Supply Chain Management in a Quick Service Restaurant Chain
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Transcript of Supply Chain Management in a Quick Service Restaurant Chain
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Supply Chain Managementin a Quick Service Restaurant
EnvironmentThe Burger King System Example
Presented by
George HoffmanRestaurant Services, Inc.
Michigan State UniversityMarch 28, 2006
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Agenda
Burger King System overview BK Purchasing and Supply Chain History
Restaurant Services, Inc
Corporate structure Purchasing Scope
Supply Chain management evolution
From narrowly-focused purchasing toIntegrated Supply Chain Management
Current Industry Challenges
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Burger King History 1954 - Founded in Miami, featuring:
Flame Broiled Hamburgers @ 18 Milkshakes @ 18
1957 - Whopper introduced @ 37 1967 - BK Acquired by The Pillsbury
Company: Purchase Price - $18 million 274 restaurants
1988 - Grand Metropolitan acquires Pillsbury
and subsidiaries - $5.79 Billion 1997 - Grand Met + Guinness = Diageo 2002 - Burger King Corporation goes private 2006 Burger King IPO forthcoming
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Burger King Today
11,200 restaurants worldwide (7,400 U.S.) 90% franchised
50 States; 61 Countries
$11 Billion system sales ($1 million/rest) 340,000 people employed
5.7 million hamburgers sold/day
1.5 million pounds of fries sold/day
7 million customers served/day
59% Drive-thru
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Burger King System Restaurants
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
67 77 86 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02 '03 '04 '05
U.S. International
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BK System Supply Chain
7,400 restaurants (U.S.) 100 Million cases/year
Average 13,000 cases/restaurant/year
400+ Primary Suppliers
High commodity content 27 Regional Distribution Centers
Average 275 restaurants/DC
1 Re-Distribution Center
Premiums manufacturing in China Increasing China sourcing
2 Kitchen Equipment Consolidators
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Supply Chain Value Added(typical restaurant)
RawMaterials
Supplier
ManufacturingFreight
Warehousing
Delivery
Restaurants
+ $60K + $15K
+ $25K
= $350K
$250K
Customers
$1,100K
Freight
= $310K
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Burger King Supply Chain History Pre-1990 restaurant operators purchase their products
from their choice of approved distribution centers All distributors independently purchase products from suppliers The only national distributor is a wholly owned subsidiary of BKC
Restaurant operators independently negotiate terms with the DCs
1990 BKC decision to divest BKC distribution subsidiary
1992 Separation of Purchasing from Distribution Change distribution format from wholesalers to distributors
Create RSI: Consolidation of all System purchasing into amember-owned coop accountable to all restaurants, franchisedand company
Franchisees still choose from among approved distributors 1999 RSI scope expanded to include distribution
contracting
2000-2004 Integrated Supply Chain ManagementSystems development and implementation
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Why Separate Purchasing from theCorporation?
90%+ of restaurants franchised vs companyowned and operated
Corporation cannot require franchisees topurchase under company contracts: inability to
commit franchisee volume Financial model of the Brand owner is differentthan franchisee Top line sales generates royalty Franchisees model of success is individual restaurant
profitability Trust Best for restaurants or best for
corporation? Opportunity to tax system forBrand owner benefit.
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Other QSR Models
McDonalds
corporation department,regional advisory councils
Wendy corporation department
YUM Brands (KFC, Taco Bell, Pizza Hut) Unified Purchasing Coop
Umbrella Board; Brand Boards
Popeye/Churchs Joint cooperative
Subway Independent cooperative Arbys semi-independent cooperative
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Restaurant Services, Inc.
Formed in 1992 Delaware Charter Corporation
Operating Agreement with BKC
Subchapter (T) IRS Status
Not-For-Profit Coop
Net Income Distributed Annually
Patronage Formula
Democratic Governance
Voluntary Membership
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Why Delaware; Why Coop Form?
Delaware offers substantial corporationstructure flexibility
Coop (sub-T) is IRS designation (not
provided for in Delaware law) Allows for no taxation provided:
Democratic governance (one member; one vote)
All net earnings distributed to members viapatronage formula
Members individually subject to taxes onpatronage dividends (1099Div Forms issued)
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RSI Ownership/Membership RSI Membership:
Burger King Corporation
U.S. Franchisees of Record Individuals
Corporate entities Partnerships
Membership is voluntary Members must sign agreement to be
member Eligibility to vote for RSI Board members
Eligibility to receive patronage dividends
100% U.S. membership
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RSI Governance
Established by Charter/Bylaws Governance structure approved by IRS
21-Member Board of Directors 2 elected from each of 9 regions
1 recommended by BKC 1 appointed by Minority Franchise Association
1 independent director, at the Boards option
Regions of reasonably equal number of
members Periodic redistricting required
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RSI/BKC Operating Agreement
Defines BKC/RSI Roles and Responsibilities BKC recognizes RSI as exclusive Purchasing
Agent for restaurants in the United States
Food & Packaging products (ex soft drinks) (4/92)
Equipment and Facilities (4/92)
Premiums (7/94)
Distribution Services (5/99)
No RSI or BKC obligation to take title toProducts
20-year initial term due to expire March, 2012(with 5-year automatic renewal provisions)
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BKC Rights and Responsibilities:
Approve/disapprove suppliers and distributors
Determine Brand standards Define Products (specifications)
Develop marketing programs
Establish quality and safety standards
Ensure supplier & distributor compliance with quality &safety standards
Determine need to recall, withdraw or hold products
Provide RSI timely information on new products and
promotions
Grant Exclusives
Purchase soft drinks
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RSI Rights and Responsibilities:
Negotiate purchasing agreements for all products(except soft drinks) including prices, marketing
allowances and fees, funding and promotionalactivities
Insure timely and consistent availability of products torestaurants
Advise BKC of supplier noncompliance withspecifications
Supervise build-up and balancing of inventory insupport of new product introductions
Develop and implement standard purchasing termsand conditions of supply with approved suppliers
Supervise recalls, withdrawals and product holds
Actively promote utilization of minority suppliers
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RSI Purchasing Scope
$ Mill
Food & Packaging $2,400*
Equipment & Dcor 200
Premiums & SLOs 200
Distribution Services 200 TOTAL $3.0 billion
* Includes soft drinks purchased by BKC
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Food & Packaging Products
* Purchased by BKC
$ Mill % of total
Beef 426 18%
Chicken 285 12
Soft Drinks* 262 11
Packaging 229 9
Fries & hash browns 222 9
Buns 199 8
Dairy 154 6
Ketchup & sauces 104 4
Pork 81 3
Fresh Produce 77 3
All Other 374 15
TOTAL 2,413 100%
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Equipment and Facilities
Kitchen Equipment Broilers - Shake machines - Parts
Fryers - Stainless - Micro
Freezers - Drink equipment -
Lighting Dcor items
Signs
Playgrounds Uniforms
Small wares
POS/BOH
Electronic catalog
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Premiums & Promotion Items 10-12 kids premiums programs/year
200-250 million units
Manufacturing and Logistics contracting
Self-liquidating offer programs (SLO)
Order processing (FOR) China manufacturing
Ocean freight contracting
Inland freight and logistics to U.S. DCs Distribution management to restaurants
Filler inventory management
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Distribution & Logistics
Distribution Service Agreements in U.S. Delivery terms & conditions Performance standards
Data reporting requirements
13 Regional distribution companies 27 distribution centers
Logistics cost management Supplier-distribution center
Least-cost solutions
Redistribution/LTL consolidations
Local Distribution Committee management
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Franchise System Purchasing Challenges
Purchasing services vs actual direct purchasing
Limited ability to commit volume
Multiple stakeholders Brand Owner
R&D Marketing
Operations
Finance
Suppliers
Distributors Franchisee restaurant operators
The Purchasing entity (company or cooperative)
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Purchasing Cooperative Risk Profile
Support of Members and Brand Owner
Perceptions of performance vs actual performance Purchasing performance measurement
Actual cost of goods to restaurant Commodity driven
Specification driven (brand owner controlled) New products (brand owner controlled)
Lead time impacted (brand owner controlled)
Perceived cost of goods (% of sales) GP% = Top Line Sales / Cost of Goods
Other actual/perceived benefits to members Strong advocate for members with Brand owner
Broader access to system performance measures
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Franchise vs Company Owned
Decision making process Company ability to absolutely commit
Franchise limited ability to commit
Relationship management Company limited points of contact with senior
management; clear decision authority
Franchise multiple points of contact, requiresconsensus building
Financial Performance Company EPS reasonably clear accounting rules
Franchise Brand owner vs franchisee ambiguousmeasures depending upon business entity
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BK System Supply Chain
Evolution
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Level 0 Localized/fragmented purchasing anddistribution (BK system pre-RSI)
Level 1 - Consolidate purchasing leverage with existingsuppliers to eliminate excess margins (RSI in 1992)
Level 2 - Get better product prices by sponsoringapproval of new suppliers with lower cost structure (RSIin 1994-96)
Level 3 - Apply longer-term purchasing strategies withthe most competitive suppliers (RSI in 1996-99)
Level 4 Integrated Supply Chain Management - focuson supply chain efficiencies from supplier to restaurant
and electronic commerce (1999-2005) Level 5Value engineering products and delivery
processes; Build commercial reality into allproduction/promotion specifications from concept stage;rationalize supply/distributor network (2005-2008)
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Pre-1999 Purchasing & Distribution
Product purchasing historically fragmented BK-owned distribution subsidiary No centralized authority acting on behalf of all BK
system restaurants
Typically managed by distributors various franchisee involvement
Significant excess/obsolete inventory costs
Distribution Agreements negotiated locally
Promotion Planning limited and fragmented
Key Business Processes sequential vs teamcollaborations
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Go-Forward Objectives (1999)
Develop and implement a cost effective, quickresponse system supply chain that willprovide competitive advantage for BK in theQSR Industry
Improve Supply Chain Performance
On-time deliveries to restaurants
Improved order fill rates
Order lead times and promotion response Effective inventory management
Reduce Restaurant Costs
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Integrated Supply Chain Management
A vision for transformation: To activelymanage the entire supply chain, fromsupplier to restaurant, to improve the
systems efficiency and effectiveness. Enabled by emerging information
technology that allows real-time retail
sales visibility to all supply chainparticipants.
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Integrated Supply Chain Management
Envisions a comprehensive approach to: development of products and suppliers
purchasing of goods
delivery of those goods to the end user predetermined system strategic objectives
and performance standards
ongoing improvement and refinement.
Best Practice implemented by successfulworld-class companies in recent years.
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1999-2004 PlanImplementation
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Focused Plan Objectives Improve overall efficiency and effectiveness of the
BK systems supply chain through new e-commerce technology applications andinformation systems Improve speed to market for promotions & new
products
Improve promotion planning & inventory management Ensure supply through all promotions & new product
introductions
Eliminate excess inventory at the end of promotions
Reduce landed costs to restaurants Reduce restaurant invoice processing costs & errors
Implement distributor performance measurement
Provide RSI members electronic access to food cost
reports
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Data Requirements
Improved supply chain product flow visibility: Supplier distributor invoicing (pre-1999) 14-45 day information lag
Distributor restaurant invoicing (1999-2002) 7-28 day information lag
Restaurant order placement monitoring (2004 target) 3-day information lag
Restaurant daily menu item sales (2004 target) 1-day information lag
All supply chain participants (suppliers,distributors, members, restaurants, BKC and RSIhave access to relevant restaurant sales data
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Supply Chain Response Time
Restaurant
Customer
purchases
Product at
RestaurantDay 1
Distributor Supplier Ingredients
Order placed
To DC - Day 4
Product delivered
To restaurant
Day 7-22-36
DC places Order
to supplierDay 11
Supplier delivers
Product to DC
Day 18 - 32
Supplier orders
IngredientsDay 18
Ingredients delivered
To supplier
Day 25
7-days 7-days
7-days 7-days3.5-days
3.5-days
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Translating Sales to Product Demandon a large scale
Menu Items:
Whopper
Hamburger
Original Chicken Fries - Medium
Vanilla Shake(m)
Soft Drink (s) etc.
Products:
Whopper beef
Burger beef
Volpakketchup
5 Buns
Sliced Cheese
5-Gal BIB
etc.
BK
Recipe
Requires Standard Naming and Numbering
Conventions and recipe translations
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Standard Naming and Numbering
Standardized data naming and numberingconventions are required
GTIN - UCC Standard
Bar-Code capability
Standard numbers already established andcommunicated to all BK suppliers and distributors
Distributors now reporting to RSI with GTIN
Suppliers will report to RSI with GTIN standard next
year
Establishing a GTIN standard for Menu Itemswill facilitate collection & recipe translation
Integrated Supply Chain Management Model
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RawMaterials
SupplierDistributor
Restaurant
Restaurant3
RestaurantOwner
Restaurant2
Restaurant4
ReceiveData
Secure InternetAccess
OrderPlacement
POS
BOH
ISP
Polling
DataWarehouse
Integrated Supply Chain Management Model
Electronic feedback
Data Feeds
Product Flow
Order PlacementElectronic Reporting and Feedback
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2005 Current State
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Current Electronic Data Reporting All distribution centers reporting daily inventory
and restaurant invoice data:
All products
All restaurants
2,100 restaurants reporting daily sales All products and product mix
Menu item unit sales; $ sales and average check
60% of restaurants place electronic orders
Distribution centers electronic reporting servicelevels; on-time deliveries and fill-rates
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Web-Site Access to Product Sales
Daily sales and traffic data updated eachafternoon reflecting previous days activity
Daily promotion sales tracking andmeasurement vs previous forecasts
Regional/local sales and traffic variancesfrom national averages
Daily product mix
Restaurant product landed costs All restaurants All products
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Results: Goal Achievement Lower restaurant landed costs
Supply continuity - no gaps
Minimal/No obsolete inventory
Fewer distribution centers
Improved service levels
Increased supply chain responsiveness New product introductions
Product elimination
Limited-Time Promotions
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Current State: Industry Challenges General Economic Conditions
Labor cost & availability Energy costs product, freight, restaurant ops
QSR maturing industry
Historical rapid growth in sites
Historical slow growth in total QSR sales
Market Share battle
Squeezing restaurant operating margins
Best-Value proposition wins the day Tomorrow may be different
Changing consumer tastes and preferences
E i C A i d
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Health awareness
Obesity Public health care costs
Food Nutrition Calories
Trans-fats
Processed vs natural Consumer choices: reality vs aspirations
Food Safety concerns/intolerance Animal diseases (Mad Cow; Bird Flu, etc)
Food Security Country of Origin and other labeling
Biogenetics
Animal Welfare
Emerging Consumer Attitudes
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The EndRestaurant Services, Inc.