Pizza Hut Supply Chain Management

Introduction

Pizza Hut was founded in 1958 by Dan and Frank Carney. In 1997 it was acquired by Yum! Brands and is currently a wholly owned subsidiary of that company. The main products of Pizza Hut are different styles of Pizza. Other products include breadsticks, garlic bread and pasta. In order to prepare these food items, Pizza Hut has to coordinate with suppliers of different ingredients such as vegetables, chicken and bread. Efficient supply chain management is a critical success factor for Pizza Hut because that is what creates the core competencies that are the sources of competitive advantage for the company. The ingredients are flown in from different parts of the world and therefore information sharing is a critical consideration. In order to ensure that the company meets this objective, the management is committed to the process of total quality management. Success of this process depends on involving the suppliers so that they can understand how their efforts are linked to the strategic focus of the company.

Cultural orientation at Pizza Hut

The restaurant industry is characterized by a considerable level of competitive intensity and therefore businesses have to constantly reengineer their internal operations in order to build and maintain a competitive advantage. It is the same for Pizza Hit and in order to meet this objective, the company has facilitated high involvement of the employees. The management of the company recognizes that the employees are the most important assets of an organization and therefore empowering the employees is a critical success factor. This is a particularly critical consideration for Pizza Hit because its organizational structure is based on a culture of innovation. Therefore involving the employees is an important aspect of the process. Most change management projects fail because of employee resistance. This is so because the process of managing change leads to different work processes and therefore employees have to learn new ways of doing things. However change management using the bottom-up methodology can have high dividends in this regard by minimizing the level of employee resistance by involving them from the very beginning.

One of the strengths of the company is the process of globalization. This process has enabled the company to shift its reliance away from the maturing economies of the West to focus on the fast growing economies of China and India. When it comes to international business, a multinational company has three strategies at its disposal: acquisitions, joint ventures and Greenfield projects. Pizza Hut implements the strategy of Greenfield projects when it comes to entering foreign countries because this strategy enables the company to maintain its specific cultural orientation. This would not be possible under the strategies of acquisitions or joint ventures because in this case the challenge would be to blend two cultures together. This would weaken the cultural attributes of the company. The advantage in implementing the two strategies is that the management has access to more information about the market conditions in the host country. However cultural considerations are more important at Pizza Hut.

One of the important attributes of the cultural orientation at Pizza Hut is that there is a considerable level of delegation of authority (cited in Dess, 2007). As a result, the employees are able to serve their customers as they see fit without having to consult the management every time. This has been possible through the decentralization of decision making authority. This has been a challenge to facilitate because the company maintains globally dispersed operations. Therefore information sharing is a critical success factor. The critical consideration in this respect is to ensure timely availability of information. In order to meet this objective, the company has been implementing advanced information technology systems. This is part of the continuous improvement program that the company maintains. As mentioned before, the success of the continuous improvement program depends on the participation of the employees. However the vision for change is set by the top management. In order to ensure high participation on the part of the employees, the management has built a strong communications infrastructure which enables the management to stay in constant touch with the employees.

Implementing the balanced scorecard methodology

The company’s success in supply chain management has been created by its access to detailed information about the purchase patterns of the customers. Once again this has been made possible by maintaining a state-of-the-art information technology system. In implementing techno-structural change, the management of the company maintains the strategic alignment process. This process consists of alignment between four areas: IT strategy, business strategy, organizational issues and information systems issues (cited in Hill & Jones, 2007). IT strategy is aligned to business strategy in terms of the selection of the IT platform being supported by the financing strategy. After that the management has to consider the organizational issues in terms of the current skills sets. In selecting the right IT platform, the management will have to ensure that its employees have the right skills sets in order to make the new system fully operational. Therefore training and development becomes an important issue. In this respect, the management also promotes an environment of informal learning.

Because the process of change is institutionalized at the company, the management has to invest a considerable level of its resources in maintaining the effectiveness of training and development programs. In this respect, the management of the company also involves the supply chain members in conducting the training and development programs (cited in Grover & Kettinger, 2008). However this has been found to be a difficult process in terms of maintaining cross-functionality of the team attending the programs. As a result the company is now building online training programs in which the channel members can participate in their own free time. However the problem in this respect has been to ensure that expenditures undertaken in training and development are strategically aligned. In order to meet this objective, the company implements the balanced scorecard methodology. According to this methodology, the company is viewed from four different perspectives: financial, customer, learning and growth, and information systems issues. This methodology stresses the underlying interconnectedness between different process chains.

The balanced scorecard is a forward looking performance management system. This is because the implementation of this methodology depends on setting initiatives in the four different perspectives. Therefore, by implementing this methodology, the company tries to predict the future movements of the market and set initiatives accordingly. This is a critical consideration for Pizza Hut because its industry is characterized by a high degree of competitive rivalry. Therefore the industry is in a constant process of change and the management has to maintain a flexible organizational structure (cited in Goetsch & Davis, 2003). As mentioned before, the management maintains a constant process of change and this is facilitated by the flexible organizational structure. However in managing change on a continuous basis, the management has to maintain strict alignment with the strategic focus of the company. This is facilitated through the strategic alignment process. This enables the management to maintain the robustness of the information systems issues.

Managing relations with channel members

When it comes to maintaining relations with the channel members, there are two strategies available: the relationship-based strategy and the transaction-based strategy. Pizza Hut maintains the relationship based strategy (cited in George & Weimerskirch, 1998). In implementing the relationship based strategy, the company focuses on maintaining long terms relations with the channel members. In this respect, the company also shares the cost burden in implementing the information sharing networks with the suppliers. This facilitates timely availability of information between the company and its suppliers. This is a critical consideration given the competitive nature of the industry in which it operates. In this respect, the company maintains a just-in-time manufacturing system. Maintaining viability of this system in the long term means that the company must coordinate efficiently with the suppliers. This is facilitated through sharing of mission critical information. As a result, the emphasis is on implementing the relationship based strategy with the suppliers so that alignment between different organizational cultures can take place and strategic focus is maintained

Sharing of information is a critical consideration when it comes to geographically dispersed operations. This is the situation with Pizza Hut. Because the company operates on a global basis, it has to face a higher level of competitiveness than if it had limited its operations to the domestic market. However the company has an advantage in this respect in that it captures a lot of information at the customer touch points. Therefore, the company has a considerable level of information regarding market trends. This information enables the company to implement the balanced scorecard methodology effectively. As mentioned before, employees are given a considerable level of leeway when it comes to their serving the customers. Therefore the management has to design its training and development programs in such a way as to address changing customer tastes and preferences. The objective of the management in this regard is to create a training program which enables the employees to anticipate customer needs.

The unique selling proposition of Pizza Hut is to create a unique experience for the customers (cited in Evans, 2004). In order to make this positioning strategy work, the management has to focus on personalization of service to the maximum extent possible. This is the reason that empowerment is a critical success factor at the company. In this respect, the organizational culture of the company is essentially built around ensuring ownership, responsibility and accountability. This enhances the motivation level of not only the employees but also the external channel members. Supplier inputs are taken in terms of how to maximize the level of quality control. Since they are involved in the process, suppliers are able to align their efforts to the strategic focus of Pizza Hut. This alignment has also been facilitated through the sharing of information by means of advanced technology. As mentioned before, the company implements online training programs in which the distributors and the suppliers can also participate. This enables them to understand how their efforts can be linked to the strategic focus of the company.

Managing productivity of the channel members

As mentioned before, the management of the company considers its employees to be the most important assets of the organization. This is particularly so when it comes to coordinating with the suppliers. Employees have to interact with the suppliers in setting targets. These targets must be specific and measurable so that the suppliers can assess their own performance. Therefore ensuring the productivity and performance management of the channel members becomes a critical consideration. In this respect, the importance of the communications structure becomes critical. Unless employees can communicate with the suppliers, the process of quality control cannot be maintained effectively. Therefore, maintaining open communications channels with the suppliers is a critical success factor. In this respect, the methodology by which the performance of the suppliers is measured must be communicated to both the employees and suppliers. This objective is met through the implementation of the online training programs.

According to Michael Porter’s five forces analysis, industry attractiveness is determined to a considerable extent by the bargaining power of customers and the bargaining power of suppliers. In the case of Pizza Hut both aspects are unfavorable. However the company has responded to this threat by implementing the relationship-based strategy in maintaining relations with the suppliers. The implementation of this strategy enables the company to reduce the cost of operations at the suppliers. This enables the suppliers to maintain a low-cost process for Pizza Hut. As mentioned before, the key to the success of this strategy is to build an efficient infrastructure for effective sharing of information. This is a critical consideration given the highly competitive nature of the industry in which Pizza Hut operates. As mentioned before, the company has responded to this threat by ensuring the strategic alignment process in its change management programs. This has also enabled the company to minimize the level of employee resistance to change.

Pizza Hut maintains globally dispersed operations. Therefore it has to customize its operations to local cultural attributes. However this process has been simplified to some extent through the global segmentation process which enables the company to identify those characteristics which are similar across political boundaries. This enables the company to develop one single promotional campaign which can be applied in different markets of the world. This reduces the cost of operations. However the company does have to maintain local sources of raw materials and, in maintaining relations with these suppliers, has to pay special attention to the local cultural attributes. In this respect, it is a critical consideration for the company to maintain information sharing networks with the suppliers so that demand forecasts may be shared. As mentioned before, Pizza Hut implements the just-in-time manufacturing system. As a result, it is imperative for the management of the company to ensure that suppliers are able to deliver the needed food items on time. This also means that they have to share the necessary information with the suppliers.

Because of the globalization process, the process of managing productivity of the channel members has become a critical success factor. This is particularly so for Pizza Hut because the company’s competitive advantage is in fast delivery (cited in Fred, 2006). Therefore it has to coordinate closely with the suppliers. Success in this endeavor is directly dependent on the availability of information between Pizza Hut and its suppliers. Once this information has been made available, the suppliers are able to assess how their efforts can be aligned to the strategic focus of the company. The process of performance management is facilitated by the implementation of the balanced scorecard methodology. This is because the balanced scorecard methodology facilitates the development of measurable targets in learning and growth. This is a critical issue in the food service industry because of its highly competitive nature. As a result, both the employees and the suppliers have to maintain a continuous learning process in order to keep pace.

Performance management

As mentioned before, the balanced scorecard methodology facilitates the process of training and development by aligning it to financial and customer related considerations and to internal business processes. Therefore the strategic focus of the company is maintained in the midst of change. However it is not possible for formal training and development programs to cover all potential issues that are likely to arise in the actual business environment. HR managers at Pizza Hut therefore promote the creation of an informal learning environment in which both employees and the suppliers are encouraged to draw upon past experience to solve problems in the present (cited in Baldwin & Curley, 2007). This is a critical consideration for the company because it maintains a continuous process of change in order to maintain its competitive advantage. In this respect, the building of the right cultural orientation is considered to be the critical success factor in terms of creating a sustainable competitive advantage. Sustainability in this respect is a critical consideration because of the high level of competitive rivalry in the industry.

According to Michael Porter’s framework for strategy formulation, a business organization has three strategies at its disposal: differentiation, cost minimization and focus. Differentiation is the process of adding new features to the existing product so that its appeal can be widened to additional segments of the market. Cost minimization is the process of reengineering internal business processes so that the process of resource allocation can be made more efficient. Focus is the process of developing niche market. Pizza Hut implements all three strategies. However the management recognizes that implementing these strategies is not sufficient because competitor organizations can also implement these strategies and thus eliminate the competitive advantage. For this reason, the management stresses the development of an organizational culture which includes the channel members as well. In this respect, the source of the company’s competitive advantage is considered to be core competencies of its employees and suppliers. This means that in embarking on a project of change the management takes inputs from the suppliers.

As mentioned before, most projects of managing change fail because of employee resistance. This problem has been solved at Pizza Hut through high participation of both the employees and the suppliers in the process of managing change. Employees, suppliers and customers are considered to be the most important stakeholder groups and therefore aligning their interests is the most important objective for the company. When it comes to aligning the interests of the employees and the suppliers to organizational interests, the performance management system becomes the critical consideration. It is through the performance management system that the management can transfer information to the employees regarding what aspects of their performance are aligned to the strategic focus of the organization (cited in Armstrong, 2005). This mechanism can also be used in aligning supplier interests to organizational interests. Therefore the process of human resource management becomes relevant in training the employees to use the performance management system.

Unless there is alignment between core competencies and strategic focus, a business organization will not be able to develop a competitive advantage. For this reason, the existence of a communication structure becomes important. It is left to the top management to create a communications structure which can be used to develop an effective performance management system. This is a critical consideration because the processes of a performance management system may not be clear to the employees. In that case employees at Pizza Hut can consult their superiors to seek clarification. This creates a good understanding on the part of the employees regarding the performance management system which is also applied to the suppliers. As a result Pizza Hut managers can communicate with the suppliers regarding how the performance management system is to be applied to assess their performance. In this regard, the maintenance of a knowledge management system is a critical success factor. Suppliers are given access to the system so that they can find out about the latest development in terms of any structural change.

The knowledge management system

Facilitating supplier access to the knowledge management system is a critical consideration because it enables the company to conduct internal benchmarking. Through this process, a list of best practices is developed. The information on best practices in maintained in the knowledge management system which the suppliers can access. As a result suppliers are able to assess the direction of structure developments and consider the possibility of implementing the same strategies in their organizational cultures. However employees have to be encouraged to contribute to the knowledge management system and once again this is an issue of the communications structure of the company (cited in Aaker, 2004). In this respect, HR managers are involved to create the necessary environment because they have cross functional exposure. Therefore the involvement of HR managers is considered to be crucial particularly when it comes to managing change because a cross-functional team has to be put in charge of managing change.

As mentioned before, Pizza Hut implements the balanced scorecard methodology and this enables the management to assess the interconnectedness between different process chains. This means that the management can assess the potential repercussions that change in a particular department can have on the other departments. This is because of the interconnectedness between the different process chains in an organization. In order to address this issue, the management has to create a cross-functional team which consists of members from supplier organizations as well. The process of creating this cross-functional team cannot be standardized because the management cannot anticipate the market changes that will necessitate change. The widespread practice in this regard is to hire an external change management consultant who can ensure that the process is conducted in alignment with the strategic focus of the company. However at Pizza Hut, HR managers are involved in the process as change agents. They have the ability to conduct the process efficiently because they are able to coordinate with the different departments.

Managing change at Pizza Hut is a complicated process because suppliers are also involved. This means that the employees must maintain open channels of communications with the suppliers in order to take their inputs in the matter. Because suppliers are involved in the process, they can start to develop a good understanding of how the internal business processes at Pizza Hut are interconnected. This empowers the suppliers to make their own decisions regarding how their internal business processes can be changed to enhance the core competencies of the company. This process is enhanced through the implementation of the relationship based strategy according to which Pizza Hut bears some of the costs of maintaining information sharing networks at the suppliers. As mentioned before, Pizza Hut essentially promotes ownership, responsibility and accountability in building its organizational culture. The same values are communicated to the suppliers so they can be a part of the organizational culture at Pizza Hut.

Conclusion

The management at Pizza Hut has to pay special attention to supply chain management because without efficiency in this aspect, the effectiveness of its business model will not be workable. The business model of the company is to deliver Pizza in the shortest possible time or to offer it offer. This involves the front-end operations of the company. However the feasibility of front-end operations depends on efficient and effective supply chain management. Therefore the management of the company implements the relationship based strategy with the suppliers in which best practices are transferable between the company and its suppliers. This ensures that the company can maintain uniformity of operational standards across its entire chain locally as well as internationally. This is facilitated through involvement of the suppliers in managing chain so that the strategic focus of the entire chain can be maintained.

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