Feb 25, 2004 PIZZA PAZZA Jean and Franois, the two entrepreneurial brothers that own Pizza Pazza, are planning to expand their family business by addressing a growing market need. They started their family restaurant Pizza Pazza about ten years ago on the Rue de Sablon in Fontainebleau, France. Their growing popularity rapidly attracted competitors, such as Pizza Mimi, who located just next door to Pizza Pazza! While their restaurant provides a fine dining experience, the two brothers had been receiving numerous requests for a take-out and delivery service from busy MBA students. Initially dismayed with suggestions to cater to such utilitarian approach to food and dining, Jean nevertheless believed that a take-out service could be a good growth strategy. In addition, they could stick to their high quality reputation by offering fresh mouth-watering specialty pizzas. Jean was convinced that endless custom variety, fresh on-demand baking and impeccable service could provide a viable niche position that could compete against better-known international companies like Pizza Hut. The brothers agreed that they should give it a try. Given that the current dining-in facility was running close to capacity, a new facility was needed. Franois was to remain responsible for the restaurant while Jean was taking the lead on establishing the take-out service. He rapidly found an empty facility in neighboring Avon. Not only was this close to their main market--Avon is about 2 km from Fontainebleau--rents were also lower there. The new facility also allowed Jean to redesign their pizza production process and decide on many operational variables that would determine the profitability of the take-out business. A pizza is a typically circular dish made of a flour base topped with additions of your choice, including anchovies, pepperoni, peppers, ham, tomatoes, or pineapple, baked and served piping hot! Most people wrongly believe pizza originated in Italy. It appears that what we know as pizza came into vogue around the time of Napoleon and the French revolution; however, there also is some evidence that pizza originated in Greece. Italians, known to be lovers of fine food and wines perfected and imported this terrific dish to America. From here it quickly endeared itself to mass production and re-export to the rest of the world. The Process for making a gourmet pizza follows a simple recipe. First mix together the pizza sauce of: 2 cans tomato sauce, 1 lb. minced pre-cooked beef, 1 chopped onion, and 1-teaspoon salt. Put that aside, then mix the pizza dough: 1 cup of warm water, 1 tablespoon of baking yeast, 1 tablespoon of vegetable oil, 1 teaspoon salt, and 2 cups of whole wheat flour. Now beat that dough until it is nice and elastic, then add more flour until it is a little stiff and knead it out onto a round shallow butter greased pan, rolling up the edges to about half an inch. Next, spread the sauce you made in the beginning and the toppings, including the cheese, specified by the customer generously across the surface. Professor J.A. Van Mieghem prepared this case as a basis for class discussion rather than to illustrate either the factual, effective or ineffective handling of a managerial situation. The case is inspired by Kristen's Cookie Company, written by Roger Bohn. Copyright 2004 by J.A. Van Mieghem. For reproductions, email VanMieghem@kellogg.northwestern.edu. 1 Pizza Pazza Now put the pizza into an oven at 450 degrees F (230 Celsius) for 15 minutes--until crusty--then take it out and sprinkle a cup of shredded cheese across it and allow it to melt. Voila your pizza! The new rental facility in Avon already has all the necessary capital equipment: An electric oven with two ceramic hearth baking decks, pizza pans, mixing bowls, dough mixer and roller, and pizza delivery boxes. (Each oven deck can hold one pizza pan.) Because electricity is included in the facility's rent, all costs are variable: the ingredients cost on average 1.20 per pizza and the box 0.20. To fully specify the process, Jean has also measured all activities and must decide who will perform them. Initial planning shows that at least two people will be necessary to run the production process. To keep costs and risks in control, Jean decides that during the initial start-up phase he should work himself and ask his niece Jacqueline to help him out. The first activity is to take the order. Applying e-business smartness, Jean has implemented a web-based order taking system that customers can access not only from their personal computers, but also from their Internet-enabled GSM mobile phones, which have become wildly popular. The advantage of the high technology is that order taking does not take any personnel time. Jean will perform the first three tasks. The first is to prepare the pizza sauce. This involves washing the mixing bowl (if it was used for a prior preparation) and manually mixing all the precooked sauce ingredients. Sauce can be mixed for one, two or three pizzas at once; in either case, sauce preparation requires about two minutes. Jean's second task is to prepare the dough: mixing all ingredients in the food processor, followed by manual kneading requires an estimated three minutes. (Like the sauce, dough can be prepared for up to three pizzas at once.) Finally, Jean's last task is to put the dough in a pizza pan and to spread the sauce, including the toppings and cheese, onto the dough, which takes one minute per pan. Now Jacqueline takes over and loads the pizza pan into the oven and sets the timer for 15 minutes. This activity takes about 1 minute. (For quality reasons, they try to avoid opening the oven during a baking cycle. Therefore, when they are busy, they would always load two pizza pans at a time in roughly the same time it takes to load one pizza.) When the pizzas are crusty, it only takes a second for Jacqueline to take the pizza pans out of the oven. After letting each pizza cool for at least three minutes, she lets each hot pizza slide out of the pan and puts it into a delivery box; a task that takes one minute per pizza. Finally, Jacqueline charges the customer's credit card, staples the receipt onto the box and declares the pizza order ready for pickup. This last set of activities requires two minutes. Questions and Decisions to be made before Jean can launch the business abound. While some improvements will undoubtedly arise during startup, some advance planning is necessary. For the following questions assume that (1) all orders are for two identical pizzas; (2) each pizza sells for 5; and (3) Jean is advertising made to order pizzas so that all activities in the process are started only after the order is received. 1. What is the minimum time to fill a rush order; assuming that all steps of the process are started only after the order is received? Without spending money, how can you reduce this response time? 2. What is the maximum number of orders that the take-out facility can fill per hour in steady state? Assume that there are sufficient pizza pans to ensure that no order has to wait for pans to become available. How does your answer change if the cooling time is increased from 3 to 5 minutes? Page 2 of 3 Pizza Pazza 3. Assume that there is one order waiting to be processed, Jean is just about to start mixing the sauce for a second order and Jacqueline is just about to start loading the two pizza pans of a third order into the oven. A customer calls in with a new order for two pizzas and wants to know when she can pick up her order. What due-date time should Jean promise assuming that they process all orders in the sequence received? 4. If Jacqueline calls in sick, what is the maximum number of orders that can be filled per hour? 5. Assume Jean and Jacqueline decide to hire two employees to perform their respective tasks; each paid 8 per hour. What is the contribution margin (revenue - variable costs) generated per hour of operation of the process if pizzas sell for 5 each? What is the minimum amount that Jean can charge per pizza, and still make a profit? 6. What is the minimum number of pizza pans needed to ensure that no order has to wait for a pan? 7. The pizzas have become wildly popular and Jean feels that they can easily sell thirty pizzas per hour. To increase capacity, he is thinking of renting additional industrial ovens, which would cost 10 for each hour that an oven is used. Should Jean rent more ovens, assuming the rest of the process is kept as is? How many? What would be the contribution margin from each hour of operation of the process (assume the employees do all the work)? 8. Can Jean do better, relative to question 7, by restructuring the process? For example, can he increase profits by reallocating tasks between the employees? (Assume all orders are for two pizzas.) What is the contribution margin generated per hour as a result of the changes? What is the minimum amount that Jean can charge per pizza, and still make a profit? 9. Over time, Pizza Pazza has also started to accept orders for one pizza. In effect, half of all orders are for only one pizza and those have been pushed through the system as \"emergency orders\" resulting in only one pizza in the oven. Should Jean consider a \"rush charge\" for such orders? 10. Realizing the importance of batch economies, should Jean offer a discount to encourage all orders to be for three pizzas? If so, how much? Questions for Further Thought: Return to the initial setup where there is only one oven and Jean and Jacqueline perform the tasks as specified in the case. Again assume that all orders are for two pizzas. Jean is now producing two types of pizzas: in addition to thin-crust he now offers (American-imported) Chicago-style deep-dish. All activity times are as before, except that deep-dish requires longer sauce preparation (5min vs. 2 min for thin-crust) and baking (29min vs. 15 min for thin-crust). 11. Assume that deep-dish pizzas sell for 7.50 and require 1.90 worth of ingredients. Which of these two products should Jean push to customers that call in and are undecided? 12. What is the profit rate if orders for thin-crust and deep-dish are in a ratio of (a) 3:1 (b) 1:1 (c) 1:3? Page 3 of 3