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A REPORT OF PIZZA HUT ON SUPPLY CHAIN MANAGEMENT

SUBMITTED BY: SEEMA AGARWAL M.SC FINANCE 113732

Contents:
1. Company profile: a. Elaboration of Supply Chain of Pizza hut
b. c. 2.

Pictorial Supply chain of Pizza hut Adjusting supply chain members capabilities

Supply chain management strategies: Supply chain drivers: 1. Facilities 2. Inventory 3. Transportation 4. Information 5. Sourcing Strategies: a. Ware house management b. Mode of transportation c. Inventory management d. Head office

e. Pizza hut outlets f. Operations/ Production g. Improvement in Supply chain


3.

Measures of supply chain performance a. Efficiency Verses Responsiveness.

4. conclusion

1. COMPANY PROFILE:
INTRODUCTION Pizza Hut is one of the flagship brands of Yum! Restaurant Int. which also has KFC, Taco Bell, A&W and Long John Silvers under its umbrella. It is the worlds largest pizza chain with over 12,500restaurants across 91 countries. Pizza Hut was started in 1958,by two brothers Frank and Dan Carney in Wichita, Kansas. They had the idea to open a pizza parlor. They borrowed $600 from their mother, and opened the very first Pizza Hut. In 1959, the first franchise unit opened in Topeka, Kansas. Almost ten years later, Pizza Hut was serving one million customers a week in their 310 locations. In 1970, Pizza Hut was put on the New York Stock Exchange under the ticker symbol PIZ. In 1986, Pizza Hut introduced delivery service, something no other restaurant was doing. By the 1990's Pizza Hut sales had reached $4 billion worldwide. In 1998, Pizza Hut celebrated their 40th anniversary, and launched their famous campaign "The Best Pizzas Under One Roof." In 1996, Pizza Hut sales in the United States were over $5 million. The first Indian outlet was opened in June 1996 in Bangalore. In India, Pizza Hut has 139 restaurants across 36 cities. Pizza Hut has been voted the best family restaurant for the second year running at the 2007 Tommys Parent Friendly Awards. "Pizza Hut is known for quality, innovation and category leadership. Background Pizza Hut entered India in 1996, and opened its first restaurant in Bangalore. Since then it has captured a dominant and significant share of the pizza market and has maintained an impressive growth rate of over40 per cent per annum. Pizza Hut now has 95 outlets across 24 cities in India; and employed nearly 4,000people by end of 2004. Yum! has invested about US$ 25 million in India so far; this is over and above investments made by franchisees. Yum! Brands Inc is the owner of the Pizza Hut chain worldwide. A Fortune 300 company, Yum! Brands owns Kentucky Fried Chicken, Pizza Hut, Taco Bell, A&W and Long John Silvers restaurants worldwide. Yum! generated more than US$ 25.9 billion in worldwide sales in the year 2003, and has more than 33,000 restaurants in over 100 countries.

The largest national pizza chain, Pizza Hut has over 34,000 locations and has annual sales around $10 billion. Pizza Hut is a YUM! food brand, which means it has a comprehensive sustainability report that the public can access. Pizza Hut is also in the process of exploring green building design and has already incorporated some efficient fixtures in its stores. Pizza Hut offers boxes made with some recycled content. Pizza Hut also offers some natural ingredients in some of its items. Finally, Pizza Hut is beginning to track the impact of its supply chain

Operational Practice through (C.H.A.M.P.S.):


C : H : A : Cleanliness Hospitality Accuracy Maintenance Product Quality Speed product .They have adopted the best

M : P S : :

Pizza Hut strictly follow the norms to attain the quality

operational practice to attain the customer satisfaction. They are doing their operational practice under an umbrella of C.H.A.M.P.S .So here comes the role of supply chain because if they want to provide a quality product to their customer and on the other hand they want to responsive as well the cost will definitely go high so to be efficient enough they have to manage their supply chain.

a. Brief Elaboration of a complete supply chain network for Pizza


Supply chain of pizza hut starts from the suppliers of pizza hut. There are direct suppliers and indirect suppliers of Pizza hut. Direct suppliers of Pizza hut are three named as: Pepsi Company Bake parlour company (Buns) Habib oil Mills (First mineral water)

And all other material like Cutlery, meat, vegetables, sauces, and all other material come from their warehouse named as Commissary. That material is purchased by Commissary means indirect suppliers of Pizza hut are: Meat market (Their owns cattle) Vegetable market Sauce companies

All direct material is demanded on daily basis and the mode of transportation which they used is trucks mostly they are Shezore. On every day end pizza hut manager forecasts the demand of next day and gives the order to the suppliers than next day morning the goods come to the Pizza hut. All indirect material i.e. vegetables, sauces, meat, cutlery and al material is purchased by the ware house named by Commissary. The material comes from warehouse by the trucks on every Wednesday. Then Pizza hut takes the orders from its customers who come to pizza hut and also take the orders from the delivery service there is a specialized system in pizza hut which is connected to the delivery orders service so that 1 order list at a time come in the kitchen and at the managers table also. Than production of pizza according to order starts and they deliver it with in 45 minutes at the door of customer and in pizza hut they just take 20 minutes to prepare the pizza and serve it to the customer. They claim that: If we are unable to serve our customer within 15 minutes than there is no need to pay money to us

b. Supply Chain of Pizza hut

Direct supplier
S1 Pepsi Company S2 (Buns) Bake Parlour S3 First water (Habib oil Mills)

Daily basis W e e k l y B a si s

Indirect Supplier
S4 Sauces Company

S5 Meat Market

Dough Filling Topping Bake

O r d e r s

O r d e r s

W e d n e s d a y

S6 Mandi (Vegetables)

Commissary
(Ware house)

(Cheese melts)

Customer (Pizza Hut)

Delivery Service

c. Adjusting Supply chain Member Capabilities


1. Manager audit the Supply chain members capabilities & their partners, to determine consistency with needs of end customers & SC. 2. Pizza hut continually reassess performance with respect to requirements. 3. The best SC performers are more responsive to customer needs, quicker to anticipate changes in the markets, & control costs much better.

2. Supply chain management strategies: Supply Chain drivers of Pizza Hut:

"Supply chain management is the factor that differentiates the winners and the losers in this business," drivers play an important role in terms of the responsiveness and efficiency. We must examine the cross-functinal and logistical drivers of supply chain performance: facilities, inventory ,transportation, information, sourcing, and pricing.

1. Facilities: Facilities are the actual physical locations in the supply chain network where product is stored, assembled of fabricated.The two major type of facilities are production sites and storage sites.As we have seen the ingredients are carried out from different locations across the world so to maintain the same taste through out in india they made four commisionary in Noida , Mumbai, Kolkata, Bangalore where the pizza base is prepared and then transported to different pizza stores. Here it is very clear the they provide the same base which is then customized and appear as a different product so there is a certainty in demand pattern and on the other hand they provide variety also so there is a clear line between the push and pull strategy. 2. Inventory : It encompasses all raw materials, work in progress and finished goods with in the supply chain.As the base is prepared in the commissionaires and then transported to different retail outlets and the outlets keep the inventory stock of only three days because it is the perishable

good so the inventory stock cost is reduced .As only the base is transferred to the store so in case of any particular item demand is increased it do not creates any problem. 3. Transportation : To deliver the base from the commissionery to different outlets the use the refrigerated trucks in which the base is kept and there is a control of temperature which they set according to the distance between the commisionary and the outlets. There are 110 trucks to supply the base across India.There is also a vacant space in which extra base is kept to fill the demand of a particular store. The company will not incur any additional transportation costs so long as the counters are along the highway or the truck's route. In this way they use their transportation and maintain their efficiency. 4. Information: There was no proper medium of coordination between the suppliers and the outlet managers ,due to this the flow of information at times the information was misinterpreted and not correlated this all happened because of no customer database was maintained and outlet manager could not recall the need of customer. There was not a proper inventory control, some outlets receive excess amount of inventory so the cost is increased and they were not able to come across this problem in the absence of proper information system .billing problem, there was a deep problem faced by pizza hut in initial years working of frauds at billing ,of some unusual favours done by staff. To tackle the billing system they made centralized They had built in server storage system ,but due to continuous exponential growth ,the system collapsed because of small storage capability . this system didnt allow any type of centralization in respect of billing process and inventory control. They need such a storage infrastructure which can be scaled up against increasing demand. So at that point of time they went in for a direct attachstorage solution from HP with the capacity of 3tetra bytes. With the daily requirement of data base of about 2 giga byte which was to be stored and maintained ,to scale up the system with demand, in march 2008 Pizza Hut took the call to upgrade its system from Intel xeon environment to intel intaniom based HP integrity based system. Pizza hut developed SAN of 15 tetra byte capacity .the SAN went on floor in 2008 after 1 month of testing ,it has been sized for 3 years keeping in mind of 2 giga byte growth per day pizza hut opted to run its SAP ERP

application on SUSE Linux enterprise server. Based on operating systems prize performance ,reliability and scalability. The ERP environment is hosted in data centre managed by third party specialist and offers extremely high resilience. They customized the SAP software for ccd requirements managed its roll out across the organization and provides support and maintenance for SAP ERP. The software is based on JAVA. SAP ERP plays the crucial role in helping to manage the internal operations and to maintain the extended supply chain. the five SAP server connected to SAN and this is how increased capacity has helped pizza hut increase its oracle data base space. This was how pizza hut managed its data base and keep on inventing ways to maintain ever Increasing data base. But how to know customer preference ,customer contacts ,customer satisfaction ,e-usage to guarantee customer top of the world service. 5. Sourcing : As the Pepporine mozzarella cheese is imported from Australia and Spain respectively so it will take time an increased the cost also so they have to manage but on the other hand to compensate the increased cost they maintain the local supply chain to reduce the cost like vegetables, wheat, tomatoes are imported from India .So they provide the world class facility and taste my importing its main ingredient from spain and Australia but other ingredients from local vendors.

Supply chain strategies:


The fast food chain recounts its transition from early data mining efforts to a project where it recovered the costs of software licensing and started generating revenue. Its ware house is situated in

Bahadurabad. From where they have got all the material except direct one. Its ware house is named as Commissary. All management programs are built on a data warehouse of millions of customer records gleaned from point of sale transactions at its restaurants. They know your favourite topping, what you ordered last and whether you like salad with your meat lover's pie. Much of that has to do with

data mining, a technology that converts details from customer data into competitive intelligence that companies use to predict trends and behaviours. Pizza Hut uses a product called Teradata Warehouse Miner and after a year using it to better manage direct mail campaigns, the chain and its parent company, Yum Brands (Pizza Hut is one of eight restaurants in the group that includes Kentucky Fried Chicken and Taco Bell) are starting to see results. The chain, which is affiliated with Pepsi Corp., first got into the CRM game by using the more than 10 years of order history in its database, consisting of all purchases delivered to households that ordered by telephone. Pizza Hut claims to have the largest fast food customer data warehouse in the world with 40 million US households or between 40 and 50 per cent of the US market. The existence of duplicate households in the warehouse (same family, different phone number) made it difficult to do direct mail campaigns because of higher postage costs. It was also a challenge to target the right homes for a particular campaign and to accurately apply results from a particular mail campaign. In the first year of using the Teradata Warehouse Miner product, manager said Pizza Hut was able to recover the cost of licensing, integrating and training staff to use the product and it made money for the company in the first quarter of use. Manager would not give the dollar value of revenue from using the data mining product, saying the information is now considered critical to the company's competitive advantage. "We made so much money this year on this we're afraid our competition will start using it,"said manager. Using Warehouse Miner meant an improvement in "household uniqueness" from 80 per cent to 95 per cent. While direct mail has traditionally been a breakeven cost centre, Pizza Hut has managed to turn it into a profit centre with increased ROI, manager said, in excess of 200 per cent. Again, precise ROI was not available as it is "confidential."

"We use it to do target marketing and find the best coupon offer for that household. We can profile and segment customer households for groupings according to patterns of past pizza buying behaviours, offer preferences and price points,"" he said. ""We can also use it to predict the success of a campaign." Pizza Hut now tracks not only phone orders, but online orders and can track in real time what commercials people are watching and responding to. By using Teradata Warehouse Miner, all data mining functions run directly inside the database. "A lot of data mining can be sloppy as a result of situations where they are sampling from too small a source and it comes up with conclusions that are too preliminary. With Teradata Miner, you can scan all the data as opposed to sampling," Manager said database vendors are pushing mining into the warehouse and they are doing it so companies can exploit all the technology of data mining from the database. "Pizza Hut is taking advantage of this," The added benefits of in-database mining include minimizing data redundancy, reduced proprietary data structures and simplified data and system management. "You get better results using a larger amount of detailed data. You eliminate the human factor that can lead to potential errors during data movement and samples,"manager said.

Mode of Transportation:

Bikes used in delivery service

Trucks which bring material from ware house to pizza hut

Head office:
Pizza hut head office in Karachi is at Shara-e-Iran.

City
KARACHI

Outlets
Clifton 1 Clifton 2 Zamzama Gulshan-e-Iqbal I.I Chundrigar Road North Nazimabad Sea View Cantt. Station Shahbaz Atrium Mall

Address
QM Building, Plot# BC 15, Block, Khayaban-e-Roomi, Clifton Plot No. GPC-6, KDA Scheme 5, Kharkhar Chowrangi, Clifton 19-C, Zamzama Commercial Lane-9, Phase V, D.H.A 36-B, Hina Centre, Gulshan-e-Iqbal Mitha Chamber, I.I Chundrigar Road D-5, Block-D, North Nazimabad Sea View Cantt. Station 14-C, Lane 2, Kh-e-Shahbaz, Phase 6, D.H.A. 249, Staff Lines, Zaib un Nisa Street, Saddar

Shaheed-e-Millat Road Shop S-104 & Mazzanine Floor, Plot 7/4, block 3, DMC Housing Society, Shaheed-e-Millat Road Rashid Minhas Road Sharae' Faisal M. Ali Society Gulshan Block 7 Nazimabad 2 Korangi (Industrial Area) LAHORE Gulberg Mall Road M-3 Defence Railway Station Johar Town Iqbal Town Barkat Market Gulberg Delco PSO Sunshine Plot No. 8, Block 10-A, KDA Scheme No.24, Main Rashid Minhas Road Shop No. 6, Al-Kamran Centre, Plot # 7-A,Block 6, P.E.C.H.S. Plot No. 12-C, Reliance Arcade, Muhammad Ali Soicety 1-B/FL-6, Block 7, Gulshan-e-Iqbal Opposite Matric Board Office Plot ST-6/4, Sector 24, Chamra Chowrangi, Korangi Industrial Area

89/B-1, Gulberg-III, M.M. Alam Road,Aligarh Chowrangi 73- Mall Plaza, The Mall Fortress Stadium 122-Y, Lahore Cantonment Soceity, Defence Railway Station Plot #15, Block N, Johar Town Block 6, Near Akbari Store, Allama Iqbal Town Barkat Market 8, Power Block, Garden Town 4-E-1, Hali Road, Gulberg 3 PSO Petrolium (Sunshine), Abid Majeed Rd. (Girja Chowk), Cantt.

HYDERABAD ISLAMABAD

Hyderabad Jinnah Super F-7 F-10

Plot # 45, Hotel Indus, Thandi Sarak 13-1, Sector F-7, Markaz, Jinnah Super Market 1-K, Plaza, F-10 Markaz

PESHAWAR

Peshawar

Captain Karnal Sher Khan, Stadium, ShamiRoad, Peshawar Cantt.

Operations/Production:
Pizza Hut estimates demand on daily bases. Demand estimation is based on past experiences where chances of buffer are also considered and 10% buffer ratio is taken. Demand estimation is done through the mutual participation of the managers of the particular outlet. While estimating customers demand, both, the home delivery orders of customers and those customers who used to dine inn, take into account. After the demand estimation, operation process started. From 8am to 11am pizza hut gets open for the production function only. From 11am till 3 at night, customers are welcomed to come in and enjoy their meal. Operation/production includes the preparation of pizza dough according to the estimated demand. The preparation of dough is go through by three different processes. First process includes the addition of different spices and yeast in flour. All the ingredients are measured and followed SOPs to help maintain the same taste at all outlets in all cities. Skilled and trained labor is used to make the whole process speedy and efficient as well as to reduce the lead time of each process. After the addition of spices, in second process, the different sizes of dough is prepared to response the requirements of customers. In third process, dough get baked. All of the three processes include machines and labor both. Each dough is not prepared by a single person but each person is assigned to complete a single task in order to improve efficiency. Till 11am, all the dough get prepared and rest of the pizza preparation process ie, filling, topping and baking, is done after receiving orders from customers. After the order placement of customers, preparation of pizza get started, the preparation time of pizza or the serving time of customers order is max 16 minutes. Whether there are too many customers orders and takeaways, but the pizza huts serving time never exceeds up to 16 minutes. Their ready dough helps them to make the entire customers satisfy in time. Incase of unexpected large number of customers or too many take away and delivery orders, the work is done in a way that one person spreads sauce, other add veggies, other one fills meat and the other person spreads cheese on it and then finally pizza goes in oven. This chain helps to serve customers as quickly as possible. But in normal routine only one person is responsible to prepare a single order (filling, topping etc). The detailed steps in pizza production are given below:

Identify toppings Saucing procedures Using quality rings Layout method overview Placement of Pizza in the oven In-store production, time concept Need to give priority to home delivery tickets Hands-on practice of making pizzas Making half-n-half pizzas, single topping pizzas, special instructions, substitutions,
making

Using the Peak Revenue Period Checklist Explain the service times of all items served by the station Closing of the make table Storage of left over toppings Cleaning procedures Thawing charts usage and placing meats for thawing Tracking wastages on the make table

In pizza hut, here is no inventory left at end. As all the pizzas are prepared as per customers demand. But sometimes, in case of any food festival or food stalls at exhibitions, there may some error occur to estimate the demand of unexpected arrivals of customer. If expected demand is high as compare to actual demand then finished goods inventory may left. At the end the cost has to be paid by company. To cut this cost pizza hut has a straight policy that this ending inventory (remaining pizzas) neither distributed among employees/workers nor stored in refrigerators to resell the next day but directly through into dustbin. The aim is to demotivate workers for producing extra units, keep them not to think that remaining pizzas would be serve to them or they may take away to their homes. The other reasons are to estimate demand more carefully and not to compromise on quality.

Improvement In Supply Chain Performance


Pizza hut has worked a lot to increase the responsiveness towards customers demand. Few years back they had some complaints from the customers, who ordered for home delivery service. Actually the pizza hut claims that where ever you live, your location does not matter, we deliver your order with in 45 minutes to you. For this purpose they have designed their own software system at which they save the data (name, contact number and address) of customers who call at their call centre to order pizza and enjoy the home delivery service. Pizza Hut now tracks not only phone orders, but online orders and can track in real time what commercials people are watching and responding to. After receiving the order from customer, pizza hut let go the bike rider. But sometimes customer complaint that they did not receive their order at the time. This may happened because of traffic jam, in case of accident of bike rider or due to disorder of bike in the middle of the way. To make their customers satisfied with their service, pizza hut found a solution that whatever the sort of, whenever there may some problem occur, the bike rider must has to call at pizza hut and make them aware of the problem. After receiving call from that rider, pizza hut immediately sends the other rider to deliver the order and at the same time call centre connects the call to that customer who is waiting for his desired order, explains him whole situation and requests him for his cooperation and patience (if there may few minutes exceeds up to 40 minutes). By sending another person to deliver customers order, pizza hut now successfully improves the flow of its supply chain process. After the implementation of specialized software they have achieved: Maximum return on their technology investment Provides the fastest time to value Enables them to work with a single vendor to reduce integration and implementation issues Is built by experts on a foundation that expands as their business grows Rapid Time to Value Cost effective.

By this way they have improved their supply chain process.

3. Measures of Supply chain performance: Pizza hut using performance measurement to achieve leadership position & twice as likely to handle a major change successfully. Supply chain strategy must consider the potential trade-offs existing between: 1. Cost 2. Quality 3. Quantity 4. Service But Pizza hut compete on cost and services basis. Their Performance measurement system is link with its all suppliers or traders to achieve breakthrough performance in satisfying the end users.

Efficiency Verses Responsiveness

Responsiveness and Efficiency:


As we have seen that pizza hut open their outlet in bulk in a particular city so they are responsive enough and they provide delivery within 30 minutes or offering it free is also to increase their responsiveness it is difficult to maintain such kind of responsiveness because it will incur extra margin and the profit margin will decrease thats the main reason they open their outlet in bulk and if a particular customer order a pizza where pizza store is not available that store immediately call the nearest pizza corner to deliver that particular order to be responsiveness and if a particular product is not available they use to do transfer in and transfer out in which they take the product from different outlet.

4. Conclusion:
It is wrong to conclude that running a pizza chain is easy by looking its front-end operations. Compared to the complexities involved in managing a supply chain, the promise of pizza delivery within 30 minutes or offering it free is a child's play for pizza chains. "Supply chain management is the factor that differentiates the winners and the losers in this business."

For example, the Pepperoni and Jalapeno needs of Domino's Pizza are flown in from Australia and Spain respectively. Within India, the chain sources other vegetables, including onions, potatoes, tomatoes, etc., from different markets at their prevailing prices. Even cartons are centrally purchased to avail of the benefit of scale.

On the other hand, Pizza Corner imports all its potato requirements from Canada. The other major imports for Pizza Corner are cheese and olive oil. Lately, the company has started sourcing cheese from a Bangalore-based company.

According to Mr. Antoine Bakhache, chief executive, Pizza Corner, imported potatoes land at ports in Mumbai or the Delhi airport. The consignment is then transported to other parts of the country. For the Pizza Hut chain, cheese is imported from New Zealand, while chicken and bread are sourced locally.

Besides ambience and pricing, one of the important attributes of a food service chain is maintaining a uniform taste across all its the outlets. Hence, chains like Domino's Pizza and Pizza Corner have set up commissaries in different cities. While the former has five commissaries, the latter operates four.

The inputs sourced from various places are supplied to the commissaries in reefers/refrigerated trucks for process and production of base material. The pizza dough and other items prepared in commissaries are then sent to the retail outlets again in reefers.

"Based on the distance between the retail outlets and the commissaries, the temperature inside the trucks is fixed so as to set the dough to a required level when it reaches the outlets. According to him, retail outlets have to exhaust the processed dough within three days of delivery. However, due to some reason if they fail to do so, the entire quantity is discarded. The existing commissaries and the reefers will be put to optimum use as Domino's India is now opening counters in Indian Oil Corporation's petrol bunks. The company will not incur any additional transportation costs so long as the counters are along the highway or the truck's route.

Agreeing that there is spare capacity it could be used to carry similar items for other food chains.