Dominos

SUPPLY CHAIN PRACTICES AT DOMINO’S

Contents DOMINO’S - INTRODUCTION .................................................................................................................. 3 BUSINESS MODEL.................................................................................................................................... 3 SUPPLY CHAIN LOGISTICS ....................................................................................................................... 5 MARKET SHARE ....................................................................................................................................... 5 Revenue ................................................................................................................................................ 5 BUSINESS UNITS ...................................................................................................................................... 5 CENTRALIZED OPERATIONS OF DOMINOS DISTRIBUTION CHANNEL ..................................................... 6 Application of the prescient distribution planning suite .................................................................... 6 Managing Quick Inventory Turnover .................................................................................................. 6 Concept of Staggered Receiving ......................................................................................................... 7 Maintaining Full Truck Load ................................................................................................................ 7 Outbound Planning ............................................................................................................................. 7 APPLYING LEAN SUPPLY CHAIN STRATEGIES .......................................................................................... 8 EARLIER DECENTRALISED MODEL OF DOMINOS INDIA .......................................................................... 9 THE SUPPLY CHAIN................................................................................................................................ 10 DOMINO’S DISTRIBUTION CHANNELS .................................................................................................. 10 ENABLERS OF DOMINO’S SUPPLY CHAIN.............................................................................................. 11 COMPARISON OF DOMINO’S & McDONALD’S INDIA SUPPLY CHAIN ................................................... 12 FUTURE CHALLENGES AND RECOMMENDATIONS ............................................................................... 13 Challenges ......................................................................................................................................... 13 Recommendations ............................................................................................................................ 14 REFERENCES .......................................................................................................................................... 14 APPENDIX: SUPPLY CHAIN FOR DOMINO’S PIZZA ................................................................................ 15

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DOMINO’S - INTRODUCTION Domino's Pizza, Inc. is an international pizza delivery corporation headquartered in Ann Arbor, Michigan, United States. Founded in 1960, Domino's is the second-largest pizza chain in the United States. Domino's currently has nearly 10,000 corporate and franchisee stores in 60 international markets and all 50 U.S. states. Domino's Pizza was sold to Bain Capital in 1998 and went public in 2004. Domino's menu features pizza, pasta, oven-baked sandwiches, wings, boneless chicken, salads, breadsticks, cheese sticks, and a variety of dessert items.   

Founded in 1960 by Tom Monaghan Second largest Pizza chain in US Around 10000 corporate and franchised stores across 60 nations

The India chapter of Domino‘s began in the year 1996 when the company set up its first outlet here. Jubilant Food Works Limited, a Jubilant Bhartia Group company holds the Master Franchise rights for India, Nepal, Sri Lanka and Bangladesh

BUSINESS MODEL Franchisees are the cornerstone of business model of Dominos. Its 90% of 4900 stores in US are franchisee driven whereas the same ratio is 100% for the 5100 stores internationally. Franchisees are not allowed to pursue other commercial interests. They have a very focused and efficient operating model comprising of delivery and carry-out. Let us now take a look at the domestic (US) & international mode of operations

Domestic

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1. Company owned stores -

These stores provide income for products, operational & technological testing.

2. Distribution Profits -

Ensure quality & consistency

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Leverages purchasing power

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Allows stores to focus on sales & customer service

International

1. Master Franchise Model -

A master franchise can sub-franchise or directly run stores

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Similar store model as US with modified menus

2. World Resource Centre -

Takes care of all the administrative resources for the worldwide system of stores from marketing, accounting to quality

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SUPPLY CHAIN LOGISTICS Logistics is all about managing the flow of materials & information from source to customer. Generally a huge gap exists between the best practice & the average performers. This gap can be bridged by EDI – Electronic Data Interchange: It involves communicating the information effectively to the supplier & order processing can be undertaken simultaneously. JIT Logistics – Just in time Logistics: Under this, it delivers straight to retailers, thus eliminating the goods-inward receiving process The concept of ―integrated logistics‖ is already taking foothold. For the success of the supply chain processes, there are some qualifiers and some winners. Qualifiers will be:     

Cost (purchase price or cost of ownership) Quality (ability of the product to meet the consumer expectation) Lead time (how much the customer has to wait to get the product) Service Level (how consistently is the lead time target being met) Stock Turns (how many times a stock is turned in a given period)

For Domino‘s the major ―winner‖ will be Lead Time.

MARKET SHARE

US Market Share Other 2 national Competitors 27%

Domino's 18%

Revenue There are primarily two major sources of revenue of Domino‘s:

Regional Chains & Independents 55%

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70 % from home deliveries 30 % from OTC sale

BUSINESS UNITS Domino‘s Business Units can be classified into three major categories:

Domestic Stores (US-based)  

4900 Franchised Stores 457 company owned stores

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Domestic Supply Chain  

17 Dough Manufacturing and Supply Chain Facilities One Equipment and Supply Facility

International   

4126 Franchised Stores Currently no-company owned store Six Dough Manufacturing and Supply Chain Facilities

CENTRALIZED OPERATIONS OF DOMINOS DISTRIBUTION CHANNEL Domino‘s has a huge chain of Store Outlets all over the world. It runs a network of more than 8,400 stores all over the world with over 5,200 in the USA itself. In the recent 5 years it has also opened a large number of outlets in emerging markets like India. Servicing these stores with a 24-hour order fulfilment guarantee, so consumers can have fast and reliable delivery service, is a complex task handled by the distribution division of Domino‘s Pizza. The division operates 17 distribution centres that supply all domestic U.S. stores, 90 percent of which are owned by independent franchisees. The Company applies a similar model for operations in other Countries as well. Domino‘s took a major step in supply chain efficiency in 2002 when it centralized inventory management operations at its Ann Arbor, Mich., headquarters. Rather than have each DC manage its own supply chain sourcing and planning, the centralized operation allowed the company to:  Standardize sourcing, planning, inventory management and replenishment across the national network.

Application of the prescient distribution planning suite Just nine planners are able to run the entire distribution operation using software from Prescient Applied Intelligence, a provider of supply chain commerce solutions. The Prescient distribution planning suite that Domino‘s uses includes modules for inventory and demand planning, optimized order management and advanced timephase replenishment. The demand planning piece handles forecasting and promotion planning.

Managing Quick Inventory Turnover The Distribution Centres of Dominos‘ which provide supplies to the store outlets are quite small. Having smaller DCs has helped the company save infrastructure costs. However the challenges are 1. To cater to the large demand of the store outlets with limited space in the DC. 2. To provide fresh supplies each day to ensure that end consumers get fresh pizzas Therefore, the answer lies in having High Velocity as the Domino‘s management puts it. It‘s about attaining a faster inventory turnover which:  Reduces inventory costs  Helps company provide fresh supplies to the stores each day (24 hr cycle time) Page 6

 Helps company to be able to manage supplies with limited space in the DC. This also helps in reducing the infrastructure costs in maintenance of DC. So, each DC holds about seven days of inventory that is turned at least three times during a month and 40 times during a year.

Concept of Staggered Receiving With the help of Prescient‘s development and support team, Domino‘s created a solution called the “matched receipts to demand module” to accommodate the inbound constraints. Before, Prescient would schedule the five weekly truckloads of frozen meat toppings to arrive and load up in one day. But on the next day warehouse labour might have had little to do. But with the new optimized order logic, Domino‘s could load one truck per day – optimized for the most efficient delivery. This way, truckloads contain the amount of product a distribution centre will use in one or two days—not a week. Similarly, other ingredients and supplies such as pizza boxes can ship daily instead of weekly—although the forecasts are still made on a weekly basis. Trucks with smaller quantities operate multiple items, multiple times. The staggered ordering system allows balancing inbound receipts with outbound retail store requirements. This matched receipts to demand module helps maximize the overall supply chain efficiency.

Monitoring Inventory and Real Time Demand The Prescient planning suite monitors inventory and determines when a DC needs product. It optimizes orders by looking at the minimum requirements for each product based on inventory levels at the DCs and on days of supply to meet the minimum requirements that Domino‘s has established. The planning system receives demand signals from the retail stores through the company‘s PeopleSoft enterprise resource planning system and aggregates these demand signals to establish replenishment requirements. It also considers any constraints such as dollar amount per purchase order. The next staged order will consider what was placed on the prior order and go through the same process.

Maintaining Full Truck Load While Domino‘s needs to stagger shipments, inbound trucks must be fully loaded to control freight spend. The system knows the weight and dimensions for each product as well as the volume and weight restrictions of the trucks. Optimization logic builds fully loaded trucks of all the product need for that delivery. The overriding constraint for the planning system is to never run out of product at the DCs.

As planners become more confident in their new model they can reduce distribution centers safety stocks—and cut corporate costs – with no risk of running out.

Outbound Planning Central Planning receives daily orders from the stores via a point-of-sale system or by phone. The Prescient system creates suggested orders for the outbound trucks, and sends

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the data back into the ERP system for execution at the DC. Store orders are filled every night at each DC-this is done to maintain an Order cycle is of 24 hours. The deliveries are made during the following day when store activity is not at the peak. Domino‘s also guarantees its franchise stores first-time delivery accuracy so that the franchisees are able to meet the end consumers demand of chosen pizzas and keep them satisfied.

APPLYING LEAN SUPPLY CHAIN STRATEGIES Creating a lean supply was critical for Domino‘s to reduce waste and inventory and increase yield. As Domino‘s raw materials are perishable it is important to ensure availability of raw materials without wastage of raw materials.

Availability of perishable items

Wastage due to ingredients passing their use by date Each outlet needs around 60 raw materials. The useful shelf life varies widely. Both dough and vegetables should be consumed within days; cheese within weeks, tinned sauces may last months. With just 60 items, manual stock taking is also possible and is undertaken every evening & information is fed into PC. To aid sudden spurt in demand, facility exists to make urgent collection by sending a van to commissary or other nearby outlets. In order to ensure full utilization of trucks, Domino‘s Pizza has taken various steps. For Example, Jalandhar is place where Domino‘s Pizza gets the best quality wheat at lowest price. Thus, from Jalandhar, wheat is transported to the nearest Commissary – Delhi where dough is prepared from the wheat from Jalandhar. Instead of returning the empty truck from Delhi to Jalandhar, Domino‘s found that on the way Chandigarh comes with a cosmopolitan population and is hence a potential market for Domino‘s products. Thus, Domino‘s opened an outlet in Chandigarh. Cost of entry was extremely low as there was a very low additional cost incurred in transportation of products. Domino‘s opened outlets in every potential market that fell between commissary and its prime sourcing base. Similar policy was followed in Karnal where best quality cheese was procured. Superior demand forecasting and long-lasting relationships have also allowed Domino‘s to keep inventory and purchasing costs low. Domino‘s maintains supplier relationships by being one of the largest domestic volume purchasers of pizza-related products such as flour, cheese, sauce and pizza boxes, which allows the company to maximize leverage with its suppliers. Domino‘s also uses a combination of single-source and multi-source procurement strategies. Each supply category is evaluated along a number of criteria including value of purchasing leverage, consistency of quality and reliability of supply to determine the appropriate number of suppliers.

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Results after Lean Application

Source: Domino‘s Pizza

EARLIER DECENTRALISED MODEL OF DOMINOS INDIA Self-contained commissaries

Outlet

Customer

The earlier model of Dominos was a decentralised one. The company had three selfcontained commissaries in the three major cities of Delhi, Bangalore and Mumbai. Each of these three centres procured raw materials such as wheat and vegetables on its own and produced the dough for pizzas. This dough along with other ingredients was then transported to the nearby outlets using a hub and spoke model. The outlets then carried out home deliveries to customers or served them in-store.The problem with this model was that it didn‘t allow for the expansion of outlets and a number of activities were being duplicated. It was felt that to support the future growth of the franchise within India; it was necessary to adopt a more flexible and efficient logistics model.

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THE SUPPLY CHAIN The supply chain of Dominos mainly consist of   

The fast food outlets Domino distribution business Ingredient suppliers

Domestic Stores uses its company-owned stores as a testing ground for new products and technologies which may then be passed onto franchisees. They generate income from company-owned stores in the form of store profits. Domestic Supply Chain is vertically integrated supply system automatic delivery of raw materials cuts out a lot of the ―back ofstore‖ activities. Procurement of raw materials like wheat, baby corn, tomatoes and spices are got, out of which wheat was bought in from Jalandhar and then sent to the commissaries in refrigerated trucks. They have 4 commissaries (Regional Centralized Facilities):    

Delhi Bangalore Kolkata Mumbai

These centres ensure a timely delivery of raw materials and helps maintain consistency in quality. Domino‘s has centralised its purchasing, sourcing, warehousing and distribution of raw materials, as well as the production of dough at its commissaries; this reduces the storage space required at the store level, thus minimizing store operating costs. Because of its centralised sourcing, Domino‘s is able to leverage and monitor strong supplier relationships to achieve the cost benefits of scale and to ensure compliance with its rigorous quality standards. Domino‘s has a requirement for a cold supply chain because it transports frozen foods, which have to be sent at a temperature of minus 18 degree Celsius. It also makes use of refrigerated trucks in which food is sent at a temperature range of between 1 to 4 degrees Celsius. In addition to the movement to and from each commissary, there are intercommissary movements that are regularly required. In the North, approximately fifteen deliveries a month are made to stores in the NCR and approximately ten deliveries a month to outstation stores, which are in excess of hundred in total.

SUPPLIERS Dominos has documented ―Supplier approval procedure‖. Suppliers of food ingredients and packaging agree to a detailed product specification for the products they supply. This is reviewed by the Food Technologist to ensure the product is safe, legal and of consistently high quality. All food products are risk assessed and their production is either audited by the Food Technologist or is certified to the BRC Global Standard for Food Safety. A database of Domino‘s approved products and suppliers is maintained. Quality checks are carried out on delivery, samples sent for analysis or feedback received from stores or consumer. Suppliers are continually assessed in various ways.

DOMINO’S DISTRIBUTION CHANNELS Domino‘s manufacturing and distribution centres are generally located within a one-day delivery radius of the stores they serve. Domino‘s has currently four, planning to add one more distribution centre. They act as a warehouse. Supply is on a regular ‗milk round‘ basis. They have private fleets of trucks and act as supply and support channel for the outlets. Page 10

There is provision for best store equipment and are responsible for delivery of fresh, ready to use ingredients, Installation and Individual store management. Retail Outlets consist of regular stores, Super stores and Express stores: those where people were expected to walk in and order rather than ask for home delivery.

ENABLERS OF DOMINO’S SUPPLY CHAIN  Innovative Strategies

Dominos is constantly innovating process and system improvements to increase quality: the efficient, vertically-integrated supply chain system that allow the franchise owner to dedicate more time to human resource management rather than engage in ―back-of-store‖ activity typical of the industry, a sturdier corrugated pizza box and a mesh screen that helps cook pizza crust more evenly; and the Domino‘s Heat-Wave hot bag, which was introduced in 1998, that keeps pizzas hot during delivery. In addition to its long history of innovations, Domino‘s added a few new innovations: 1) Domino‘s introduced the Pizza Tracker in 2009, for its US customers. Accurate to 40 seconds, this allows the customer keep a track not only of the entire pizza delivery process but also provides information such as delivery truck number, delivery personnel name and number. 2) Domino‘s installed an Order Management System to help automate its purchase order-to-invoice processes and enhance the pizza chain‘s data management capabilities. The new system will allow Domino‘s to develop electronic business relationships with suppliers.

 Supply chain end-to-end visibility Various inventory strategies and using point‐of‐sale data to improve inventory levels and shipping practices has allowed Domino‘s to increase its supply chain visibility. Because Domino‘s Pizza Distribution delivers only to Domino‘s stores, it is both supplier and retailer. That means efficiencies gained anywhere in the supply chain – from better labour and pallet utilization in the warehouse to optimized deliveries – go directly to the Domino‘s bottom line. Domino‘s needed the ability to stagger inventory receipts. For example, the average distribution centre received five truckloads of cheese per week. But because of space Page 11

constraints and shelf life, the centre wanted just one truckload a day for five days – just one order, but spread over five shipments to preserve freshness. As some products have a 14‐ day shelf life, the difference between a Monday and a Thursday shipment can be large.  IT Infrastructure and Customer Relationship Management (CRM) Domino‘s computerized management information systems are designed to improve operating efficiencies, provide corporate management with timely access to financial and marketing data and reduce store and corporate administrative time and expense. Further, Domino‘s added optimized orders and advanced time phased replenishment. Domino‘s manages its data for a more complete, 360-degree view of their customers through CRM applications. A centralised database in the US, for example, allows the company to tailor its direct mail to location-specific requirements. Flexibility is allowed to Domino‘s franchise owners such that each franchise to select its creative offer and then order the pieces. This has cut the order-to-deliver time from eight weeks to two weeks. Domino‘s also installed Domino‘s PULSE, its proprietary point-of-sale system. Some enhanced features of Domino‘s PULSE over its previous point-of-sale system include:    

Touch screen ordering, which improves accuracy and facilitates more efficient order taking; A delivery driver routing system, which improves delivery efficiency; Improved administrative and reporting capabilities, which enable store managers to better focus on store operations and customer satisfaction; and Enhanced online ordering capability.

COMPARISON OF DOMINO’S & McDONALD’S INDIA SUPPLY CHAIN Supply Chain is one of the critical factors for the smooth functioning of any business. And when we are talking about fast food business, Domino‘s supply chain in India can be compared with McDonald‘s. The success of McDonalds India was achieved by sourcing all its required products from within the country. To ensure this, McDonalds developed local businesses, which can supply highest quality products. Today, McDonalds India works with 38 different suppliers on a long term basis and several other stand-alone restaurants for its various other requirements. McDonald‘s distribution centres in India came in the following order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and the latest one in Kolkata (2007). The Domino‘s also operates with 4 commissaries as Regional Centralized Facilities at Delhi, Kolkata, Mumbai and Bangalore. Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it had spent more than six years to get the system into place. The Domino‘s supply chain is also very similar and operates similarly. The procurement of raw materials is also widely distributed on similar lines for both the food joints. The following list of suppliers, who build up the major supply chain of McDonalds, reveal how this ‗Cold Chain’ works and contributes towards the efficiency of McDonalds:     

Dynamix Dairy Industries (Supplier of Cheese) Trikaya Agriculture (Supplier of Iceberg Lettuce) Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of products including Fruit Pies) Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai) Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts) Page 12

The supplier system that McDonalds has is very similar to Domino‘s. In fact, Domino‘s benchmarked from the cold supply chain of McDonalds and created its‘ own in India. The main difference that arises between the two is the Domino‘s commitment for home delivery system. Domino‘s according to its vision lays major stress on home delivery while, McDonalds, as of now delivers only in selected parts of Mumbai. For proper home delivery, Domino‘s has Online Ordering System, Hunger Helpline, Direct Phone Ordering and TiVo ordering systems. It rightly does the brand positioning by ‘30 minutes or free‘ in India. The major components of the delivery system are Delivery Boy, Delivery vehicle, Hot Bags and Pizza Boxes. The Home delivery process:     

The order number and order details are handed to the delivery boy The delivery status is updated in Pulse (Point-of-system for delivery) The delivery boy delivers the pizza The payment is received from the customer The delivered package is updated in Pulse.

FUTURE CHALLENGES AND RECOMMENDATIONS Challenges 1) Rising raw material and energy costs: The prices of the key ingredients for pizza – wheat and cheese – have been on the rise. Similarly, costs of fuel have risen four-fold since 2001. These inflated costs will have a direct impact on Domino‘s profit margins. 2) Increased competition: As demand for Quick Service Restaurants (QSR) increases, so will the competition between the players – McDonald‘s, KFC, Pizza Hut etc. – who currently dominate this segment, as each vie for a larger slice of the market.

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Recommendations 1) Extend use of IT: Technology such as GPS could optimise the time taken and fuel required for deliveries from outlet stores to customers. Further, it could also help Domino‘s map the location of logistics movement from commissaries to outlets. 2) Expand into newer territories: Domino‘s is present across 16 cities in India. In order to address increased competition, it could expand into newer geographies which could be served by existing commissaries. Greater expansion will also enhance the need of additional commissaries. 3) Use a combination of own and third-party vehicles for transportation requirements: Domino‘s can outsource its transportation requirement from and between commissaries to optimise costs. However, inter-city transport, i.e. between outlets and customer destinations, should be handled through a Company-owned fleet. This will not only allow greater control over time taken for delivery but also help Domino‘s use more fuel-efficient means of transportation to save on energy costs.

REFERENCES 

Datamonitor Case Study (March 2009): Domino‘s Pizza (UK), Building from a platform of scale and innovation to grow during recession

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Domino‘s Pizza Annual Report 2009-10 Domino‘s Pizza Inc.: www.dominos.com Jaideep Motwani, Manu Madan, A. Gunasekaran, (2000) "Information technology in managing global supply chains", Logistics Information Management, Vol. 13 Iss: 5, pp.320 – 327

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McDonalds Corporation: www.mcdonalds.com

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Ogden, James R. and Ogden, Denise T., (2005) ―Retailing: Integrated Retail Management,‖ Houghton Mifflin Company

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APPENDIX: SUPPLY CHAIN FOR DOMINO’S PIZZA

Source: Domino’s Pizza Annual Report 2009-10

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