Recommendations

A key issue we discovered regarding the operations Havana Central is their tendency to run out of stock on certain items, thus having to "eight-six", a term in the restaurant service industry used which means that the product cannot be served, items on the menu. This not only creates the opportunity of awkward situations arising between servers and customers due to being unable to provide the requested product, but also severely reduces customer satisfaction. Each customer which is told that a specific product they requested is unable to be provided is an unsatisfied customer. Unsatisfied customers lead to less than average reviews which could prevent a potential customer from visiting Havana Central and thus harm the business overall.

As it stands, Havana Central operates under a periodic review system, or p system, for their inventory management. Havana Central receives shipments of inventory every Monday and Thursday, this means that prior to these arrival days, the inventory is reviewed and an amount is ordered for each product in order to bring the inventory position of said product to the predetermined, designated amount.



The primary advantages of this system are the possibility of discounts due to consistent, bulk orders and the ability to set a routine. Unfortunately, the routine that Havana Central currently has set is leading to constant inventory shortages. This may be due to many of the issues shown in the following diagram, but a simple change to the current inventory management system could allow for Havana Central to solve the potential underlying issues while still operating effectively.



Reduced Time Between Orders

The time between orders for Havana Central is three business days, thus they receive shipments of inventory on Monday and Thursday. If Havana Central wishes to maintain the use of a periodic review system, which may be lucrative due to discounts from suppliers, we recommend that they reduce the time between orders to two business days, and receive shipments on Mondays, Wednesdays, and Fridays. If this recommendation is to be followed, Havana Central would first have to reevaluate the designated inventory position levels of their products due to the reduced time between orders. Reducing the time between orders from three business days to two business days would most likely lead to roughly a 33.3% lower inventory position for products, barring any other factors that may effect the demand certainty of products. The result of this recommendation would be lower inventory costs due to the maintaining a lower inventory position for each product and higher ordering costs due to an additional order per week. Barring any bizarre circumstances, Havana Central would most likely not suffer from inventory shortages if they were to implement this recommendation and the quality of service provided as well as customer satisfaction would increase.


Implement Continuous Review System

While studying the inventory management of Havana Central, we discovered that the inventory levels are constantly monitored by a point of sales system which connects the electronic registers to an inventory database. After every order is placed, the inventory levels are updated reflecting that order, having this system in place allows for the use of a continuous review system, or q system. Q systems are drastically different from p systems, with a q system in place, a specific inventory position is set for each inventory item, and when the item reaches that inventory position, an order is automatically placed with suppliers. The quantity of the orders does not rely on the inventory position like a p system, but is set at the amount of the economic order quantity, EOQ, which is the exact number of units that minimizes the costs related to inventory. Due to the way in which orders are placed, there is no set time between orders like a p system. These differences make a q system much less of a routine than p systems as well as cause orders to arrive more frequently and generally in smaller quantities. The increased frequency of orders greatly increases the ordering costs when a q system is in place, however, Havana Central would be able to hold much lower inventory levels to compensate, thus reducing inventory costs. While this may do away with any potential discounts provided by suppliers, a q system provides the unique advantage of constantly supplying Havana Central with fresh products,  increasing the quality of the products they serve and potentially increasing customer satisfaction.

We strongly believe that Havana Central would benefit from increased quality of service and higher customer satisfaction by implementing either of these recommendations.