Imagine metrics like these: A car served at the drive-thru every 18 seconds; one mistake every 3,500 orders; customer satisfaction at nearly 98 percent.
Those numbers are reality at Pal's Sudden Service, a 22-unit quick-service chain based in Kingsport, Tenn., and the first restaurant company ever to win a Malcolm Baldrige National Quality Award in 2001. Ten years later, Pal's remains widely respected for its operational excellence and a mecca for those seeking insight into its practices.
In 2010 more than 600 businesspeople attended Pal's Business Excellence Institute, or BEI, the educational arm Pal's established in 2000 to share its best practices. That's a considerably larger crowd than the 200 to 300 students typical most years, said Thom Crosby, president and chief executive of Pal's Sudden Service. And Crosby said he hopes to grow that number because more BEI attendees mean more critical assessing of Pal's systems.
He said that BEI is a breakeven business, so the focus remains on the restaurants.
"The world is absolutely full of brilliant people," he said. "We learn more from every class than we teach."
Only one other restaurant company has won the Baldrige Award. K&&N Management, the Austin, Texas-based operator of seven fast-casual restaurants, including three Mighty Fine Burgers, Fries and Shakes, as well as four Rudy's "Country Store" and Bar-B-Q outlets, was honored in 2010.
K&&N has made 13 trips to Pal's in the past nine years to introduce different team members to Pal's practices, said president and co-owner Ken Schiller.
"There was no way to fully convey what Pal's had done without seeing it in person," Schiller said. "They have a store that's 15 to 20 years old and looks like it was just opened."
Those trips have been worth the investment, though, Schiller said, noting that K&N's average unit sales were around $3 million per store when they first visited Pal's and are $7.5 million per unit today.
"It's amazing results," he said. "Customer satisfaction is higher, turnover is lower, every aspect of our company has drastically improved." He noted that turnover fell from industry norms of 100 percent to 120 percent to 52 percent for hourly workers. Management turnover is about 8 percent.
K&N's first step was to rewrite its vision statement to focus on such business drivers as cleanliness, food quality, speed, accuracy, people and value. The group created over 200 new processes to execute on those drivers at a "world-class level" and formally defined its core values, Schiller said. Now K&N has a yearly focus: 2011 is the year of "Because of me," meaning that all 500 team members are encouraged to be better "me's" and are recognized for individual efforts that further K&N goals.
Among other changes, meetings are more effective, cleaning takes place at night for higher levels of cleanliness, and employees, who initially attend a 10-hour foundations class where they learn about the company culture, are continuously tested through the use of flash cards and iPads. Most important, in the Pal's tradition, "everything we have here is measured," Schiller said.
T.J. Schier, president of SMART Restaurant Group, or SRG, an 11-unit franchisee of Which Wich Superior Sandwiches based in Flower Mound, Texas, also is a Pal's disciple.
"It's far and away the best-run chain," Schier said. "No disrespect to anyone else."
SRG has emulated Pal's pay structure so that general managers have a part of the cash flow, motivating them to grow unit volumes. Managers have a lot of autonomy, but very rigid hurdles they need to hit.
"They recommend a lot of structure in what you do," Schier said.
With help from Pal's, SRG, which has 180 employees, has improved retention, order accuracy and the company's culture.
Pal's commitment to training is another takeaway, he said. Employees are continuously tested and are expected to be 100-percent faster with each test.
"They throw away more French fries than anybody, but they build the cost of waste into the process because they never want anyone to have a cold French fry," he said. "It's crazy — but in a good way."President and CEO Thom Crosby has helped Pal's Sudden Service become one of the industry's operational benchmarks.
Pal's journey to operational excellence began as a stroll rather than a race. In the early 1990s the regional chain, which specializes in burgers and is recognizable roadside by buildings adorned with a giant hot dog, fries, cola and burger, was happily growing sales and market share, said Crosby, who joined the company in 1981 as a general manager when there were just two Pal's units. Crosby, whose role evolved with the chain's growth, and Pal's founder Fred "Pal" Barger Jr. had been casual students of performance excellence until 1994, when a regular customer who worked at Eastman Kodak, recipient of the Baldrige Award in 1993, challenged them to study an 80-page pamphlet that he guaranteed would "change your life."
And it did. Crosby, Barger and their managers became well-read students of such quality excellence gurus as Edwards Deming and Joseph Juran. They delved into various statistical sources and began critically evaluating their work processes.
Today Pal's focus is on "maximizing value creation with each individual unit," said Crosby, and each of the 918 employees is involved in that process.
The biggest shift was from a company mindset of service to manufacturing, Crosby said.
"We produce customized individual products for customers as they come by," he noted.
Next, the company put its energy into out-hiring and outtraining anyone else, Crosby said. The result was a 45-percent increase in productivity within the first four years. Each employee was bringing in an additional $13 per hour while working, he said. And health inspection scores went from 91 percent to 97.3 percent, he added.
Today, more than 40 percent of BEI attendees are restaurant operators, said David McClaskey, president of Pal's BEI. Another 30 percent are from the health care industry, and about 20 percent come from service businesses such as banks and retail. Less than 10 percent are in manufacturing.
Pal's systems concentrate on eliminating waste and keeping employees productively busy the entire time they are on the clock. When they are not serving customers, they are cleaning their stations or helping colleagues.
"We're [always] hiring off of the same job pool because we are not differentiating by pay," he said. "From that job pool, our hiring process gets us a better match to our culture and gets people who like working in the kind of environment where you work at a higher level."