Northwest Liquor & Spirits
Individual Case Assignment – Northwest Liquor & Spirits
MGT 6355 – Operations Management: Creating Competitive Advantages
Section number
University of Houston – Victoria
Name
Date
1
Northwest Liquor & Spirits
2
1. Abstract
Northwest Liquor & Spirits has been losing business to competitors because of excessive wait
times in Northwest’s drive-through lane. Excessive wait times are often the result of poor
business-process design or inefficient use of labor. The problem faced by Northwest is how to
reduce the wait-time of its customers in the drive-through lane. This paper will apply waiting
line models to determine the ideal service time, the corresponding wait time in the drive-through
line, as well as server productivity. Using the results of this analysis to offer a more competitive
level of service, Northwest is expected to decrease the amount of time required to serve a
customer, increase the number of customers served per hour, and decrease the average
customer’s wait in the drive-through significantly, all of which will help Northwest keep and
earn more customers from the local market area.
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2. Background Information
The author of this paper works as an accountant for a certified public accounting firm in
Northwest Arkansas that specializes in tax accounting, business process analysis, and mergers
and acquisitions. Recently, an existing client of the firm acquired three liquor stores – Northwest
Liquor & Spirits, Country Liquor, and Uncle Jim’s Liquor. The previous owner of these three
liquor stores was not active in the management of the stores, and as a result, profits have been
decreasing at each store for several years. After a business valuation by our firm, it was
determined that our client could purchase these stores at a discount and greatly improve each
store’s profitability through business-process redesign.
The largest of the three liquor stores, Northwest Liquor & Spirits (Northwest), is located
within a mile of the University of Arkansas campus, several major apartment complexes, and a
large residential subdivision. Northwest offers a selection of popular beers, everyday wines, and
fine bourbons, and is operated by a single manager along with eight part-time employees. In the
past, Northwest had a reputation as a liquor store with reasonable prices and a fast drive-through
lane. Poor management decisions by the previous owner have caused the store to lose its
aforementioned reputation as prices have been raised above those of competitors and the waittime in the drive through lane has increased.
3. Problem Description
Through a survey of its current customers, Northwest Liquor & Spirits has determined
that many of its customers choose to purchase their alcohol from a competing liquor store, when
the customers feel they are pressed for time. The customers’ perceptions are that the wait-time
in the drive-through lane of Northwest is exceptionally long. Even though the competing liquor
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stores in the area require a longer drive away from many customers’ homes, a number of
respondents feel that they still save time by not waiting in the drive-through lane at Northwest.
The issue of long wait-times in the drive-through lane at Northwest mainly occurs
between 4PM and 10PM on Thursdays, Fridays, and Saturdays. Past efforts to estimate
appropriate staffing levels and assign employee responsibilities during the evening shift have
resulted in underutilized staff, which translates into additional store expense in the form of
increased wage/payroll expense. The previous owner felt that he could reduce the “after-hours
payroll expenses” by rescheduling the store’s administrative duties (stocking, inventory, and
cleaning) to be day-time tasks. The current store manager recalls the previous owner’s words “If there are no customers at the counter, then you should be stocking/doing inventory/cleaning.”
The current task assignments have these staff members serving customers, restocking shelves,
doing inventory and/or cleaning the store from approximately 5PM until close of business. The
manager of Northwest noticed a significant increase in customers’ wait-times shortly after the
new task assignments were put in place. More noticeably, the store manager observed that the
time required to serve a customer was increasing because she had no one to help retrieve the
product from the shelf/refrigerator after an order was taken at the drive-through window.
Several weeks later the manager also noticed a decrease in sales. Both the store manager and the
new store owner feel that they would regain lost market share if they could reduce the wait-time
of their drive-through window service. This paper considers the problem of determining how to
reduce the wait-time of customers in the Northwest Liquor & Spirits drive-through lane and still
provide the quality of service necessary to satisfy existing customers and attract new customers
to Northwest Liquor & Spirits.
4. Proposed OM Concepts and Tools
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To address Northwest’s problem of lengthy customer wait-times in the drive-through
lane, the author proposes a waiting line analysis. By conducting a waiting-line analysis we may
determine how many customers are waiting at any given time during peak shopping hours, the
average time that these customers wait in line, how utilized the staff are during those times, and
how to reduce the wait time in the drive-through line to an acceptable, competitive level. A
waiting line analysis is comprised of several waiting line models that are based on queuing
theory (Jacobs, Chase & Aquilano, 2009). Queuing theory tells us that there are three
components to analyze when performing a waiting line analysis.
1. The population from which customers are gained and the mode by which they arrive
For the purpose of examining the business of Northwest Liquor & Spirits, we will assume
that customers are drawn from an infinite population because the servicing of a customer will not
appreciably affect Northwest’s ability or chances of serving new/additional customers. Because
customers arrive at the liquor store in a random fashion, we will assume that the arrival pattern of
the customers is “Poisson”.
2. The design of the queuing system
In terms of the design of the drive-through lane at Northwest items such as the potential
length of the line, and how the employees will serve the customers will determine how many
customers can possibly wait in the drive-through lane, how long they may wait before being
served, and how quickly they may be served once greeted by the server. The queuing design will
also help Northwest identify staffing metrics like server utilization, efficiency, and productivity.
Since Northwest has one drive-through window with a drive-through lane that is only wide
enough for one automobile, and customers must wait to order until they arrive at the window, the
waiting-line may be classified as single-channel, single phase.
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3. The method by which customers exit the queuing system
After a customer purchases alcohol at Northwest, it is unlikely that the customer will
return for additional service within the same business day, assuming normal product
consumption by the customer. Since customers are drawn from an infinite population source, the
exiting of the queuing system by a customer does not materially affect potential customer pool.
5. Application of OM Concepts and Tools
The Northwest store manager estimates that during peak shopping hours (4PM until
10PM) on Thursdays, Fridays, and Saturdays, customers arrive at a rate of 25 customers per
hour, which means a new customer arrives approximately every 2 minutes and 40 seconds. The
cashier at the window currently serves customers at an average rate of 1 customer every 2
minutes, or in hourly terms, 30 customers an hour. If the new owner of Northwest wishes to
serve his drive-through customers more expeditiously, he will need to determine his current
service metrics in order to make the necessary adjustments in his business so that he may
decrease wait-times in the drive-through line. Below are some of the questions that need to be
answered.
1. What is the average number of customers in the drive-through “queuing” system
(includes waiting in line and waiting while being served)?
2. What is the average wait-time to exit the drive-through system?
To determine the average number of customers in the system, we will use the following formula
(where Ls = the average number of customers in the system, λ = the arrival rate per hour and µ =
the service rate per hour):
Ls =
λ
.
µ-λ
Ls =
25 . = 5 customers
30 – 25
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Now that we know that there is an average of 5 customers in the drive-through system during
peak hours, we need to determine the average wait-time to exit the drive-through system for
these customers. Keep in mind that this “system” time includes the time that the customer is
being served. We will use the formula below to compute the average time spent in the system,
where Ws = the average wait-time in the system, Ls = the average number of customers in the
system and λ = the arrival rate of customers per hour.
Ws =
Ls
λ
.
Ws =
5
25
. = .2 hours or 12 minutes
So we now know that the average customer at peak shopping time will spend 12 minutes to drive
through Northwest Liquor. If the average customer experience in Northwest’s drive-through
service is a 12 minute wait, customers will compare that time to the wait times of Northwest’s
closest competitors and will most likely choose to shop at the store that will minimize the
customers’ total shopping time, ceteris paribus.
The new owner of Northwest Liquor & Spirits realizes that in order to change customers’
perceptions he must make a radical improvement in service if he hopes to win market share in
the short term. He asked our firm how he could alter his business such that no more than 2
customers would be in line in the drive-through lane during peak shopping hours. Using the
formula below, where λ = 25 and µ = 30, our firm determined that with Northwest’s “current”
level of service, there are MORE than two cars waiting in the drive-through line 58% (almost 60
%!) of the time.
P2 = ( 1 – λ .) x ( λ )0 + ( 1 – λ .) x ( λ )1 + ( 1 – λ .) x ( λ )2 = 57.9%
µ
µ
µ
µ
µ
µ
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The manager and the owner would ideally like for there to be no more than two customers in the
drive-through line 90% of the time during peak hours. This would mean that there should only
be 36 minutes out of the 6-hour time of peak shopping hours each Thursday, Friday, and
Saturday night that more than 2 customers will be in line.
Since we do not want to reduce the number of customers that arrive at Northwest each
hour, our best option is to decrease the amount of time it takes to serve a customer. The number
of minutes required to serve one customer directly affects the service rate (µ), so our solution
will focus on decreasing the service rate to the extent that 90% of the time during peak hours
there are no more than two customers waiting in the drive-through line. By programming the
above equation into Excel and setting P2 = .90, we can use the “Goal-Seek” tool to arrive at the
ideal service time per customer. The resulting equation looks like the equation below.
.90 = ( 1 – 25 .) x ( 25 )0 +
54
54
( 1 – 25 .) x ( 25 )1 +
54
( 1 – 25 .) x ( 25 )2 = 90.7%
54
54
54
For further analysis, the Excel worksheet is located in the Appendix.
Using our calculations above and on our Excel model, we see that the average time to
serve a customer must decrease from (1/ µ = 1/30 = .0333 hours) or 2 minutes per customer to
(1/ µ = 1/54 = .0185 hours) or 1.12 minutes per customer. This equates to 67.2 seconds to serve
each customer. Service of this level would require an average server utilization rate ( λ / µ = 25
/54 = .4647 ) of 46.5%.
6. Analysis of Expected Results
The results of the waiting line analysis show us that Northwest Liquor & Spirits needs to
decrease its customers’ time in the drive-through line by 44% in order to deliver the speed of
service necessary to regain lost market share. This would allow for no more than two customers
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to wait in the drive-through line 90% of the time. Is this possible with current staffing levels?
We believe that is not only possible, but a more efficient use of the employees time. Before our
waiting-line analysis the server utilization rate was 83% (arrival time / service rate). Because the
drive-through server was taking a longer time to serve the customer, he was busy/utilized 83% of
the time. Now, with the goal serving customers in 67 seconds or less, the server will be utilized
at a rate of 46%. For Northwest, this means there is time during the non-peak hours complete the
stocking, inventory, and cleaning since the server will not be utilized 54% of the time. This will
translate into reduced after-hours payroll expense because administration can be handled during
business hours. Considering the results of the wait line analysis, we would expect that
Northwest will achieve two goals – 1.) increase market share because they will better meet the
customers’ needs for speedy service at a location that is close to home, and 2.) increase
profitability due to an increase in sales without increasing labor/wage expenses.
7. Conclusion
Northwest Liquor & Spirits was losing customers to competitors who had what customers
perceived as faster drive-through window services. This paper addressed the problem of
determining to what extent the wait-time of customers in the Northwest Liquor & Spirits drivethrough lane must be reduced. Through the implementation of a waiting-line analysis, we
identified exactly how fast Northwest must serve its drive-through customers to ensure that 90%
of the time there are no more than two people in line. Customers will now spend 67 seconds or
less driving through Northwest. Since there are more than enough staff on hand to help meet the
performance standards, Northwest should now consider improving other aspects of their business
like friendliness, better service through recommendations, or possibly offering premium services
to those “walk-in” customers. This could also increase the sale of complimentary items within
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the store, further increasing revenues. The author also recommends that Northwest consider
redesigning the drive-through lane to a multiple-to-single channel structure where there are two
windows to take customers orders and the lines merge to a single window where the product is
delivered and payment is received. Through the use of this and other OM concepts and tools
Northwest Liquor & Spirits could become the benchmark for efficiency in the Northwest
Arkansas liquor store market.
References
Jacobs, F. J., R.B. Chase, & N.J. Aquilano (2009). Operations & Supply Management. New
York, NY: McGraw-Hill.
Appendix
Calculate Current Service Time per Customer
Minutes in 1 hour
Minutes to serve 1 customer
Customers served per hour
Arrival rate ( λ )
60
2.00
30.00
25
Service rate ( µ )
Avg. server utilization
30.00
0.8333
Desired % of time that service meets manager’s goal ( P2 )
Actual % of time that 2 customers or less are in drive-through
% of time that MORE than 2 customers are in drive-through
90%
42%
57.9%
Calculate Ideal Service Time per Customer
Minutes in 1 hour
Minutes to serve 1 customer
Customers served per hour
Arrival rate ( λ )
60
1.12
53.80
25
Service rate ( µ )
Avg. server utilization
53.80
0.4647
Desired % of time that service meets manager’s goal ( P2 )
Actual % of time that 2 customers or less are in drive-through
% of time that MORE than 2 customers are in drive-through
90%
90%
10.0%
