KFC - Facility Location and Layout (Operation Management Project).

KFC - FACILITY LOCATION AND LAYOUT Submitted By:

Submitted To: Subject:

Muhammad Muavia Khan

[SP09-MBA-081]

Rehmatullah

[SP09-MBA-114]

Danish

[SP09-MBA-027]

Asad Ullah Azam

[SP09-MBA-021]

Syad Azam Shah

[SP09-MBA-135]

Naveed Abass

[SP09-MBA-108]

Fazan Ali

[SP09-MBA-030]

Mr Tahir Aziz Operation Management

Submission Date:

04/05/2010

Department of Management Sciences

COMSATs Institute of Information Technology, Lahore, Pakistan.

KFC - FACILITY LOCATION AND LAYOUT


COMSATS Institute of Information Technology.

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FOREWORD Great works are performed not by strength but by persistence. Facility location and facility layout analysis is the very initial part of locating new or relocating existing outlets of an organization. Such as KFC (Kentucky Fried Chicken) is the third largest fast food chain with over 12,200 outlets in 99 countries. KFC has maintained its title, for the last 60 years by supreme decision making management. All the facility locations and layouts selected by the KFC are the state of the art KFC because they used the proper methods for facility location and layout analysis of new or existing outlets. Lot of other location around the world is waiting for KFC title.


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ACKNOWLEDGEMENT We are heartily thankful to my supervisor, Mr. Tahir Aziz, whose encouragement, guidance and support from the initial to the final level enabled us to develop an understanding of the subject. Lastly, we offer our regards and blessings to all of those who supported us in any respect during the completion of the project.

TABLE OF CONTENTS

1. Preamble:....................................................................................................................................5


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1.1 Facility Location:......................................................................................................................5 2. Factors That KFC Management Keep in Mind during Facility Location Analysis:.................7 3. Facility Location Techniques:....................................................................................................8 3.1. Method of Factor Rating:.......................................................8 3.2. Cost-Profit-Volume Analysis:................................................11 4. Facility layout: ..........................................................................................................................12 4.1. Factors that influence layout:...............................................12 4.3. Advantage of KFC Good Layout:............................................13 6. KFC Process Layout Map:........................................................................................................15 7. Conclusion And Recommendation:..........................................................................................16 6. Reference:..................................................................................................................................16

1. Preamble:

1.1 Facility Location: Facility location, also known as location analysis, is a branch of operations research concerning itself with mathematical modeling and solution of problems concerning optimal placement of facilities in order to minimize transportation costs, avoid placing hazardous materials near housing, outperform competitors' facilities, etc. Once a firm has decided to open a new facility OR relocate an existing facility,

it

must decide the site where that facility should be located. The selection of location is most important for organization. The business commenced without proper location analysis may have the high risk chances and may not longer compete with other competitors.


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1.2. KFC & Facility Location: KFC Corporation, or KFC, founded and also known as Kentucky Fried Chicken is a chain of fast food restaurants based in Louisville, Kentucky. KFC is the third largest fast food chain with over 12,200 outlets in 99 countries. KFC has maintained its title, for the last 60 years, of being the chicken Experts. Opening the first KFC outlet in Gulshan-eIqbal in 1997. KFC wore the title of being the market leader in its industry. Serving delicious and hygienic food in a relaxing environment made KFC everyone’s favorite. Since then, KFC has been constantly introducing new products and opening new restaurants for its customers. Presently KFC is branched out in eighteen major cities of Pakistan (Karachi, Lahore, Gujranwala, Sukkur & Muree) with more than 60 outlets nation-wide. The outlets comprise of franchises, company owned and affiliated. They used the proper method for facility location and layout analysis of new or existing outlets. Facility location involves the evaluation of various sites for a new facility. Apart from fulfilling our commitment of serving delicious, fresh and hygienic food and at the same time providing our customer with the ultimate entertainment; KFC also plays in the economics development of our country. • Presently KFC has provided to over 1200 Pakistanis, which adds up to 6000 individuals directly dependent in KFC Pakistan. • The Government of Pakistan receives over Rs.10 million per month from KFC Pakistan as direct taxes. • 95% of all food and packing material used in KFC Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. • Each new outlet developed by KFC Pakistan costs approximately Rs.40 million, which is a huge amount for our construction industry. Existing Locations of KFC In Lahore: Cavalry Gound

Defence

Barket Market

Property No. 77, Commercial Zone, Cavalry Ground, Ext Lahore Cantt. For Delivery: Ph: 111-532-532 Chicky Fun Area

160/2, Block 2, Phase-1 LCCHS, Lahore For Delivery: Ph: 111-532-532 Chicky Fun Area

Plot 27 A&B, Ali Block, New Garden Town, Lahore. For Delivery: Ph: 111-532-532 Chicky Fun Area


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Shadman

Thokar Niaz Baig

Mall Road

Plot No. 2, Shadman 2, Jail Road, Lahore. For Delivery: Ph: 111-532-532 Chicky Fun Area

70 - Copra Building, The Mall Road, Lahore. For Delivery: Ph: 111-532-532

GT Road

Opposite Toyota Ravi Motors, Near Shah Pur Interchange Multan Road, Lahore. For Delivery: Ph: 111-532-532 Y-Block

Plot No. 2, Shadman 2, Jail Road, Lahore. For Delivery: Ph: 111-532-532 Chicky Fun Area

171/Y, Commercial Area, Phase III, DHA, Lahore. For Delivery: Ph: 111-532-532 Chicky Fun Area

90-B/1 Gulbarg III, Lahore. For Delivery: Ph: 111-532-532 Chicky Fun Area

M.M. Alam Road

2. Factors That KFC Management Keep in Mind during Facility Location Analysis: There are several factors that influence the Facility Location Decision 2.1. Proximity to Customers: KFC Management during facility location analysis keeps in mind the proximity of target customers and target market, so that the target customer can be approached easily to outlets. 2.2. Business Climate: It is another important factors determined by the KFC during the locations analysis. The location with favorable business environment is selected for the KFC by the management. 2.3. Total Costs: The core objective of the KFC is to select a site with the lowest total cost include land, labor, constructions, taxes and energy cost. By minimizing the total cost they can be able to reduce the product cost. 2.4. Infrastructure: The locations enriched with adequate infrastructure i.e. road, rail, air and sea transportation etc. are ideal for the KFC management.


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2.5. Quality of Labor: The location where the skilled labor is easily available is attractive for the KFC outlets. KFC Management specially determined this factor in mind at the time of location selection because the easily availability of skilled labor can deal with customer effectively and easily. Labor cost decrease due to easily approach to the labor. 2.8. Host Community: KFC management also determined the interest of host community during the facility location analysis. If the host community is in the favors of KFC new project then the project started.

3. Facility Location Techniques: There are many analytical techniques that can be used in facility location decision. Some of these are: 1) Factor Rating 2) Cost-Profit-Volume analysis 3) Center of Gravity Method, and 4) Transportation and Simulation Models. But first two methods “Factor Rating” & “Cost Profit Volume Analysis” are more simple & suitable for KFC Because of easily understandable than “Center of Gravity” & “Simulation Method”. 3.1. Method of Factor Rating: In factor rating method, first we must identify the Most Important Factors in evaluating alternative sites for the new facility. Then we should assign a weight between 0 and 100 to each of these factors. Each alternative location will then be rated based on these factor weights. The most weighted alternative is selected as the best alternative.


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Example: Suppose KFC is considering three alternative sites for its new facility locations. •

Site A. Moon Market

•

Site B. Shadra

•

Site C. Chock Chu Burgi

After evaluating the firm’s Needs, the Managers have narrowed the list of Important Selection Criteria down into three major Factors. - Availability of skilled labor - Availability of suitable Infrastructure, and - Proximity of target customers. Weights reflecting the relative importance of each factor have been assigned as follows:

Based on these criteria, the three Alternative sites were scored between 0 and 100 points:

Now we will multiply each score by its corresponding factor weight: COMSATS Institute of Information Technology.

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Weighted scores are calculated as: (Site Score)x(Factor Weight)

From these results, the largest total weight is for Site A. It appears to be the best location. What happens if we change the factor weights. Lets use the following factor weights: Skilled labor: 0.45;

Raw Materials: 0.40; and

Market: 0.15

Then the following results are obtained:

In this case, Site “C” appears to be the best choice with largest weight score. Therefore, factor rating method is very sensitive to the weights assigned to each factor. Since factor weights, selected factors, and assigned scores are all determined subjectively, the managers should be very careful in selecting these items and numbers.


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3.2. Cost-Profit-Volume Analysis: When the fixed and variable costs for each site differ, Cost-profit-volume analysis can be used to identify the location with the lowest cost. Example Suppose KFC is considering three alternative sites for its new production facility. •

Site A. Moon Market

•

Site B. Shadra

•

Site C. Chock Chu Burgi

The Annual Production Cost associated with each alternative is a linear function of the production volume. That is: Total Production Cost = (Fixed Cost) + (variable unit cost) x (annual production volume) Assume that The expected annual production volume is 250.000 units. And further assume that: (x: production volume = 250.000) For Site A: Prod. Cost = 10.000.000 + 250 x For Site B: Prod. Cost = 25.000.000 + 150 x For Site C: Prod. Cost = 60.000.000 + 50 x Based on these information, Which site has the lowest cost? At a production volume of 250.000 units, site B has the lowest cost, because For Site A: Prod. Cost = 10.000.000 + 250 (250.000) = 72.500.000 For Site B: Prod. Cost = 25.000.000 + 150 (250.000) = 62.500.000 For Site C: Prod. Cost = 60.000.000 + 50 (250.000) = 72.500.000


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This graphic shows that annual production cost changes with different production volumes. -If the expected annual production volume is below 150.000 units, then choose site A. -If the expected annual production volume is between 150.000 and 350.000 units, then choose site B. -If the expected annual production volume is over 350.000 units, then choose site C.

4. Facility layout: Means planning And Arrangement of all machines, utilities, employee workstations, customer service areas, material storage areas, aisles, restrooms, lunchrooms, internal walls, offices, and computer rooms, for the flow patterns of materials and people around, into, and within buildings Infrastructure services such as the delivery of line communications, energy, and water and the removal of waste water all make up basic utilities. 4.1. Factors that influence layout: •

Volume, weight of items to be produced.

• Nature of the service to be provided. •

Cost of the building to house the operation.

•

The fragility of the product or component


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4.2. KFC Facility Layout: Internal & External layout of KFC outlet is attractive and charming all over the world. Ideal color schemes, pleasant lighting outlets, comfortable sitting arrangement, fully trained employees and their proper work division, State of the art interior beautification, speedy & appropriate cooking process, special club/block for kids, etc. are the chief characteristic of the KFC layout.

4.3. Advantage of KFC Good Layout: •

Reduces bottlenecks in moving people or material.

•

Minimizes materials-handling costs.

•

Reduces hazards to personnel.

•

Utilizes labor efficiently.

•

Increases morale.


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•

Utilizes available space effectively and efficiently.

•

Provides flexibility.

•

Provides ease of supervision.

•

Facilitates coordination and face-to-face communication where appropriate.

4.4. KFC Facility Layout Map: KFC fallow about the following facility layout for their outlets round the world.


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6. KFC Process Layout Map: KFC use process layouts because of variability in customer processing requirements. The KFC’s old and new process schematic diagram are presented blow.

KFC Old Process Layout:

Customer Place Order

Cook


Deliver

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Raw Materia l

Assemble

Finished Goods

KFC Modern (New) Process Layout: Customer Place Order

Raw Materia l

Cook

W. I. P.

Assemble

Deliver

7. Conclusion And Recommendation: KFC can progress rapidly by identifying new facility locations and increasing existing target market and facility locations by launching new competitive product chain at minimum cost. KFC’s Unity Drive had a simple but essential message and objective. To bring together the people of Pakistan by promoting in the words of KFC founder, “Unity, Faith & Discipline”. In a time of uncertainty and fear, KFC rose to the occasion and built a platform of solidarity and togetherness for the people of Pakistan. The campaign proved to be a successful initiative in not just providing hope for our patrons, but also allowed KFC Pakistan to take an effective step forward during tough times and entrust other responsive companies to act in a similar manner.

6. Reference: 1. Official web sites. www.kfc.com www.kfc.pk COMSATS Institute of Information Technology.

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KFC - Facility Location and Layout (Operation Management Project).

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