Systems Dynamics Approach on the Increasing Popularity of Café
Noriter in the Philippines
Jonathan Kenneth C. Jardin
Department of Industrial Engineering
De La Salle University, Taft Avenue Manila, 1004, Philippines
Abstract
The paper aims to discuss the growth that Café Noriter is presently experiencing. The paper hopes to discuss the
several factors that contribute to the success of Café Noriter with specific tools learned in Systems Dynamics class
such as causal loop diagram and stock flow diagram. The paper would also include the model concerning the
behavior of Café Noriter using Professional DYNAMO software to evaluate the behavior of company more
accurately.
I.
Introduction
A.
Company Background
Café Noriter is a Korean-themed coffee shop that offers beverages, food, and ambiance. “Noriter" is the Korean
term for "Playground". As the name implies, Cafe Noriter is a place where people can chill. Without a doubt, Café
Noriter was triumphant in creating a place where customers can feel at home, enjoy a cup of coffee, relax, and have
fun. There are two branches in the Philippines and 24 branches in Korea. All Café Noriter Shops are operating at the
hot-zone of Universities.[1]
B.
Company History
Korean culture became popular among Filipino Teenagers; “Korean Telenovela” and Korean pop songs. From
Korea, Noriter's concept was brought to the Philippines by a new proprietor and was successful in attracting the
Filipino market and the culture can be experienced in the form of Café which has its own uniqueness other than
Branded Coffee Shops like Starbucks, Coffee Bean, Figaro, and etc. The company's first branch was established in
Dumaguete, followed by a second branch located in Taft Avenue, Manila.Café Noriter Manila branch started the
business on October 19, 2009. The location of the café is in front of De La Salle University. Since then it has been
loved by many university students along Taft Ave. as well as other universities in Manila. [1]
II.
Present System of Café Noriter
Table 1: Present System of Café Noriter
Scoring Topics
Rating Average
Formal Planning Systems and Procedures
2.86
Integrated Business Plan
3.50
Forecasting Activities
3.00
Demand Management
2.72
Daily Planning
3.88
Stock Record Accuracy
3.80
Material Order Schedule
3.67
Capacity Plans
2.86
Vendor/Supplier Service Levels
3.88
Monitors Competitors
4.57
Lead Time Reduction Program
2.50
Continuous Improvement Program
3.67
Supplier Partnership
3.07
Survey Used was Likert Scale Provided by Dr. Mutuc in PROLEC3 class
The interview results summarized in the Table above shows that the highest Rating Average is the performance
measure “Monitors Competitors.” It means that Café Noriter has good sensitivity on awareness of its competitors
near the location. The main reason to focus on the competitor is due to the emergence of competitors near Café
Noriter such as Coffee Bean inside the De La Salle University. The Coffee Bean opened on June 2009 and by that
time there Coffee Bean have established a significant number of loyal customers, 30% of the customers in Café
Noriter that used to visit shifted to Coffee. They assumed that the reason is the prepaid Wi-Fi in the café while
Coffee Bean has no charge of internet for the students. To keep their customer, they established a free Wi-Fi zone in
their café. Few weeks after, the numbers of customers were back to normal.
On the other hand, the lowest score indicates it to be the “Lead Time Reduction Program.” Café Noriter has already
good Lead Time system due to stock availability of the supplier and 2-3 hours of travel time that is why the
reduction of its system seems impossible. However, the lead time includes the complete payment of the stock. The
supplier gives three days allowances to give the official receipt after the invoice. The café had never exceeded of
deadline as of yet.
The coffee products are monitored by making a note in a record book where the Manager will write every available
stock. However, information technology system for managing inventory is not available yet. Manager can check the
customer satisfaction by evaluating if there are leftovers in the table or dishes and if there are she assumes that
customer is not satisfied with that product. However, results showed that 90% of the people finish their dishes.
Another way of knowing customer satisfaction is simple, the company directly asks the customers about the menu if
they liked it or not and especially if there is a new menu they want to hear the feedbacks of their customers. The
company also did surveys, making survey questionnaires with the questions like “How was the coffee?” and “Do
you have any recommendations?”, the result of the survey was very positive with no complaints except for the price
of the cake. Manager then decided to decrease it by 10 pesos to address the concern of their customers. In checking
the quality of coffee, it is quite simple because the general manager has a great sense of taste of coffee so she can
easily determine if coffee taste has changed or not. She tastes the coffee from time to time. When she decides what
coffee product would be for the café, the criteria would be the good taste and reasonable price. They have compared
5 kinds of products and chose the best fit to the criteria. The Noriter Coffee is blended with Arabica and Robusta.
III.
Situational Appraisal












A.
Strengths
Uniqueness of the coffee shop, only one Café Noriter in Manila.
Location is in front of La Salle making it a strategic location.
Competitive with other global brand such as Starbucks by providing lower prices and free Wi-Fi and
ensuring that the taste of their coffee products can compete.
Distance from the supplier is near, 2 to 3 hours ensuring that there are no late deliveries.
Can directly evaluate their customer satisfaction by simply asking to their customers in the café.
Has a system of daily updates on demand, order changes; and can directly contact their supplier to check
quantity, quality, and time of the resources.
No stock out of coffee so far.
Easy and good communication between the general manager, manager, and staffs making their workforce
highly adaptable and also involves the entire organization by making them more aware of their customer
level of service.
Provision of incentives to their loyal customers (7 visits, 1 free item).
B.
Weaknesses
No formal procedure of evaluating and changing the forecast technique, solely depending on past data and
mere assumptions.
No computer based system, only uses manual recording in Record notebooks.
Customer may easily shift to other competitors.

C.
Opportunities
Expand business to other places such as Katipunan (near Ateneo and Miriam).
Can make a profit by lending their rent space for special occasions allowing them to earn more aside from
selling their products.
Possible future suggestion of franchising from outsider.


D.
Threat
Emergence of competitors. Customers are dynamic and easily shift to other coffee shops.
Taft Ave. is prone to flood that may delay the transportation of raw materials.
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IV.
Objective of the Study
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


V.
Identify why the system is experiencing growth
Identify other important variables relevant to the system.
Analyze the possible causes and effects of certain variables in the problem by generating feedback loops
and combining them into a final causal loop diagram.
Simulate and re-create the behavior of the system with the use of the stock flow diagram.
Review of Related Literature
A.
Key Factors to Coffee Industry’s success
There are five key factors that drive the success of the said industry. The following are as follow:





Experiential branding strategy: Established logo, Developed brand
Reach: High visibility locations to attract customers
Product variety: Product diversification
Customer Service
High Quality Coffee
Out of the five key factors, Customer Service has been biggest strong point wherein coffee shops have
transformed coffee consumption from a picking behavior to an experience with high credence attributes. Café
Noriter’s main competitor Starbucks particularly in Taft shows that the quality of the customer service has been
a key factor to customer satisfaction. Figure below shows the customer satisfaction level of Starbucks taking
into account customer’s attitude as well as the rate of its customers. [3]
Figure 1: Customer Satifaction Level and Rate of Customers
Figure 2: Customer’s Assessment on Coffee Shops
Figure above shows that there has been an increase in the quality of coffee shop service as well as the average wait
time for customers in getting their orders. As what was observed, the measurement variables have been good so far
in which service steadily increasing and average wait time is decreasing at a stable rate as well. Product Quality is
good so far and cleanliness of stores has also been steadily increasing which would then attribute to the main focus
of coffee shops in making their stalls more accomodating to its customers in order to make a good quality service
experience. [2]
VI.
Problem Statement
Total Revenues of Cafe Noriter Taft
35000
30000
25000
20000
15000
Total Revenues
10000
5000
Oct-10
Sep-10
Aug-10
Jul-10
Jun-10
May-10
Apr-10
Mar-10
Feb-10
Jan-10
Dec-09
Nov-09
Oct-09
0
Figure 3: Café Noriter Total Revenue (Source: Estimated Revenue Growth by Owner: JI-YOUNG PARK)
Café Noriter as part of specialty coffee industry has been experiencing exponential increase in terms of it totals
revenues from 2009 to 2010. Café Noriter should maximize the total revenues in coping up with the demand of their
customers.
VII.
Results and Discussions
As what was discussed in the review of related literature and present system Café Noriter’s quality service has been
the company’s strong point that would directly affect the customer’s satisfaction which would be the performance
measure of the system.
A.
Causal Loop Diagram
Service Quality
+
Customer
+ Satisfaction
Product Quality
+
Price Satisfaction
Figure 4: Initial Causal Loop Diagram
In the initial causal loop diagram above it shows that service quality and product quality increases so does customer
satisfaction. And if price satisfaction would increase so will customer satisfaction as well. So in general if we were
to increase customer satisfaction, we should first increase these 3 variables.
Service Quality
+
Product Quality
+
Customer
Satisfaction
+
Number of
Customers
+
Price Satisfaction
+
+
Price Willing to
Spend
Figure 5: Causal Loop Diagram Considering Price with respect to number of customers
With the increasing customer satisfaction that generates more customers, the value of the price they are willing to
spend for the food also increases. This results to an increase in price satisfaction that will bring up customer
satisfaction.
Training and
Coaching Quality
+
+
+
Good House
Keeping
+
Physical
Environment Quality
+
Service Quality
Product Quality
+
Employee
Interpersonal Skills
Interaction Quality+
+
+
+ Customer
+
Satisfaction
+
+ Sales
+
+
Price Satisfaction
+
Price Willing to
Spend
Number of
Customers
+
Figure 6: Causal Loop Diagram for Service Quality
Figure above considers the service quality, two variables which are physical environment quality and interaction
quality dictates the performance of service quality. Interaction Quality is dependent on the employee interpersonal
skills which are derived by the company’s training and coaching quality. Training and coaching quality is driven by
the interaction quality of the company. Training and coaching quality also influences good house keeping which
influences the physical environment quality of Noriter which also increases the Service Quality of Noriter. The
physical environment quality as well as interaction quality also does influences the training and coaching quality the
company would implement.
Training and
Coaching Quality
+
+
+
Good House
Keeping
+
Physical
Environment Quality
+
Service Quality
Quality of Coffee
Beans
+
+
Product Quality
+
Employee
Interpersonal Skills
Interaction Quality+
+
+
+ Customer
+
Satisfaction
+
+
+ Sales
+
+
Price of Coffee
Price
- Satisfaction
+
Price Willing to
Spend
Number of
Customers
+
Figure 7: Final Causal Loop Diagram
The final causal loop diagram above shows all measurement variables that affect the customer satisfaction of
Noriter. Inclusion of Quality of Coffee Beans dictates the product quality of Noriter which is actually vice versa
since product quality also dictates the quality of the coffee beans to be used. On the other hand, the price of coffee
would influence the price satisfaction wherein if the said price is too high due to quality of coffee beans it would
negatively impact the price satisfaction of the customer. Sales is added above to show how the company is earning,
the causal loop diagram shows that as customer satisfaction increase so does the sales which would also influence
the number of customers. As what can be seen in the graph, the product quality’s growth is constrained by the price
satisfaction this then limits the growth of the product quality.
B.
Stock Flow Diagram
Physical
Environment Quality
Good House
Keeping
Training and
Coaching Quality
Employee
Interpersonal Skills
+
+
Quality of Coffee
Beans
+
Service
Quality
+
+
Product Quality
Customer
Satisfaction
+
+
Interaction Quality
Sales
Number of
Customers
Price
+ Satisfaction
Price of Coffee
Figure 8: Final Stock Flow Diagram
+
Price Willing to
Spend
C.
DYNAMO
DYN File
*Customers of Café Noriter
NOTE CUST = CUSTOMER
NOTE PCUST = POTENTIAL CUSTOMER
L. CUST.K= CUST.J+ DT*(PCUST.JK)
N CUST= 66R PCUST.KL = CSAT.K*(PQUAL+SQUAL+PSAT)
A CSAT.K = 1*CUST.K
C PQUAL = 50
C SQUAL = 50
C PSAT = 50
SPEC DT = .5/SAVPER=.5/LENGTH=500
SAVE CUST
DRS File
PLOT “Customers of Café Noriter
<CUST “CUSTOMERS”,0,10000000>
VIII. Conclusion
Café Noriter is enjoying good growth in terms of increased revenues and customers. However, the increase can be
attributed to it still being relatively new. The key factors that drive the company’s success lies on three major
variables which are product quality, service quality, and price satisfaction. In order to be able to keep on growing in
the Philippines, Café Noriter should focus on the said three variables to be able to stay competitive. Presently, in
terms of its service quality, performance is observed to be better compared to other coffee shops in Taft. Free Wi-Fi
access as well as spacious rooms with mats and beds has been a strong factor to how good the physical environment
quality in Noriter is as it provides the experience that coffee shop customers need. As for the other factor that
contributes to service quality which is interaction quality is as good as strong competitors like Starbucks, employees
are friendly and accomodating which customers of Café Noriter has come to like. Café Noriter should then not let
its guard down and keep on doing their best in servicing its customers.
IX.
Appendix
A.
Contact Information
Café Noriter:
JI-YOUNG PARK
General Manager
Phone: (632)489-5223
Mobile: (63917)862-7056
E-mail: jytheory@hanmail.net
B.
1.
2.
3.
References
Café Noriter ( December 2010). Café Noriter History. Retrieved December 18, 2010, from
http://dreamcafenoriter.com/.
Specialty Coffee Association of America. (December 2010). Specialty Coffee Association of America.
Retrieved December 18, 2010, from SCAA Annual Surveys: http://www.scaa.org/
Starbucks Corporation. (December 2010). Starbucks Homepage. December 18, 2010, from Starbucks
Homepage: http://www.starbucks.com/