SUPPLY CHAIN MANAGEMENT

ASSIGNMENT-I

SUPPLY CHAIN MANAGEMENT OF PIZZA HUT

Submitted by:

PALASH JYOTI SAIKIA

M(M)/10/1876

NATIONAL INSTITUTE OF FASHION TECHNOLOGY, CHENNAI

MASTER OF FASHION MANAGEMENT – II SEMESTER
BATCH 2010- 2012
Supply Chain Management

There are multiple definitions found for supply chains in literature. According to the Supply Chain
Council, a definition of a supply chain is: "The supply chain – a term now commonly used internationally
– encompasses every effort involved in producing and delivering a final product or service, from the
supplier's supplier to the customer's customer". The series of companies (actors) that interact for this
producing and delivering is what will be called supply chain here. The actors are connected through the
flow of products, the flow of information and the flow of money. Another definition is given by D.
Simchi-Levi, E. Simchi-Levi and Kaminsky, who state that supply chains are flexible, dynamic and
complex networks of organizations [Simchi-Levi et al., 2003].

From this description, the image of a supply chain in general is provided. The actors are connected
through the flow of products, flow of information and the flow of money. In the figure above, a general
supply chain model is illustrated. The blocks represent the organizations/companies that handle the
products and add value. The choice for the term supply chain is unfortunately because it leads to
confusion. "Chains" evoke linear, unchanging, and powerless images. "Supply" feels pushy and reeks of
mass production rather than mass customization. Better names like "demand network" or "customer
driven webs" have been proposed. Yet, the name "supply chain" seems to have stuck (Johnson & Pyke,
2000).
The picture below gives a more accurate description of a demand network (Coyle et al., 1996).

The term supply chain management is relatively new in literature, appearing first in 1982 by Oliver and
Webber. Supply chain management is viewed by many as a highly novel management concept, but
comparison with earlier work reveals similarities. The fundamental assumptions, on which supply chain
management rests, are significantly older (Cooper et al., 1997).

Supply chain systems were regarded as channels of distribution. From this perspective the focus of
channel management was on making each firm in the distribution channel more efficient and productive.
Each firm operated on its own, seeking to make the highest profits with little attention paid to its channel
counterparts (Lancioni, 2000).

More recently, many manufacturers and retailers have embraced the concept of supply chain management
to improve efficiency across the value chain (Tan, 2001). The original use of the term supply chain
management emphasized a reduction in inventory both within and across firms, which the logistics
manager was confronted with, but that initial perspective has been broadening (Keith & Webber, 1992).

COMPANY OVERVIEW
Pizza Hut is one of the flagship brands of Yum! Restaurant Int. which also has KFC, Taco Bell, A&W
and Long John Silver’s under its umbrella. It is the world’s largest pizza chain with over 12,500
restaurants 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 Tommy’s Parent Friendly Awards. "Pizza Hut is known for quality, innovation and category
leadership.

PIZZA HUT INDIA

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 over
40 per cent per annum. Pizza Hut now has 95 outlets across 24 cities in India; and employed nearly 4,000
people 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
own Kentucky Fried Chicken, Pizza Hut, Taco Bell, A&W and Long John Silver’s 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.
Pizza Hut is believed to have close to 50 per cent market share of the organized pizza-retailing segment in
India. According to an article in Financial Express, the market size of the pizza segment is around US$ 87
million and currently growing at the rate of 15 per cent to 17 per cent per annum. According to Pizza Hut
sources, most of their outlets are financially successful, encouraging further expansion. In India, the
average investment for each outlet is US$ 275,000-335,000 and is borne by the franchisee.

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

C : Cleanliness
H : Hospitality
A : Accuracy
M : Maintenance
P : Product Quality
S : Speed

Pizza Hut strictly follow the norms to attain the quality product .They have adopted the best 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.

Ingridents of Pizza:
· mozzarella cheese
· pepperoni
· sauce
· base
· potato
· vegetables
· wheat
· baby corn
· spices

Products of Pizza Hut :

· Pizzas
· Pastas
· Soups and salads
· Desserts

Outsourcing the Ingredients:

ITEMS PLACE

Wheat : Jalandhar(Punjab)
Cheese :Karnal, Haryana
Tomatoes : Bhubaneshwar, Orissa
Spice : South India
Baby corn : Nepal
Pepperoni : Australia
mozzarella cheese : Spain

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.

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.
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.

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.

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 didn’t 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 –attach- storage
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, usage to guarantee customer
top of the world service.

Sourcing:

As we have seen above that 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.

Pizza and logistics?

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
refers. "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 in the reefers that could be used to
carry similar items for other food chains.

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.

SUPPLIERS:
Direct Suppliers
• Pepsi
• Cremica Group (Buns)

Indirect Suppliers
• Meat market
• 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 manager’s table also. Than production of pizza
according to order starts and they deliver it within 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”

Logistics & storage:

1. Snowman Frozen Foods provides cold storage facilities

2. 16 warehouses & 110 Trucks
3. Equipped with Carrier & Thermo King transport temperature control unit
4. Cold storage capacity is between 100 tones & 1200 tones.

Ware house:

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. 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 favorite 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.

Developing the local supply chain:

The local supply chain for Pizza Hut was developed by Yum! and currently 95 per cent of the ingredients
they use are locally produced. They now import very few specialty items like pepperoni.

Leveraging the India Advantage:

International brand with an Indian heart
Pizza Hut is one of the first international pizza chains with purely vegetarian dine-ins at Chowpatty
(Mumbai), Ahmedabad and Surat, which also serve Jain menus. Pizza Hut has even opened two all-
vegetarian restaurants in the western state of Gujarat to cater to the Jain religious community, whose
members prefer not to eat at places where meat is served.

Offering more than the international menu:

International food chains typically offer only a few localized products in other parts of the world.
However, Pizza Hut’s local menu is as large as the international one. According to Pizza Hut, the Indian
food heritage is very rich, and hence Indians like local flavors. The Tandoori range of pizzas, which was
developed locally, has a menu mix of over 20 per cent.

Indigenous sourcing of raw materials:

Pizza Hut has reduced costs through indigenous sourcing of raw material. It has tied up with a local
company Dynamix Dairy Industries Ltd (DDIL) for sourcing mozzarella cheese. The landed cost of
imported mozzarella comes to US$ 3.3 - 3.5 per kilogram. The domestic price, however, works out to
US$ 2.99 - 3.1 per kilogram. Pizza Hut is adding to the bottom line by localizing equipment as well as by
paying attention to inventory replenishment, which has been reduced from 60 to 30 days.

LOCATIONS IN INDIA: Pizza Hut, India has 137 restaurants across 36 cities
Distribution:

Pizza Hut uses three different methods of selling its products directly to the market:

 The first method of distribution used by Pizza Hut is Home. Office delivery. Customers can call
Pizza Hut ahead of time, place an order, and the order is delivered to the customer's home.

 Another method of distribution is for customers to dine-in. Customers can go to the nearest Pizza
Hut, place an order and either leave with the order or eat at the restaurant. One of Pizza Hut's
 largest competitive advantages is its restaurant style facility. Pizza Hut offers a clean place to sit
down and enjoy the variety of pizzas, salads, and sandwiches in a fun, family atmosphere.

 The third method of distribution is to order Online. Selective County Customers can now go on
the Internet and place an order for Pizza.This method is useful because it allows customers to
view the entire menu, download any special coupons, and order without having todisclose any
credit card numbers.

REFERENCES:
 http://www.pizzahut.co.in/
 http://agribusinessmanage.blogspot.com
 http://www.slideshare.net
 http://www.gscg.org
 http://www.amritt.com