Decision Making
Decision Making
our restaurant is Momotaro and located in Chicago
the high light part is the one you need to write. Base on our paper write an introduction.
1.Introduction:
[Task 3.1, 2 grading points/team member, two pages – to be prepared by the entire team]
Problem statement
Overall goals on objectives of the rep
What is the Rationale for Investing in a New BrewPub?
Conceptual Study by the Owner of an Existing Restaurant/Tavern (Based on a running case and a business simulation package)
Read the Business Running Case: The decision making process in evaluating the rational for investing in a new BrewPub (preparation for a conceptual study by the owner of an existing restaurant/tavern)
Learn how to use a business simulation package, specifically developed for this course, in combination with selected decision support tools covered in this course.
Below is our paper!!!!!
Executive Summary 3
Introduction 4
1.1 Overall Goals and Objectives of the Report 4
1.2 Assumptions for the new investment 4
Methodological Framework 5
2.1. Functional area #1: Marketing Management 5
2.2. Functional area #2: Innovation Management 5
2.3. Functional area #3: Operations Management 7
2.4. Functional area #4: Financial Management. 9
Budget for employees 9
Budget for facilities 10
Budgeting for renting 11
2.5.Functional area #5: Organizational and HR Management 11
Application of Decision Support Tools 14
3.1. Selected decision support tools for Functional area #1 14
3.2. Selected decision support tools for Functional area #2 14
3.3. Selected decision support tools for Functional area #3 16
3.4. Selected decision support tools for Functional area #4 17
Break-even Analysis 17
Risk Analysis 18
3.5. Selected decision support tools for Functional area #5 18
Evaluation of the Results of the Business Simulation 22
4.1. Functional Area #1: Marketing Management Evaluation 22
4.2. Functional Area #2: Innovation Management Evaluation 22
4.3. Functional Area #3: Operations Management Evaluation 22
4.4. Functional Area #4: Financial Management Evaluation 22
4.5. Functional Area #5: Organization Management Evaluation 23
Summary of the Results, Recommendations, and Conclusions 25
5.1. Summary of the Results 25
5.2. Recommended Strategy 25
5.3. Implementation Plan for the Selected Strategy 25
5.4. Conclusions 25
References 26
Appendix 27
Executive Summary
The New BrewPub is a new project in Fenway that owners of existing restaurants can use to enhance their local competitiveness in the market. Restaurants can use their new craft beer production department and sell craft beer to customers. As a team of consultants, we have collected data on the beer industry intending to provide restaurant owners with more specific and practical advice to decide whether to invest in BrewPub for brewing craft beer. We analyzed five departments, including marketing management, innovation management, operation management, financial management, and human resources management, through simulation. After running nine business simulation cycles, we adopted SWOT analysis, PESTEL analysis, hypothesis analysis, optimization analysis, break-even analysis, and risk analysis to analyze this new project. We concluded Momotaro’s owner after investigation.
Through SWOT analysis, the new BrewPub will not only provides customers with more choices of beer types but also makes customers feel unique about the Michelin restaurant. So, it will attract new customers and bring more revenue to Momotaro. Besides, Japanese restaurants that set the bar in the Michelin-starred restaurants in the Chicago area are scarce. The place also offers a broader selection of wine list for those who want to enjoy the Michelin restaurant food and service. In this case, the customer can select this bar nearby after watching the sports game with only a few costs. Besides, like a Michelin star restaurant, Momotaro’s dishes, decorations, recruitment, waiter and waitress are very mature and attractive. PESTEL analysis brings internal and external factors impact on the new system at Momotaro. For example, the sales tax in Chicago is 10%, which is a higher tax cost. But Momotaro’s brand reputation and local government’s food health support still let Momotaro be profitable after introducing the new system with Granular activated carbon filter. Optimization analysis provides tips for modifying market prices and target market sizes to maximize sales revenue for the new BreePub segment.
After analyzing the results of the simulation and the trend of total net profit, the owner of Momotaro should invest in the new BrewPub. The new system will bring new customers to the restaurant, so that increase Momotaro’s revenue, and help the restaurant gain greater competitiveness in the local market.
Introduction
1.1 Overall Goals and Objectives of the Report
1.2 Assumptions for the new investment
Methodological Framework
2.1. Functional area #1: Marketing Management
The question – how will customers know whether Momotaro has begun to offer in-house brewery selections will come up. In order to answer this question, a masterful marketing strategy must be implemented.
2.2. Functional area #2: Innovation Management
Business owners often look for the latest technology to help their business become more competitive and reduce costs in the long run. For instance, a smaller manufacturer can rely less on human beings to conduct some daily production process so that business would be able to reduce employees’ expense with the help of automation. Besides, innovation technology can also eliminate costly waste, implementing lean manufacturing process like six sigma, which offers the opportunity to meet customer demand more efficiently and more quickly (Joseph, 2018). Before Innovation management be implemented, here are several steps that should be considered:
1. Strategic thinking: The goal is to create strategic advantage in the marketplace, in this stage we think about how the innovation can add value to the existing conditions of Momotaro, and target the areas where innovation has the greatest potential to offer marketing advantage.
2. Portfolio Management: Innovation is the necessity to failure (Morris, 2019). It is necessary to manage innovation portfolios in order to balance the inherent risks of the unknown situations and the reward of success.
3. Research: By conducting research, we will be able to realize a wide range of unknowns such as emerging technologies, customer values, and expose significant new opportunities for innovation. Momotaro was rated as the 50 best restaurants in Chicago, having customers of a wide range of ages. In addition to a variety of japanese cuisine and highly personal service, they also have a wide range of alcohol options. In order to help Momotar reduce production costs, we are considering using the Granular activated carbon filter.
4. Innovation Development: In this stage, the process of design, engineering, prototyping and testing that results in finished product, service, and business design.
5. Marketing Development: Prepare to help the customers get more understanding about the latest product’s function and how it improves the taste of beer.
Water is one of the most important ingredients in beer, accounting for up to 95% of the total components. Thus, water plays a vital role in crafting quality beer. Since Momotaro also offers beer and other alcohol, it is necessary for them to find a way to ensure the taste and quality of the beer. Water Filtration System can supply purified water constantly, helping Momotaro design and build specifically for the water they use. We decide to adopt Granular activated carbon (GAC) filters, which are effective for removing chlorine, chloramine, pesticides, odors, and other contaminants in water. With the implementation of GAC filters, Momotaro would be able to save production costs and produce high quality beer. We adjusted the material cost per unit to 0.36 from 0.37 and the labor cost per unit to 0.2 from 0.25 after the implementation of this innovative technology, others cost per unit increase to 0.26 from 0.25. Total profit before taxes increase to $659,058 from $610,753 because of the reduction of labor costs and material costs. And the net present value increase to $238,545 from $210,081. On the other hand, according to the Market research, Momotaro’s japanese beer is also popular for customers, but the options are not as many as other alcohol like wines and cocktails. In cycle 9, a new product called Chicago Best (BR01-10) was added to give customers more options of japanese beer. Chicago Best is a type of japanese craft beer that the ingredients are all grown specifically for brewing beer, It has a Citrus flavor combined with floral and a touch of spice that taste even better when having japanese cuisine such as sushi and tempura.
2.3. Functional area #3: Operations Management
Operations management emphasis on how to plan, organize, and supervise works in the backgrounds of manufacturing, production, or the provision of goods and services. Hence, it is delivery-focused, and warrants that an organization successful turns inputs to outputs in an effective manner” (Reid, & Sanders, 2019). The primary factor of operations management of the Brew Pub is the capacity of the business. Here several companies offer products both at the retail level and in wholesale. The brands include Pilsner, Averian Lager, Light Wheat, Red Wheat, Pale Ale, and Bock Dark. These businesses produce brew products in retail. However, Pilsner and Averian Lager also offer their products in wholesale. The preliminary projections of demand for FY-1, FY-2, and FY-3 are in the table (Appendix 1.2).
There was an estimation of the maximum production capacity annually of a 40 barrel BrewPub System (eight 155 gallon tanks) with a maximum capacity of 59,520 pints for one tank every year. The total capacity for eight tanks is 535,680 pints. It takes one week for the brewing process to be completed. The demand for wholesale demand doubles the demand for retail. In operations management, the aim is to set the demand at equilibrium with supply. We are most concerned about increased to $1,113,443, which is financially favorable. Revenue does not change, which is $2,782,185, the total profit before taxes for these three years 11 deciding when to start a new cycle, which also happens to be the cut-off point. The cut-off point tells us about the projected demand level necessary for CPK to begin brewing the product. Due to this, in the simulator, the cut-off point of the retail products was changed, but not that of the wholesale products.
In cycle six, the 10% rule was applied; this rule requires that the excess demand is within 10% of total demand per product per year. The rule is not meat in BR01-03, FY-1, BR01-05, BR01-04, BR01-06, BR01-10. The same case applies for BR01-05, BR01-04, BR01-10 in FY-2, and for BR01-03, BR01-04, BR01-05, BR10 in FY-3. The low supply can be fixed by increasing supplies using the cut-off point. So, the cut-off point was lowered from 0.8 to 0.6 for these products (Appendix 1.1).
However, the demand for BR01-10 still exceeded 10%, so the targeted market size (per product and FY) in the marketing table was changed in the next cycle. After the change of the cut-off points, the total revenue accumulated to $3,007,227, which is higher than the total revenue in cycle six, which was $2,742,486 (Appendix 1.3)
2.4. Functional area #4: Financial Management.
Budget for employees
Budgeting plays an important role in an organization as well as the employee’s workforce. Budgeting controls the employees pay whether they get a raise and whether they would keep the job. Deciding what goes in the budget and what to be cut would be an important factor as budgeting affects the employees morale especially is they get a budget cut that is likely to affect their job and or pay. If budgeting is not met, then this would mean that the employees would be affected greatly which would decrease the employee morale (Goldberg, et al. 2018).
Since the brewpub would not be working all hours, employing part time employees that would be dealing in this section would be important. This means that one office assistant and two salesperson would be enough in this section. According to the employment and labor law in the US, office assistant average salary is $92,087 and the salesperson salary is around $46,922 per year. This would be cost effective as the other funds can be used in budgeting for other things (Bekaert, et al. 2017).
Employee motivation being an important factor in the industry, this means that the employees would need to be motivated on a yearly basis as their salary increment needs to be effected so as they as to avoid instances where the employees quit the job for better job offers in the market. The salesperson would be aimed at promoting the new product to the customers that are not yet aware as more customers would be more than willing to taste the new brand and this also would work well for the loyal customers as introducing a new product on their menu would only mean that an added revenue from them. This would mean the company would be spending $203,931 on the employees each year plus the increment that would be made on a yearly basis as a motivation (American Bar Association. (2018).
Budget for facilities
Applying an effective budgeting for the facilities is also very important as this would give a rationale for the number of facilities that the restaurant would have which would greatly save more money that can be spent on useless facilities. Since the brew section would take an additional space, then this means that more tables need to be added as there is hope for new customers as a result of the marketing. Some of the facilities may also be needed as this section needs to be independent. In that case, some cars for transportation as the bulk of the output may be craft beers, computers. Taking some consideration about the summers which are usually hot and incredibly humid may necessitate some air conditioners which would take care of this (Bekaert, et al. 2017).
The facility budgeting would greatly depend on the realistic estimate that can be sold and working backwards to this would help determine the number of customers that can be expected on a daily basis. This would be directly proportional to the space and hence the number of seats and tables that would be expected.
Insurance for these facilities would also be an important aspect as the cars and the computers needs to be insured for any emergencies that may come up. On average, the facilities may take up to $14,700 hence an estimate of the insurance may be up to $4,000 since this is part of the restaurant (Delhillips, 2015, September 25th).
Budgeting for renting
Renting is quite expensive as the brew section has their minimum requirement, depending on the number of customers expected, a 250 feet would be enough. The average rent for a square feet in Chicago is $48.25 this means that the 250 feet would cost $12062.5 for a start taking into consideration that this value may appreciate with time.
Some of the money may come from lending from some of the lending institutions. The prime interest rate for the loans in USA is 4.95% for a long term period. The Tax Cuts and Jobs Act (TCJA) have also tried adjusting the tax rate as compared to the previous rate (Bekaert, et al. 2017).
2.5.Functional area #5: Organizational and HR Management
Human resources management has two missions. One is to improve organizational performance, and the other is to improve employee satisfaction. But the Human Resources Department is not the only organization in the organization with the above purpose. The Department of Human Resources ensures the organization’s resources put it in the right place. It also has enough organizational capabilities, and make these capabilities fully available, organization and job design, talent supply, and talent incentives all have different levels, such as strategic decision-making, organizational execution, technical support, etc. The Human Resources Department may not play a central role at every level.
HR must realize that the Human Resources Department is not a department that directly generates profits. It is a service support system. That is to say, HR must increase its value through services. This function is the same as the sales and production departments that directly generate profits. Also, the HR department serves employees and bosses. Employees pay attention to personal development, and bosses pay attention to the improvement of corporate performance. Therefore, HR must reflect its value by allowing employees to achieve personal achievements and then improve the overall performance of the company. Thus, there needs to clearly define the goal and objectives to implement the new project of Momotaro successfully.
Since Momotaro already has a very professional bar, the restaurant only needs to adjust to new products to existing laborers. This approach saves many upfront training costs for the restaurant. Besides, human resources and the organization’s target management will ensure appropriate staffing levels and compensation. After research, it was found that incentive measures can effectively promote employee motivation. As a result, system compensation for employees can optimize employee performance and the sustainability of growth projects.
There are four types of workers in this project. First, critical salespeople have a deep-seated grasp of product knowledge, giving them the ability to persuade customers to buy beer logically. Similarly, essential salespeople also have industry relationships, which will help organizations develop strategic customer relationships with surrounding businesses. Second, the role of salespeople is to convince potential buyers to buy new beer to increase sales. Therefore, the position of the sales staff is crucial.
Third, the professional and technical personnel who manage the factory are also essential because they have the expertise to ensure high-quality products and control the quality of the products. The fourth category is ordinary employees who assist key workers in operating factories. These people exist like screws and are indispensable in the entire system. Finally, office assistants, salespeople, executives, and consultants in the human resources department also needs to be considered because they are responsible for integrating and negotiating everything related to human resources.
Application of Decision Support Tools
3.1. Selected decision support tools for Functional area #1
3.2. Selected decision support tools for Functional area #2
PESTEL Analysis
A PESTEL analysis is widely used as a strategic planning tool. It expands on the analysis of external context by looking in detail at specific types of issues that frequently have an impact on implementation of project, which is suitable for evaluating innovation management.
· Political: Although Chicago has one of the highest sales taxes in the nation, the city’s politics is stable among overseas market, which indicates that Chicago can offer lots of employment opportunities, and it is a great place for the restaurant industry to grow.
· Economic: Chicago has one of the world’s biggest and most diversified economies that a japanese michelin restaurant like Momotaro will be able to expand their business. For instance, investing in this new BrewPub has helped the restaurant grow the revenue and save the material costs. On the other hand, residents in Chicago have a higher income compared to other cities that they may be more willing to go to a michelin restaurant like Momotaro.
· Social: Momotaro has a good reputation in Chicago, customers are fascinated by the restaurant’s tasty cuisine and quality services. People now are more aware of their health and be conscious about the food products and Momotaro offers japanese food that is relatively healthier than other restaurants. Besides, it has built its brand equity that visitors from other cities or nations would like to come to the restaurant.
· Technological: Technology is the most dynamic factor of PESTEL analysis, in the innovation management stage, Granular activated carbon (GAC) filters are used to save material costs and labor costs. Besides, the new product “Chicago Best” is also added to the menu in order to offer customers more choices of quality beers.
· Environmental: Momotaro’s had comply to the rules and regulations of the government to keep their food healthy and nutritious for the health of the people. In addition, Momotaro has already using quality products and taking environmental issues into consideration as they became a michelin restaurant.
· Legal: Chicago government had implemented some specific rules and regulations to control the supply and provision of food products in the market, and Momotaro had followed all the rules so that they can create a lawful atmosphere in the area and keep the quality of their food high.
SWOT analysis
SWOT analysis is a powerful way to evaluate a business or project, and determine the strengths, weaknesses, opportunities and threats. SWOT analysis can be applied to an entire company or organization, most commonly used at organizational level to determine how closely a business is aligned with its growth trajectories and success benchmarks (Shewan, 2019).
· Strengths: Momotaro has a great reputation in the city that offers quality food and services, and is rated as the top japanese restaurants in Chicago. It offers a variety of food options from japanese cuisine to beer, customers are willing to visit the place to enjoy the cuisine and atmosphere. With the implementation of GAC filters, the restaurant is able to produce high-quality beer and save the material costs and labor costs in the long run.
· Weakness: The restaurant only located in Chicago that people from other cities would need to travel long distances thus reduce their willingness to come. Besides, the price is relatively high compared to other restaurants that some people may not want to spend that much money on it. On the other hand, the operation cost is high because they have to maintain the quality and hire master chief..
· Opportunities: Momotaro can expand their business to other cities because they are already famous in the United States. In addition, the restaurant can build other brands with more affordable price that may attract more to visit. Besides implementing the GAC filters, if the results of carrying out new craft beer are favorable, they can further develop more options and increase the sales of beers or alcohol along with food.
· Threats: Other well-known japanese restaurants located in Chicago could also compete with Momotaro, the new product cannot gain enough competitiveness among these restaurants. The money invested in new technology and new products might not be able to reach the goal at the end.
3.3. Selected decision support tools for Functional area #3
Break-Even Analysis
A break-even analysis aids in evaluating the decision made. A break-even point is a point at which the costs equal the total sales (Tanco, Cat, & Garat, 2019). The break-even point is indirectly proportional to the profit achieved in business. Thus the higher the break-even point, the less profit the pub will earn. Adjustment of cut-off point in cycle seven causes the break-even point to 4.25 with the sales volume of $334,848 compared to the break-even point in cycle six, which was 4.85, with a sales volume of $342,365 (Appendix 2.1). There is a slight increase in break-even analysis. The outcome shows that we could start earning the profit after 4.25 months with fewer costs.
Optimization Analysis
Furthermore, optimization analysis was applied to finding the optimum value. By using this analysis, the maximum profit was achieved by adjusting the price in market research. In the optimization analysis, the data shows that the profit before taxes is $693,687 (Appendix 2.3). The optimal price of BR01-01, BR01-02 is $4, BR01-03, BR01-04, BR01-05, BR01-06 is $3.5, BR01-07 is $1.25, and BR01-10, BR01-08, and BR01-11 is $1.28. Thus, comparing the break-even point in cycle six, the break-even point fell from 4.85 to 4.25, which resulted in better sales performance and an increase in profits.
3.4. Selected decision support tools for Functional area #4
Break-even Analysis
Based on the simulations from the results, it’s forecasted that the break-even point would be around $332,066 in the total sales as this is expected to occur in 5.94 months. After this period, we can now be able to repay the loan and start making profits.
Risk Analysis
By applying the risk analysis, the findings were that the if more sales person and more advertisement strategies were employed, plus the higher cost of rent, then the failure rate of making a profit would increase to 55.0% which is much bigger as this would reduce the level of development ((Bekaert, et al. 2017).
3.5. Selected decision support tools for Functional area #5
SWOT Analysis
Strength:
• Momotaro’s brand image （One Michelin star restaurant）
• Professional employees (including waiters and salesman)
• Beautiful working environment and work culture
• Professional training team
Weaknesses：
• Lake of workers to fit its demands
• Lake of types of workers
• Uneven wage distribution
Opportunities:
• Global expansion
• National expansion
• Strengthen brand value
Threats:
• New and similar style restaurants into the market
• The market designed for people who are willing to spend more money to enjoy the dining environment
• Costs of training employees and machines can be expensive
Risk Analysis：
Human resource management is a complex phenomenon. Because in a group, people often cannot get along or influence each other due to various factors. Therefore, in this case, several potential risks may cause multiple problems to the project, so effective HR management is essential.
The first risk is the inability of critical workers. This risk can seriously hinder the progress of the work and cause the entire project to fail due to poor quality. If the above phenomenon occurs, in this case, senior management can reduce the budget allocation and control of the human resources department, and let other departments to solve the problems caused by the critical worker in action, but this may cause other issues to arise. Therefore, it is vital to ensure that matters affecting key risk factors are adequately analyzed, prepared, and resolved.
The second risk is the failure of critical salespeople. Due to the strategic value, the sales staff is responsible for making full use of the restaurant’s resources. He or she will have the essential and valuable industry relationships that are essential to the success of the project. Therefore, any negative motivation or direction taken by employees in this crucial position may seriously harm the company’s interests.
Finally, there are basic employee incompetence and departures at critical times in the company. Employee turnover is an inherent concern in human resources and organizational management. Because there are multiple stakeholders, the risk of churn in the process is difficult to predict and prepare. The only sustainable way to solve this problem is to simulate possible results and assign them to probability. Such a move helps to deploy emergencies and ensures that issues are regulated and resolved without causing any structural and strategic damage to human resources.
Evaluation of the Results of the Business Simulation
4.1. Functional Area #1: Marketing Management Evaluation
4.2. Functional Area #2: Innovation Management Evaluation
From cycle one to cycle two, we implemented GAC filters as an innovation technology in order to help Momotaro gain more competitiveness and decrease production costs including material costs and labor costs. As a result, although the revenue remain the same as 2,196,459, the total profit before taxes had increased to 659,058 from 610,753. And the break-even point of revenue had decreased to 328,372 from 340,731, which means there are more room for investments or research and development. In addition, the material costs had dropped to 0.36 from 0.37 and the labor costs had also dropped to 0.2 from 0.25 , but the costs of others increased to 0.26 from 0.25 because of the introduction GAC filters. In cycle eight to cycle, we added a new product, Chicago Best, to the product line in order to provider customers with more options of beers. We anticipated it will raise the revenue and the profit, however, the result revealed that total profit before taxes remain the same, so we decided not to adopt this new product.
4.3. Functional Area #3: Operations Management Evaluation
4.4. Functional Area #4: Financial Management Evaluation
From the analysis, the break even time would have to be extended to 5.94 months period from 5.74 months so as to minimize the risk period. The budgeting for the different aspects of facilities rent and the employees would need to be evaluated accordingly so as not to misuse some funds. The investment on the other hand must be put into consideration so as the calculation of different aspects as the fixed cost and the capital required may be achieved (Tanco, et al. 2019).
4.5. Functional Area #5: Organization Management Evaluation
After running the simulation, we get HR management as the 8th cycle. Due to the number we put at the beginning, we could see in the first year, Momotaro needs to hire one critical salesman and one salesman, and the cost of labor is $80000 with a $26000 surplus. Besides, it is vital to hire one essential worker and 1.5 workers according to the 8th cycle. But it is impossible to hire 1.5. Thus, we suggest hiring two people to satisfy the requirement. Then the cost of labor would greater than $62670 after we changed to employ two workers instead of 1.5 workers.
In the second year, there should hire one critical salesman and 1.5 salespeople with $88000 cost and $13384 surplus. But for the same reason, the cost of labor should greater than $88000 to hire two salesmen as the fact. For workers, there is one critical worker and one worker, which decreased compared to the first year.
Two critical salesmen and 1.5 salesmen should be hired in the third year. But the cost, $98717, is more than the budget, $96800, which Momotaro might not be able to employ such amount employees at that time. The same situation also happens at workers’ budgets. It is impossible to hire one critical worker and two workers at the same time with a budget of $68200.
Thus, after analyzing, it is better to hire two salespeople with a budget of $80000, 0.5 office assistants with a budget of $15000, which means Momotaro might not be necessary to hire office assistants.
Looking for the KPI, we could see after Momotaro started the new project, it’s market penetration would increase by 210% in the first three years. And the actual size of the local market is increased by 103% for the first year, 106% for the second year, and 110% for the third year.
Summary of the Results, Recommendations, and Conclusions
5.1. Summary of the Results
5.2. Recommended Strategy
According to the business simulation report, the results revealed that investing a new brewpub is financial favorable. The total profit before tax had increased a lot from cycle one to cycle 9, which indicates that our management and strategy was successful. Nevertheless,
5.3. Implementation Plan for the Selected Strategy
5.4. Conclusions
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