Fast-Food Franchise Expansion: Key Factors and Trade-Offs – Control Charts and Types of Errors – Reflecting on Independent and Dependent Demand and MRP/ERP

PART 1: Fast-Food Franchise Expansion

The owner of a fast-food franchise, who has exclusive rights to operate in a medium-sized metropolitan area, is considering expanding their business by opening one or more outlets. With a single outlet that has proven to be very popular, the owner is faced with the decision of how many outlets to open and where to locate them. In making this decision, the owner should investigate several key factors.

1. Market demand and competition: The owner should assess the current and potential market demand for their products in the metropolitan area. They should also consider the competition in the area and how they differentiate themselves from their competitors. This information can help the owner determine the viability of opening one or more additional outlets and the optimal locations for these outlets.
2. Operating costs: The owner should carefully examine the costs associated with opening and operating additional outlets, including rent, utilities, staff salaries, and food and supplies. They should also consider the costs of advertising and marketing to attract customers to their new outlets.
3. Capital: The owner should determine the amount of capital they have available for expanding their business and whether they will need to obtain additional financing. They should also consider the return on investment they expect from opening one or more additional outlets and the amount of time it will take for them to break even.
4. Legal and regulatory issues: The owner should familiarize themselves with any local, state, and federal regulations that may impact their expansion, such as zoning laws, health and safety regulations, and labor laws.

Once the owner has considered these key factors, they can then make a decision on whether to open one additional site or several additional sites.

Trade-offs of opening one additional site versus opening several additional sites:

1. Financial risk: Opening one additional site incurs a lower financial risk compared to opening several sites, as the owner only has to invest in one location and is less exposed to potential losses.
2. Market saturation: Opening several sites at once increases the owner’s market presence and can potentially lead to market saturation, resulting in reduced demand for their products.
3. Operating costs: Operating multiple sites incurs higher operating costs, such as higher staffing costs and increased expenses for supplies and marketing.
4. Capital: Opening multiple sites requires a larger capital investment and may be more difficult to finance.

The owner should weigh the potential benefits and drawbacks of opening one additional site versus several additional sites in light of their business goals and financial situation.

PART 2: Control Charts and Types of Errors

1. Purpose of Control Charts: A. X-bar chart: The X-bar chart is used to monitor the process average over time and determine if the process is in statistical control.

B. Range chart: The Range chart is used in conjunction with the X-bar chart to monitor process variability over time and determine if the process is in statistical control.

C. P-chart: The P-chart is used to monitor the proportion of items in a sample that are non-conforming and determine if the process is in statistical control.

D. C-chart: The C-chart is used to monitor the number of defects per unit and determine if the process is in statistical control.

2. Types of Errors: A – Putting an innocent person in jail: This is a Type I error, also known as a false positive, which occurs when a decision is made that an event has occurred when it has not.

B – Releasing a guilty person from jail: This is a Type II error, also known as a false negative, which occurs when a decision is made that an event has not occurred