Describe the importance of inventory management as it relates to the Restaurant.

Lazeez Restaurant is a full service restaurant offering a variety of breakfast, lunch, and dinner items. Currently, Khusi Mehta is the general manager for the Lazeez Restaurant located in the Patliputra colony are of Patna. Since becoming manager, Khushi has faced some difficulties with ordering the 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 revenues underscores the importance of managing inventory. Khushi would like to find a way to ensure that she is maintaining the proper amount of inventory. Customer counts at Khushi’s restaurant have been declining recently, so one of Khushi’s greatest focuses is to keep current customers and attract new customers. She believes that a key aspect of this is having all of the items on the menu in stock.

The restaurant industry is competitive. In the Patliputra colony area alone there are over 35 restaurants and within 7 km area the number becomes more than 775. Some of Lazeez Restaurant’s most serious competitors are Asian Traditional, Halidram, The Frying Pan, and Apni Handi, all of which are located in the Patliputra colony, so customers have many alternatives from which to choose.

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 Lazeez Restaurant starts on Thursday and ends on the Wednesday of the following week. Each Wednesday, 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 inventory. This is one of the most important numbers to managers at the Lazeez Restaurant because it accounts for approximately 30% of total costs in terms of a store’s 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, the company has set a standard of having between 29% and 36% for its on-hand inventory level. The company feels that this level of inventory is 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.

The Lazeez Restaurant has been running above average in terms of food costs. For this reason, her boss has become concerned with the performance of the ordering system she is using at her restaurant. Khushi has been using her intuition to decide how much product to order despite the fact that the product order sheets provides a moving average usage of each product. Khushi bases her inventory management on her intuition because she does not understand how to utilize the moving average forecasting technique when placing orders. An additional complication with ordering inventory is that each item is packed in multiple quantities, so she cannot order the exact amount that she needs. Her boss requested that she create more accurate way of ordering food and to report back to him in one month. Khushi is worried that if she cuts inventory levels too low she will run out of products which may result in a decrease in customer counts.

After Khushi met with her boss, she began to think about what changes she could make. She knows that inventory has been a weak point for her, but she remembers one of her employees talking about inventory management from one of his college courses. Khushi decides to ask the employee if he would be willing to help her try and come up with a better way for her to order products. Khushi 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 Khushi to improve inventory ordering. Help her with the help of solving following questions.

Questions:

Describe the importance of inventory management as it relates to the Lazeez Restaurant.

What ordering system would be best for this situation?

Given the following information, provide an example of how much of Chicken Gravy Mix should be ordered. You are doing the order for Thursday. Also, Kristen 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 gravy mix comes in packs of two servings. There are currently three packs in inventory.

The supplier Khushi uses is located in Pune. Why might Kristen consider dealing with a nearby supplier instead of the one in Pune? What reasons might there be for not switching suppliers?

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