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Supply chain analysis of KFC India

Supply Chain Analysis of KFC India.

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Supply chain analysis of KFC India

  1. 1. 1 SUPPLY CHAIN of KFC INDIA TUSHAR SHARMA-150301007 PRANJAL JOSHI-150301005
  2. 2. 2 Contents Introduction:.................................................................................................................................................3 Significance of SCM.......................................................................................................................................3 Objective:..................................................................................................................................................4 Kentucky Fried Chicken.................................................................................................................................4 KFC Corporation........................................................................................................................................4 Food ......................................................................................................................................................5 STP Analysis...................................................................................................................................................7 Segmentation............................................................................................................................................7 Targeting...................................................................................................................................................8 Positioning ................................................................................................................................................9 KFC’s Supply Chain......................................................................................................................................11 Strategic Decisions regarding supply chain drivers: ...................................................................................11 Supplier of KFC........................................................................................................................................12 Logistics model of KFC: ...........................................................................................................................12 Cold storage system in KFC:....................................................................................................................13 Facilities and Warehousing:....................................................................................................................14 Facility processing using JIT ....................................................................................................................14 Information:............................................................................................................................................15 Inventory Management:.........................................................................................................................15 Sourcing: .................................................................................................................................................15 Strategic Fit:................................................................................................................................................16 Performance Metrics ..................................................................................................................................16 ROE (Return on Equity):..........................................................................................................................16 ROA (Return on Asset):...........................................................................................................................17 Accounts receivable turnover:................................................................................................................17 Accounts Payable turnover:....................................................................................................................17 Inventory Turnover ratio:........................................................................................................................18 Summation and Recommendation:............................................................................................................18 References: .................................................................................................................................................18
  3. 3. 3 Introduction: Supply chain management is the systematic and the strategic coordination management for supplying goods and products required by the end customer. Or we can say that a practice of products that reaches to an end user and represents the efforts of the organization is known as supply chain management. It represents a conscious effort by the supply chain firms to develop and run supply chains in most effective and efficient ways possible. Supply chain management exercises cover very nearly everything, for example, from items to its improvement, sourcing, logistics and even data framework moreover. The primary goal of SCM is making net worth, assembling an aggressive framework, synchronize the merchandise supply, measures the execution all-inclusive and utilizing overall logistics and so forth. Today the greater part of the worldwide organizations are compelled to continue searching for a creation focus where expense of work and crude material is modest and to contend in the worldwide market and arranged economy, SCM is extremely useful for associations. Different exercises are there in an association which needs key administration like sourcing of crude materials from better place and after that from distinctive areas these completed products are gone through diverse chains of circulation system which incorporates retailers, wholesalers and end clients. Significance of SCM SCM assumes an essential part in affiliation practices and a vital segment to operational capability which can be associated with purchaser devotion and association's flourishing. You can say that it is much the same as the establishment of an affiliation which manages the segregating issues of the business relationship, for instance, quick improvement of multinational associations, overall augmentation and natural concerns which by suggestion or essentially impacts the corporate method.
  4. 4. 4 Different profits and significance of inventory network administration are:  Reduces stock expenses  Provides better medium for data offering between accomplices  Improves consumer loyalty and administration  Maintains better trust between accomplices  Provides productive assembling system  Improve process coordination  Improves primary concern (by diminishing the utilization of settled resources in the store network)  Increase income  Improves quality and gives higher net revenue Objective: The underlying objective of this study are:- 1. To know the strategies of KFC, what its vision is and how it is trying to achieve its strategic goals. 2. Strategic measures in terms of supply chain. 3. Study the performance metrics of KFC and deduct its strategic supply chain alignment. Kentucky Fried Chicken KFC Corporation KFC Corporation (KFC), established and known as Kentucky Fried Chicken, is a chain of fast food restaurants situated in Louisville, Kentucky, in the United States. KFC has been a brand and operating
  5. 5. 5 segment, called as a concept of Yum Brands, following 1997 when that organization was spun off from PepsiCo as Tricon Global Restaurants Inc. KFC essentially offers chicken pieces, wraps, mixed greens and sandwiches. While its essential focus is fried chicken, KFC additionally offers a line of barbecued and cooked chicken items, side dishes and pastries. Outside North America, KFC offers meat based items, for example, burgers or kebabs, pork based items, for example, ribs and other local toll. The organization was established as Kentucky Fried Chicken by Colonel Harland Sanders in 1952; however the thought of KFC's fried chicken really dates back to 1930. The organization embraced the condensed manifestation of its name in 1991. Beginning in April 2007, the organization started utilizing its unique name, Kentucky Fried Chicken, for its signage, bundling and advertisements in the U.S. as a component of another corporate re-marking program; newer and rebuilt restaurants will have the new logo and name while more established stores will keep on utilizing the 1980s signage. Also, Yum keeps on utilizing the shortened name uninhibitedly as a part of its promotions. KFC India The principal Indian KFC was a two-story outlet on the elegant Brigade Road in Bangalore in June 1995. The organization couldn't have picked a more troublesome venue for its first entry into the country. Bangalore housed the home office of the Karnataka Rajya Raitha Sangha, a standout amongst the most persuasive, vocal and hostile to remote venture agriculturists' relationship in the nation. The main outlet experienced challenges left wing, hostile to globalization and ecological campaigners, and additionally neighborhood agriculturists, who protested the chain bypassing nearby producers. Many Indians were worried about the surge of consumerism, the loss of national independence, and the disturbance of indigenous traditions. The dissents reached a crucial stage in August 1995, when the Bangalore outlet was more than once ransacked. The KFC outlet in Bangalore requested, and got, a police van for all time stopped outside for a year. The outlet was shut on September 13, 1995 by neighborhood powers, who guaranteed the organization utilized illicitly high measures of monosodium glutamate (MSG) in its food. The outlet re- opened a couple of hours after the fact as the consequence of a bid by KFC to the Karnataka High Court. The organization expressed the formula was the same than that utilized as a part of some other KFC store. Rural dissident M. D. Nanjunda swamy asserted KFC would unfavorably influence the strength of the bankrupted, by occupying grain from destitute individuals to make the more productive creature feed. A second outlet opened in Delhi yet was shut by the powers all through November, purportedly for wellbeing reasons, however more inclined to evade a reiteration of the Bangalore incident. The Delhi outlet soon shut forever. KFC started to grow outside of Bangalore in 2004, with a confined menu that was the most far reaching without meat menu over the chain's overall operations. It presented a vegan menu that included rice suppers, wraps and side dishes and, in the same way as McDonald's, served eggless mayonnaise and sauces. By 2008–09, KFC worked 34 outlets in India. In 2014, KFC dispatched the "So Veg, So Good" menu as a feature of an India-particular special system concentrated on improving their vegan ran. Food GRADE A, 100% REAL CHICKEN When it comes to sourcing chicken, getting the highest quality is our top priority. Right from our suppliers’ farms to your plate, each piece of chicken goes through about 34 checks before
  6. 6. 6 you take that bite. And, of course, our chefs add authentic spices, fresh ingredients and a whole lot of love to our 100% real, farm bred chicken. AUTHENTIC RECIPES
  7. 7. 7 Exotic Spices- Vasco da Gama sailed across the world for these, but you just have to walk into the nearest KFC. We select only the most aromatic spices from the spice capital of the world “Kerala” to make sure your food tastes so good. Magical Alphonso- The ‘king of mangoes’ in all its glory! Real chunks of Alphonso is what get blended in your mango burst Krushers at KFC. Pure Rich Cocoa- This perfect mélange of cocoa and crushed ice is sweet and sinful! And that rich and smooth taste you get is the handpicked cocoa from Ghana, blended into a heavenly chocolate sauce that goes into your favorite chocolate Krushers. BEST IN CLASS SUPPLIERS KFC sources only real, 100% chicken. Venky's is the biggest poultry company in India and is widely available with its range of ready to eat product across several retail stores in the country. The group was established in 1971 by the father of the Indian poultry industry, Late Padmashree Dr. B.V. Rao and is the largest fully integrated poultry group in Asia. The pioneering efforts of the VH Group have been well rewarded with several national and international awards. They are also our biggest suppliers of chicken. Operational Strategy of KFC in India They targeted on the below mentioned points as part of their operations in India:- 1. Localization of menu 2. Understood the operational challenges in India which were as important as customer acquisition therefore, built a proactive supply chain. 3. In a country with over a billion people targeting a concept was a concern which they mastered by using pricing, product mix and branding to target young population. STP Analysis Segmentation Demographic Factors: Age: Generally there is no age point of confinement concentrate by the KFC. The target and center is on every last individual in a general public. KFC thinks that it’s biggest demographic is the youth of any society. Sex: Both male and females are concentrated by KFC; sex does not assume any part here. Family unit Size: This assumes a basic part in the demographic component of the KFC. By and large they target entire families instead of single persons. This being the purpose behind their Family Meals which are fundamentally packaged things served at an ostensibly less expensive rate.
  8. 8. 8 Economic Factors Wage: Income is a vital key element for KFC. This component chooses which class is to be focused on. In the early ascent of KFC they concentrated on the high society yet gradually are presenting economy suppers that pull in the lower to working classes. Utilization Behavior: It appraises the conduct of individuals, their liking and dislike towards the valuing of the items. Behavior Factors In behavioral viewpoint they fragmented the business sector on the premise of value, taste and cost. Taking after are the diverse conceivable fragments in this respect: taste cognizant, quality cognizant, class cognizant, and blend of value and quality. Geographic Factors On the premise of the geological variable KFC has partitioned its business sector in two fundamental fragments, urban and semi urban. Political Factors The operations of KFC are influenced by the administration strategies on the regulations of fast food operation. At present government are controlling the showcasing of fast food restaurant in view of wellbeing concern, for example, cardiovascular and cholesterol issue and corpulence among the youthful and kids in the nation. Governments additionally control the permit given for open the fast food restaurant and different business regulation need to take after, for example, for an establishment business. Great association with government in giving common advantages, for example, occupation and assessment is an absolute necessity for the organization to succeed in any outside business sector. Targeting Location Commercialization of urban and sub-urban markets prompting more mid-area individuals that discover top of the line consuming joints exceptionally expensive.. Mid-segment individuals are continually searching for change which KFC gives in their scope of fast food. Quality cognizant – individuals in urban zones are more conscious about the nature and quality of food than people of rural areas. Placement Outlets Because of KFC putting itself near to schools, universities, films and markets which are for the most part populated by the youth and the individuals who are in a hustle, KFC enjoys an expansive number of
  9. 9. 9 footfalls consistently. Likewise, they additionally have outlets near to non-vegans (generally Muslim populated regions). Strategy Given the focused way of fast food joints, KFC utilizes the "Push Strategy" to help them create awareness, be diverse, and sound appealing. Positioning KFC gives importance to the first-level channels in the order: producers, retailers, and consumers. KFC deals with the stream of great operation strategies i.e. "Great Operating Manager→ prompts "Great Team Selection →Good Services → Good Targets → Good. Incomes through the accompanying inner procedures: • Training • Incentive based targets • Recognition for good work • Performance based reward • Employee advantages to keep them motivated Supply Chain Strategy Critical Components of a supply chain strategy are:
  10. 10. 10 Fig.:Supply chain planning at KFC Demand Forecasting Operations Planning Demand Management Demand Forecasting • Combination Forecast:Qualitative +Quantitative • Historical Sales Data +External Factors (Promotional activities,weather factors etc.) Operations Planning • Adjusting Capacity Strategy: Level Production • Making sure of enough stock of ingredients to cover demand in peak hours. Demand Management • Produce-to-stock Model : Producing chicken in anticipation and customers buy as in set meals • Create demand for idle resources:Offering afternoon tea from 2 to 5 pm.
  11. 11. 11 KFC’s Supply Chain A Supply Chain is network of facilities: material stream from suppliers and their "upstream" suppliers at all levels, change of materials into semi-finished and completed products, and distribution of products to customers and their "downstream" customers at all levels. The raw material flows as follows: The information and the money flow in the backward direction. The harmony between these 3 streams is what a Supply Chain is all about. Supply chain operates at its best when there is a balance in the finished product offering. Any significant vacillation in the item requesting ways causes abundance/ fluctuating inventories, deficiencies/stock outs, longer lead times, higher transportation and assembling expenses, amistrust between supply chain partners. This is known as the Bullwhip Effect. Contingent upon the circumstance, the Supply Chain may incorporate significant item components, different suppliers, topographically scattered activities, and both upstream and downstream activities. It is critical to go past one's prompt suppliers and clients to envelop the entire chain. For instance, a diesel motor maker may have the capacity to coordinate a GPS locator framework into its motor control framework. Its prompt client, a heavy vehicle producer, may see no requirement for this usefulness. Be that as it may, the downstream client, a trucking organization with a large fleet, may be very fond of the locator system. Passing the quality to the downstream client is an important part of the SCM process. Strategic Decisions regarding supply chain drivers: A group of interconnected facilities constitute a Supply chain. In this material flow from suppliers and their upstream suppliers at all levels. Materials are transformed from raw stage to semi-finished and then to finished products which are then distributed to the consumers. Money and information will be flowing in the opposite direction. Hence the flow of raw material is as follows: Supplier manufacturer distributor retailer consumer The supply chain management in KFC follows STAR system which includes Quality, Financials, Technical, Communication and Reliability. It gives at most importance to these things which have helped it become one among many successful business models. Supplier Producer Wholesaler Retailer Customer
  12. 12. 12 Supplier of KFC KFC sources only real, 100% chicken. Venky's is the biggest poultry company in India and is widely available with its range of ready to eat product across several retail stores in the country. The group was established in 1971 by the father of the Indian poultry industry, Late Padmashree Dr. B.V. Rao and is the largest fully integrated poultry group in Asia. The pioneering efforts of the VH Group have been well rewarded with several national and international awards. They are also our biggest suppliers of chicken. Venky's (India) Limited is a subsidiary of V H Group, an Indian company that specializes in chicken meat processing, and pharmaceutical products for both poultry and human usage. Logistics model of KFC: KFC uses DRP system as the logistics supply model. The DRP model is: Distribution resource planning (DRP) is a method used in business administration for planning orders within a supply chain. DRP enables the user to set certain inventory control parameters (like a safety stock) and calculate the time-phased inventory requirements. This process is also commonly referred to as distribution requirements planning. DRP uses several variables:  the required quantity of product needed at the beginning of a period
  13. 13. 13  the constrained quantity of product available at the beginning of a period  the recommended order quantity at the beginning of a period  the backordered demand at the end of a period  the on-hand inventory at the end of a period DRP needs the following information:  the demand in a future period  the scheduled receipts at the beginning of a period  the on-hand inventory at the beginning of a period  the safety stock requirement for a period In this system, the restaurant will be reported to the branch distribution center order demand, the latter after an order to the supplier, the supplier delivery to the distribution center, distribution center under the line delivery. This mode of operation of the logistics supply thought to take after DRP, DRP framework incorporates two three info documents and yield plans, in particular: the fundamental interest arranging, stock records, supply the asset document; obtainment plans, appropriation plans. Cold storage system in KFC: Freshness and nutritional value will be retained for the food products if we use the cold storage systems. Hence it forms an important part of the supply chain system. Setting up the Cold chain includes the exchange of best in class nourishment preparing innovations by 'Kentucky fried chicken's and its universal suppliers to Indian entrepreneurs, who have now turned into an essential piece of the Cold chain. The term cold chain explains a network for the procurement, warehousing, transportation and retailing of food products under controlled temperature. 'Kentucky fried chicken's outlets store items to be utilized on a consistently premise, inside a temperature scope of –18ºC to 4ºC. Around 52% of the sustenance items need to be put away under these conditions before they are utilized. All suppliers hold fast to Indian government regulations on sustenance, wellbeing and cleanliness while persistently keeping up 'Kentucky fried chicken's perceived measures. As the ingredients move from farms to processing plants to the
  14. 14. 14 restaurants, KFC's Quality Inspection program (QIP) does quality checks at more than 20 separate focuses vulnerable Chain framework. Setting up of the Cold Chain has additionally empowered 'Kentucky fried chicken' to eliminate operational wastage. Facilities and Warehousing: KFC has a simple supply chain process which can be summed up in three steps. Step1: Raw materials are obtained from numerous suppliers and are stored at two warehouses. The first one is the normal warehouse and the second is the Cold –storage. Step2: All the food items are prepared at the respective branches itself except for marinating the chicken and these are sold to the customers at the branches or are delivered at the requested locations. Step3: Distribution centers renew every branch as per their requirement (generally three times a week) using organization's own particular vehicles and drivers upon the appeal of the branch supervisor. Facility processing using JIT
  15. 15. 15 Information: Supervisor of the store requests the utilization of term-sort requests filled, crude materials into solidified merchandise, dry products, wet merchandise (short time span of usability of bread, vegetables, and so forth.), the quantity of week by week requests are 1,1,2 – 4, Ordering volume= Demand– Inventory. Interest is the buy cycle, lead time and safety stock of, and, requesting the manager considering the historical sales data and promotional activities, or climate variables to compute the turnover of a order cycle, and afterward changed over as indicated by the measure of a huge number of round required the quantity of crude materials. Interest arrangements to structure, set the table, including crude materials, assessed interest, not yet arrived at the volume of the end of the stock, request amount, the measure of assignment of the buy subtle elements, the structure marked by the store supervisor sent to dispersion focus. Inventory Management:  The Inventory method that is followed by KFC is the FIFO method which means the First in First Out process where in the goods that enters the branch first are the ones that are first served to the customers  At the end of each day, the staff of the branch gives the provisions of the inventory of raw material that is left out to the to the registration department. This is an important data which is used in the calculation of inventory. It is also used in costing for the same day.  Inventory cycle starts from receiving the material, storing, preparation, production and serving. It has a buffer inventory of 9 days.  KFC uses MICROS 6.7 version as the ERP system.  In order to manage the back orders, it takes the help of the neighboring KFC branches. Sourcing: Kentucky fried chicken has dependably been focused on sourcing its necessities from neighborhood suppliers and agriculturists. This affirmation is established in the reasoning of their organization's founder. He solidly had faith in common advantages emerging from an organization in the middle of KFC and the neighborhood organizations, hence guaranteeing that Kentucky fried chicken has responsibility to development was reflected by that of its accomplices. In keeping with this conviction, KFC has precisely recognized neighborhood Indian organizations that take pride in fulfilling clients by giving them the most astounding quality items. Adherence to Indian Government regulations on nourishment, well being and cleanliness is currently a top need. Kentucky fried chicken India today buys more than 96% of its items and supplies from Indian suppliers. Indeed their restaurants are built utilizing neighborhood designers, builders, work and most extreme nearby substance in materials. The relationship between Kentucky fried chicken and its Indian suppliers is commonly advantageous. As KFC grows in India, the supplier gets the chance to extend his business, has admittance to the most recent in sustenance innovation, and gets introduction to cutting edge agrarian practices and the capacity to develop or to fare. All their crude materials as well, have affirmations from their suppliers to affirm that they conform to the necessities. With everything taken into account, their dedication to putting "Clients First" in all that we do. To guarantee that all their mainly made items fit in with necessities, KFC actualize stringent inward controls over crude materials, assembling and bundling. They are amazingly watchful to avoid cross defilement with
  16. 16. 16 rottenness or hazardous contaminants amid the capacity, arrangement, taking care of, bundling and transport of our items. KFC additionally stick to best practices to keep up the most noteworthy benchmarks of value and cleanliness. Strategic Fit: There are few key success factors that are very essential in this industry. 1. Location/Number of outlets 2. Extensive menu 3. Price 4. Service/Ambience 5. Taste Threshold Factors: 1. Operations 2. Quality Standards Performance Metrics 2014 2013 2012 Revenue 13084 13633 12626 Cost and Expenses 11268 11339 10811 Operating Profit 1798 2294 1815 SG&A Expenses 3.86 B 3.79 B 3.97 B Interest Expense 247 149 156 EBT 1551 2145 1659 Income Tax 487 537 324 Net income 1019 1597 1319 ROE (Return on Equity): Return on Equity = Net Income/ Total Equity 2014 2013 2012 Net Income 1019 1597 1319 Equity 2229 2253 2250 ROE 45.7156 70.883267 58.62222
  17. 17. 17 From the above table, we can see that the ROE has been inconsistent with increasing in 2013 than in 2012 and then decreasing in 2014 ROA (Return on Asset): Return on Asset = EBT/ Total Assets 2014 2013 2012 EBT 1551 2145 1659 Assets 8695 9013 8834 ROA 17.8378 23.798957 18.77971 Return on Asset ratio is also not consistent Accounts receivable turnover: 2014 2013 2012 Purchases 7519.32 7870.476 7158.066 Account Receivables 319 301 290 ART 23.5715 26.147761 24.68299 We can see that the account receivable turnover has increased for the years 2012 to 2013 but decreased in 2014 which is not a good sign as ideally ART value should be higher which means that you are receiving your money fast. Accounts Payable turnover: 2014 2013 2012 Purchases 7519.32 7870.476 7158.1 Account Payables 1929 2036 2200 APT 3.89804 3.8656562 3.253682 Accounts payable turnover has increased consecutively for 2012, 2013, 2014 which means that KFC is taking longer time to pay its debts which means that it is in good terms with its suppliers which also indicates its good sourcing management
  18. 18. 18 Inventory Turnover ratio: 2014 2013 2012 Inventories 294 313 304 COGS 9501 9852 9140 IVTR 32.3163 31.476038 30.06579 Even the inventory turnover ratio is increasing for the past three years which means that inventory holding days are decreasing which is a good sign. It means that KFC is managing its inventory well Summation and Recommendation: Below are the advantages of SCM which KFC uses: 1. Rapid expansion and strong support for the normal operation of the enterprise 2. Based on the various restaurants on the basis of accurate demand planning procurement strategy makes the company’s inventory costs are greatly reduced 3. Warehouses and distribution centre’s are the central point of the logistics and also information, which uses ERP and other tools, plays a vital role in the KFC success 4. Demand forecasting and other management techniques reflect the high level of enterprise management References: 1. http://www.managementparadise.com/forums/elements-logistics/211413-supply-chain- management-kfc.html 2. http://www.ukessays.com/essays/history/global-supply-chain-management-history-essay.php 3. http://www.yum.com/ 4. http://www.forbes.com/sites/saritharai/2014/11/06/in-indias-crowded-fast-food-market-newest- entrant-burger-king-pre-sells-burgers-online/2/ 5. http://en.wikipedia.org/wiki/KFC 6. http://www.managementstudyguide.com/supply-chain-management-definition.htm 7. http://www.aceanalyzer.com/Analyser.aspx 8. http://kfc.co.in/tastethatyoucantrust/venkys.html

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