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. Pictorial Supply chain of Pizza hut

c. Adjusting supply chain members capabilities

2. 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 Silver’s under its umbrella. It is the world’s 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 Tommy’s 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 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.

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 : 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.

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 manager’s

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

Indirect Supplier

S1

Pepsi Company

S3First water

(Habib oil Mills)

S2 (Buns)

Bake Parlour

S4

Sauces Company

S5

Meat Market

S6

Mandi (Vegetables)

Commissary

(Ware house)

Daily basis

Weekly Basis

Wednesday

Dough

Filling

Topping

Bake(Cheese melts)

Customer (Pizza Hut)

Delivery Service

Orders

Orders

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 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 ,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 Outlets AddressKARACHI Clifton 1 QM Building, Plot# BC 15, Block, Khayaban-e-Roomi, Clifton

  Clifton 2 Plot No. GPC-6, KDA Scheme 5, Kharkhar Chowrangi, Clifton

  Zamzama 19-C, Zamzama Commercial Lane-9, Phase V, D.H.A

  Gulshan-e-Iqbal 36-B, Hina Centre, Gulshan-e-Iqbal

  I.I Chundrigar Road Mitha Chamber, I.I Chundrigar Road

  North Nazimabad D-5, Block-D, North Nazimabad

  Sea View Sea View

  Cantt. Station Cantt. Station

  Shahbaz 14-C, Lane 2, Kh-e-Shahbaz, Phase 6, D.H.A.

  Atrium Mall 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 Plot No. 8, Block 10-A, KDA Scheme No.24, Main Rashid Minhas Road

  Sharae' Faisal Shop No. 6, Al-Kamran Centre, Plot # 7-A,Block 6, P.E.C.H.S.

  M. Ali Society Plot No. 12-C, Reliance Arcade, Muhammad Ali Soicety

  Gulshan Block 7 1-B/FL-6, Block 7, Gulshan-e-Iqbal

  Nazimabad 2 Opposite Matric Board Office

  Korangi (Industrial Area)

Plot ST-6/4, Sector 24, Chamra Chowrangi, Korangi Industrial Area

 LAHORE Gulberg 89/B-1, Gulberg-III, M.M. Alam Road,Aligarh Chowrangi

  Mall Road 73- Mall Plaza, The Mall

  M-3 Fortress Stadium

  Defence 122-Y, Lahore Cantonment Soceity, Defence

  Railway Station Railway Station

  Johar Town Plot #15, Block N, Johar Town

  Iqbal Town Block 6, Near Akbari Store, Allama Iqbal Town

  Barkat Market Barkat Market 8, Power Block, Garden Town

  Gulberg Delco 4-E-1, Hali Road, Gulberg 3

  PSO Sunshine PSO Petrolium (Sunshine), Abid Majeed Rd. (Girja Chowk), Cantt.

 HYDERABAD Hyderabad Plot # 45, Hotel Indus, Thandi Sarak

 ISLAMABAD Jinnah Super F-7 13-1, Sector F-7, Markaz, Jinnah Super Market

  F-10 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

customer’s 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 SOP’s 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 customer’s order is max 16 minutes. Whether there are too many

customer’s orders and takeaways, but the pizza hut’s 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 pizza’s are prepared as per customer’s

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 customer’s 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 customer’s 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:

For home delivery 40 minutesFor regular customers 20 minutes

Order fulfillment lead time

Supply Chain Responsiven

ess

70% but errors are not from our side they are from their side when they want to order something

else and ordered else.

Perfect order fulfillment

95%Delivery performance

Supply Chain Delivery Reliability

PerformancePerformance

Metric

Performance

Attribute

SCOR: Customer Facing

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 that’s 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.