the show itself, but rather the process of setting it up. How is the possible to set up the stage, perform, and remove it, all in less than 30 minutes?

With the help from Google, I found out. As Popular Mechanics reports, the stage is set up by a crew of ~600 volunteers. To avoid potential reliability problems, no motor vehicles involved, everything is done by hand. The crew is trained in advance during several mock up shows (8 of them – see this schedule for the New Orleans 2013 stage crew team). I find this is quite a feat. Watch the video to see for yourself.

Innovation in retail: How do you bring a grocery store to people?

The picture to the left is actually a storefront of Tesco in Korean subway. Watch the video to see how it works – the idea is pretty neat: you put a full size picture of store shelves, it serves as an ad, and it connects shoppers to the online store. Nothing else changes, customers are simply given another more convenient entry point to the online store. If Tesco can also put an interactive screen displaying price promotions there, the shopping experience will be almost as good as in a real store.

The Dreamliner saga: What is the value of an inaugural flight?

Since my last post ten days ago all the 787 fleet has been grounded, but interesting facts about operating a 787 continue to emerge. Because airlines make a big deal of introducing the aircraft, they used creative techniques in order to keep the Dreamliner’s flights on schedule. Here is how WSJ describes it:

Launch customer All Nippon Airways Co. provides an example of the lengths to which airlines and Boeing have gone to keep 787 flights operating.

ANA’s inaugural flight from Seattle to Tokyo of one of its Dreamliners last October was delayed by 24 hours because of a faulty electronics cooling pump that has been a persistent problem for operators of the new jet.

With the twin-engine 787 stranded at the gate, ANA and Boeing officials trekked to the company’s nearby facilities to find a spare, according to a person familiar with the move. Boeing has since redesigned the pump.

Boeing spokesman Marc Birtel said the company continuously works with all its customers to keep aircraft in revenue service and said the plane maker worked with ANA to solve the issue with parts from its spares facilities.

United Continental Holdings Inc. has also resorted to creative measures. Worried about the 787’s reliability—which already prompted a delay in the start of service with the jet between Houston and Lagos, Nigeria—United had at least two of its six 787s on standby for the airline’s first trans-Pacific flight from Los Angeles to Tokyo, according to a person familiar with the planning.

The scheduled 787 left as planned, and two of the reserve planes flew back to Houston without passengers, according to the same person and flight-tracking website Flightaware.com.

United spokeswoman Megan McCarthy said repositioning empty aircraft isn’t uncommon, but wasn’t able to say specifically if the extra 787s in Los Angeles were in place to support the Tokyo flight.

Although the evidence is anecdotal, it shows how much airlines value an inaugural flight, in this case, United, Los Angeles to Tokyo. Suppose that with 95% probability an aircraft will have no issues, and there is a 5% chance that a flight-delaying problem will be discovered. Let’s not worry about revenues yet, just try to quantify losses from a potential delay for an inaugural flight and compare it with an ordinary flight.

Suppose for the sake of illustration that if an ordinary flight is delayed for a long time, the airline incurs a cost of $10000. This can happen with 5% probability, so the expected cost is $500. This is an acceptable level of losses. Now, consider an inaugural flight. Obviously, the stakes are higher, so if the flight is delayed the cost will be much greater. But by how much?

Is an event unfolding before our eyes?

In Operations Management, as well as some other fields, researchers like to study how people react to various announcements or events about a company. This is called an “event study”. Typically in such studies, the wisdom of a crowd is captured through the price of a company’s stock to which an event is related. Of course, the company needs to be big enough and traded on an exchange. My colleagues Vinod Singhal and Kevin Hendricks have done a lot of work on these studies. In that sense it is interesting to watch what is happening to Boeing now.

Their newest development, the 787 Dreamliner, has recently shown some quality glitches . Here’s how CNN portrayed the story on Wednesday:

Over the course of Monday and Tuesday, when two announcements about a fire in 787 auxiliary battery, and a fuel valve leak were made, the stock price of Boeing plunged about 5%, which is a lot. More interesting things happened later in the week though.

Does it make sense to bring jobs back? The case of Apple.

Apple is making highlights today with their decision to resume limited manufacturing in the US. Surely it will generate some good publicity. No longer than 2 years ago, at a dinner with the Silicon Valley execs, Steve Jobs told President Obama responding to the question what would it take to manufacture iPhones in the States: “These jobs are not coming back”. Are we witnessing a reversal of the trend? My answer is — not really, but this case of backshoring does make some business sense. Here is why.

Where does the Big Data come from?

The Big Data is getting big, but where does it come from? And what does it mean for people? The recent WSJ article offers a nice interactive feature on the subject.

There are some obvious sources like social networks and point-of-sale data, but some are less so. For example, that multimedia/navigation/emergency help system in your car can be routinely tracking your driving habits, and, possibly, sharing the data with insurance companies. Another recent (and controversial) source of the location data is the license plate tracking systems, implemented both by police and private companies.

Supply chain realities

Think the days of the Bullwhip effect are over? Not at all. Here is a telling example from Russian aircraft manufacturing. As UAC tries to ramp up production of the SSJ 100 passenger jet, its engine supplier is struggling:

“We are facing difficulties with the supply chain. We need to fight every day [against Airbus and Boeing] to get priority,” PowerJet CEO Jacques Desclaux said, speaking at the ERA General Assembly in Dublin.

Desclaux explains that when Airbus and Boeing order 500-1,000 components, PowerJet struggles to secure slots for 100-500 parts. “It really is a challenge. There are not a lot of certified suppliers, so the choice is quite limited. The only thing we can do is to anticipate and place orders which are larger than we need,” he said.

There are two aspects to this situation.