Graduate School of Business Masters in Business Management Holy Angel University

Group Paper Queuing Theory and Applications (Mc onalds !epo Quadrangle"

Group 5 Aquino, Rachelle Gonzales, Ronniel Lacsamana, Roy Lusung, Chesca Mae

Management Science January 11, 2013

Submitted to: Dr. Francisco L. Villanue a, Jr.

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#ntroduction

There are several determining factors for a restaurant to e considered a good or a ad one! "arious factors are should e considered #hen choosing a fast food restaurant! "ariety, taste, am ience, cleanliness, service, the restaurant layout and settings are some of the most important factors! These factors, #hen managed carefully, #ill e a le to attract plenty of

customers! $o#ever, there is also another factor that needs to e considered especially #hen the restaurant has already succeeded in attracting customers! That is, queuing time, certainly an important factor a customer should ponder! The #aiting line model has een applied in a lot of researches to resolve the pro lems in the scope of manufacturing and management! %n oth daily&life and industrial field, queuing

theory not only has a #ider potentiality to solve a variety of practical pro lems ut also opens for fundamental researches! 'ueuing theory is the study of queue or #aiting lines! (ome of the analysis that can e derived using queuing theory include the e)pected #aiting time in the

queue, the average time in the system, the e)pected queue length, the e)pected num er of customers served at one time, the pro a ility of al*ing customers, as #ell as the pro a ility of the system to e in certain states, such as empty or full! +aiting lines are a common sight in restaurants especially during lunch and dinner time! $ence, queuing theory is suita le to e applied in a restaurant setting ,also in an*s and

manufacturing companies- since it has an associated queue or #aiting line #here customers #ho cannot e served immediately have to queue ,#ait- for service!

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%&'ective of the Paper This paper introduces the customer o .ective function into its o .ective to search cost

minimization #ith the consideration of the customers arrival rate and ma)imize profit y quic* operation in terms of serving efficiently of the cashiers and also in serving the food, along #ith the application of queuing theory #ith finite servers and queuing capacity to the mathematical models! This paper #ill also assist the sample company/s management optimal employee assignment for open counters of the quic* service restaurant! 0ecision analysis #ill also e

tac*led to achieve effectiveness and efficiency of the resources involved! This study aims to contri ute practical solutions for decision ma*ers in customer satisfaction, employee management and policies!

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(elated )iterature

%n many service industries, companies compete #ith each other on the

asis of the

#aiting time ,or other service quality attri utes- their customers e)perience, along #ith other strategic instruments such as their price! 1)ecutives realize that time is money for the consumer ut it is unclear ho# much money, ho# the e)change rate differs in different industries, and ho# it varies #ith other factors such as location, rand etcetera! 2ften, specific #aiting time

standards or guarantees are advertised! 3or e)ample, in 4554 Ameritrade increased its mar*et share in the online discount ro*erage mar*et y 6guaranteeing7 that equity trades ta*e no more than 85 seconds to e e)ecuted9 the guarantee is ac*ed up #ith a commission #aiver if the time limit is violated! This led most ma.or online ro*erage firms ,1&trade, 3idelity- to offer and aggressively advertise even more am itious #aiting time standards! "arious call centers promise that the customer #ill e helped #ithin one hour, say, possi ly y a call ac*! %n other industries, average #aiting times are monitored y independent organizations! 3or e)ample, in

the airline industry independent government agencies as #ell as %nternet travel services report, on a flight y flight asis, the average delay and percentage of flights arriving #ithin 85 minutes of schedule! (ee Allon and 3edergruen ,455:- for a longer list of e)amples! A fundamental premise of the y no# e)tensive theoretical literature on service competition is the elief that #aiting times have a ma.or impact on consumer choices and mar*et shares, similar to or perhaps even in e)cess of price differentials! $o#ever, this premise has rarely een

su stantiated y empirical field studies! %n the fast&food industry, almost all outlets are o#ned y independent franchisees #ho select their o#n prices! %n contrast, chains set national #aiting time standards y prescri ing a uniform operational process to their franchisees along #ith

specific recipes for their standard menu items! These processes include standard customer greetings, order ta*ing, the ma)imum num er of urgers on a grill and amount of time they may e coo*ing, the relationship et#een num er of drive&thru lanes and demand volume etcetera, all of #hich determine the chain/s #aiting time standard9 see Gar er ,4555- and ;argon ,455<-! 0e$oratius et al! ,4585- descri e ho# tightly the Mc0onald/s chain standardizes and engineers the service operations process of its outlets! Customer participation in service production and delivery process is a crucial element of service management and high customer contact systems have to very carefully loo* into theory and psychology of #aiting lines to ta*e advantage of customer participation and to avoid negative effects of delays and other psychological factors on service quality and customer satisfaction ,(ridhar, 8==>-! 2ne of the important determinants of service quality is ease of access, #hich includes not only location of service facility and its opening hours ut also minimum #aiting time to

receive service! Generally, delays have a strong negative effect on service quality ,i!e!, customer perception of the service- and customer satisfaction! 3or e)ample, it #as found in a study M S Sridhar 8, +aiting lines and customer satisfaction ,(ridhar, 8=>5- that procurement delays lead to demotivation of customers in their participation in collection development of a

special li rary! 2n the other hand, visi le ,in presence- #aiting line delays have a much stronger and magnifying negative effects on service quality and customer satisfaction! (ervice operations need to have a clear understanding of the theory and psychology of #aiting lines! +aiting lines normally refer to customers personally #aiting in queues efore one or more service delivery counters for availing service! $o#ever, #aiting lines can also e formed y customers oo*s, oo*s,

?ina sentia ,i!e!, pro)y- in some cases! 3or instance, reservation queues for lent out #ritten reference queries and requests for literature search, indents for acquisition of

request for document delivery, etc!, in li raries essentially go through ina sentia #aiting lines! 2n the other hand, lending service, reprographic service, C0&R2M data ase search service and reference service could have #aiting lines #ith physical presence of customers! There can also e #aiting lines for goods li*e that of oo*s in queue for classification and cataloging! The psychology of #aiting lines are more relevant and applica le for #aiting lines #here customers have to e physically present in the queue!

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Pro&lems #dentification

8! Availa&le resources server unavaila ility increases the mean queue size and the mean #aiting time, #hich can e often o served in daily&life, manufacturing industry and many other fields! Recently, the decision through queuing theory under availa le servers for a #aiting system should e #idely applied! (ince the #hole availa le servers are

operating the mean queue size and the mean #aiting time #ill simultaneously increase #ith respect to large arrivals! 4! +apacity! The topic of capacity is focused y lots of #or*s, such as the investigations for the effective allocating policies of net#or* resources and the capacitated concerns in a high speed net#or* the determinations for the queuing capacities of the upstream and

the do#nstream ottlenec*s in the production system! $o# many counters should e open@ $o# many cre#s and cashiers should e made availa le@

A! Human &ehavior ho# the service performance effects on customers/ loyalty, and then concluded a positive relationship et#een the service performance and the customer/s loyalty! Conventionally, the pro a ility of customer leaving #ill decrease if a customer has high loyalty and mar*et standing!

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Modeling #ssues The pro lem in virtually every queuing situation is a trade&off decision! The manager

must #eigh the added cost of providing more rapid service ,more counters, more production staff- against the inherent cost of #aiting! 3or e)ample, if employees are spending their time manually entering data, a usiness manager or process improvement e)pert could compare the cost of investing in ar&code scanners against the enefits of increased productivity!

Li*e#ise, if customers are #al*ing a#ay disgusted ecause of insufficient customer support personnel, the usiness could compare the cost of hiring more staff to the value of

increased revenues and maintaining customer loyalty! The relationship et#een service capacity, ,e)pected service cost- and queuing cost ,e)pected #aiting line cost- can e e)pressed graphically! %nitially, the cost of #aiting in line is at a ma)imum #hen the organization is at minimal service capacity! As service capacity increases, there is a reduction in the num er of customers in the line and in their #ait times, #hich decreases queuing cost! The optimal total cost is found at the intersection et#een the service capacity and #aiting line curves!

Bsing 'ueuing Theory, the mathematical study of #aiting in lines, is a

ranch of

operations research ecause the results often are used #hen ma*ing usiness decisions a out the resources needed to provide service! At its most asic level, queuing theory involves arrivals at a facility ,i!e!, restaurant, computer store, pharmacy, an*- and service requirements of that facility ,i!e!, cashiers, technicians, pharmacists, tellers-! The num er of arrivals generally fluctuates over the course of the hours that the facility is availa le for usinessC

!um&ers of Arrivals at ,acility

Customers demand varying degrees of service, some of #hich can e)ceed normal capacity! The usiness o#ner can e)ercise some control over arrivals! 3or e)ample, the

simplest arrival&control mechanism is the posting of usiness hours! 2ther common techniques include lo#ering prices on typically slo# days to alance customer traffic throughout the #ee* and esta lishing appointments #ith specific times for customers! The point is that queues are #ithin the control of the system management and design!

Service (e-uirements

'ueuing management consists of three ma.or componentsC 8! 4! A! $o# customers arrive $o# customers are serviced The condition of the customer e)iting the system

Arrivals. Arrivals are divided into t#o typesC 8! Constant D e)actly the same time period controlled-! 4! Variable D random arrival distri utions, #hich is a much more common form of arrival! A good rule of thum to remem er the t#o distri utions is that time et#een arrivals is et#een successive arrivals ,i!e!, machine

e)ponentially distri uted and the num ers of arrivals per unit of time is distri uted!

*##. The Model The 'ueuing Theory Models and +aiting Line Models are applications for most of usiness such fast food restaurants! +e o served the operation of the Mc0onalds at Eepo 'uadrangle, Angeles City especially ho# efficient are their cashiers and cre# in serving its customers! 3or most managers recognize the trade&off that must ta*e place et#een the cost of providing good service and the cost of customer #aiting time! They #ant queues that are short enough so that customers don/t ecome unhappy and either storm out #ithout uying or uy ut never return! Fut they are #illing to allo# some #aiting in line if it is alanced y a significant savings in service costs! (ervice patterns are li*e arrival patterns in that they can e either constant or random! %f service time is constant, it ta*es the same amount of time to ta*e care of each customer! 3or Mc0onalds they are in line one of the 3our Fasic 'ueuing (ystem Configurations #hich is the (ingle&Channel, (ingle&Ghase (ystem! As sho#n elo# are the queuing system configuration during the pea* hours and normal hours for Mc0onalds!

PEAK HOURS

NORMAL HOURS

The table for peak hours in McDonal s locate at Nepo !ua ran"le# An"eles $it% No. of Peak Hours 11!2"m # $!%"m 11!2"m # $!%"m 11!2"m # $!%"m 11!2"m # $!%"m 11!2"m # $!%"m 12!2"m 12!2"m Counters $ $ $ $ $ $ $

Monday Tuesday Wednesd ay Thursday Friday Saturday Sunday

The single&channel, single&phase model considered here is one of the most #idely used and simplest queuing models that have Poisson arrival and exponential service rates. %t involves assuming that seven conditions e)istC 8! Arrivals are served on a 3%32 asis! 4! 1very arrival #aits to e served regardless of the length of the line9 that is, there is no al*ing or reneging! A! Arrivals are independent of preceding arrivals, ut the average num er of arrivals ,the arrival rate- does not change over time! H! Arrivals are descri ed y a Goisson pro a ility distri ution and come from an infinite or very large population! 5! (ervice times also vary from one customer to the ne)t and are independent of one another, ut their average rate is *no#n! <! (ervice times occur according to the negative e)ponential pro a ility distri ution! :! The average service rate is greater than the average arrival rate!

(ince these seven conditions are met, #e can develop a series of equations that define the queue/s operating characteristics. Therefore, #e applied the queuing equation in Mc0onalds during its peak hours for etter analysis!

Service rate () (Every 10 minutes) ' 3 2 1 3 2 Arrival rate () (Every 10 minutes) ( ' $ 3 $ '

&ounter 1 &ounter 2 &ounter 3 &ounter ' &ounter $ Dri e )*ru

Counter Operating Characteristics Avera!e server utili"ation (P) Avera!e num#er o$ customers in t e %ueue ( !) Avera!e num#er o$ customers in t e system ( ) Avera!e &aitin! time in t e %ueue (W!) Avera!e time in t e system (W) 'ro#a#ility (( o$ time) system is em)ty (P") 1 1.$ '.$ 3 0.%$ 0.$ !0.$

Count er 2 1.33 $.33 ' 1.33 1 !0.33

Count er 3 0.+3 '.1% 1.(% 0.+3 0.33 !1.$

Counte r4 1.$ '.$ 1.$ 1.$ 0.$ !2

Counte r5 0.+3 '.1% 2.$ 0.+3 0.$ !0.(%

Drive T ru 1 ' 2 1 0.$ !1

Avera!e server utili"ation (P) Avera!e num#er o$ customers in t e %ueue ( !) Avera!e num#er o$ customers in t e system ( ) Avera!e &aitin! time in t e %ueue (W!) Avera!e time in t e system (W) 'ro#a#ility (( o$ time) system is em)ty (P")

,-. ,/2-. 0. ! ,1 ,-. ! , ,-. 0. ! ,1 1-. ! , 1! ,-.

Eo# that the characteristics of the queuing system have een computed, in #hich the manager may decides to do an economic analysis of their impact! The #aiting line model #as valua le in predicting potential #aiting times, queue lengths, idle times, and so on! Fut it did not identify optimal decisions or consider cost factors! The solution to a queuing pro lem may require management to ma*e a trade&off et#een the increased cost of providing etter service and the decreased #aiting costs derived from providing that service! These t#o costs are called the #aiting cost and the service cost! The total service cost is Total service cost = (Number of counters (Cost per channel Total service cost = mCs !here in m is the number of counters and Cs labor cost"service cost of each counters

The waiting cost #hen the #aiting time cost is based on time in the s$stem is Total #aiting cost = (Total time spent #aiting b$ all arrivals (Cost of #aiting = (Number of arrivals (%verage #ait per arrival C w

Total #aiting cost = (l! Cw &f the #aiting time cost is based on time in the 'ueue( this becomes( Total #aiting cost = (l!' C# Total cost = Total service cost ) Total #aiting cost Total cost = mCs ) l!C# 3or the total daily service costs of Mc0onalds during pea* hours I ,: hours of total pea* hours a day- ,< counters- ,GH8!845 paid to the cashiers per hourTotal dail$ service costs = P*+,+.,3or the total daily #aiting costs during pea* hours = ,: hours of total pea* hours a day- ,!55 seconds average #aiting time- ,G85:!5 cost of customer dissatisfaction and loss of good#ill per average #aiting time- ) ,H!HH average customers in #aiting line per average #aiting timeTotal dail$ #aiting costs = P*./+.0* T1T%2 C1STS = P*+,+.,- service cost ) P*./+.0* #aiting cost T1T%2 3%&24 C1STS of 5676&N8 S4ST79 = P/-0:..0 *###$ +%!+)US#%! This study applies the single channel, single&phase queuing theory that has Goisson arrival and e)ponential service rates y considering customer arrival rate and #aiting time to achieve the optimal num er of open counters and optimal e)periential level of the employee for each num er of customers staying in the system, queuing capacity, different service rate and #age payment for cashiers and cre#! Fased on this mathematical model #ill help the manager of Mc0onalds, #hich is located in Eepo 'uadrangle, Angeles City, to have a est optimal

decision to have a continuous improvement in its operation in minimizing the total cost for queuing and so to ma)imize the profit even more!

#/$ (eferences Fuffa, 1!(! ,8=>A-, 9odern production"operations management! Ee# Jor*C ;ohn +iley and (ons! 0oo , L!+! ,8=<5-, Patterning of time! Ee# $aven, Conn!C Jale Bniversity Gress! (asser, +!1!, ;! 2lsen, and 0!0! +yc*off ,8=:=-, 9anagement of service operationsC Te)t, Cases and Readings! Ee# Jor*C Allyn and Facon! Gar*an, C! ,8=>:-, The ;ournal of the operational research societ$, "ol! A>, Eo! 4 ,3e !, 8=>:-, pp! 8A:&8H> Lan, C!$! ,455H-, 9odel( anal$sis and application of emplo$ee assignment for 'uick service restaurant C ;ournal of (tatistics K Management (ystems 0harma#irya, M! and Adi, 1! ,4588-, Case stud$ for restaurant 'ueuing modelC 4588 %nternational Conference on Management and Artificial %ntelligence Source< =ichard >. Chase and Nicholas ?. %'uilano( Groduction and 2perations Management, *@+/( page */*.