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One of Yum's key initiatives to create and sustain their competitive advantage is through the use and effective management of its supply chain. There are numerous supply chain benefits that firms may gain through business such as increased annual supply chain cost reduction benefits, improvements on efficiency, commitment, and flexibility, and a general cost savings in revenue due to these enhancements. Firms can improve on customer service initiatives and retention through the assistance provided by supply chains. Firms can have access to instant on demand resting inventory, inventory in transit, and have overall less reliance on inventory. E business allows firms to access the global economy and the supply chain of e-business helps speed this process. The ability to source and sell globally, easily, and efficiently is a critical success fact or for most firms. Supply chains in e-business adds value, visibility, and velocity throughout the firms operations. It is important that Yum continues to effectively manage the supply chain relationships that it has for cooperation and trust. Firms can have numerous vendors, suppliers, etc throughout the supply chain for their organization. It is important that the existing services, integrity, and customer relationships be maintained and not hindered, or even become broken because of the supply chain. As companies continue to grow, the supply chains can multiply and further segment and fragment. Some firms may consider cutting out intermediaries and maintain a more direct route with the client. Today's partner in a supply chain could become a competitor in the future, so it is important to build and regularly review all relationships within the supply chain. This helps continue to build and maintain value and trust among all parties involved. An important step within this process it to analyze all risks so that these relationships and other issues might be mitigated. Economic cycles and technological developments should be considered as they also can play a part in relationships and the supply chain.
This study will detail out chicken and how its used throughout the supply chain processes of KFC. This review will discuss its inception to final production. All references to KFC's supply chain process for this aspect of chicken should partner with the attached process map at the end of the study. To study this aspect of chicken it is important to study in detail the functions and processes of supply chain management and its key characteristics.
Changes and Issues of Chicken
Over the past ten years, chicken has become a more widely used, widely regulated, and widely controversial product. That said, this aspect in KFC's supply chain management process has become more important as it is the most important part of its business. Chicken is the second most eaten meat product globally. With this the case, specific analysis of the supply chain suppliers and producers, along with the JIT and delivery processes, must be in line to provide such product for the demand. Given its relatively decreasing price, this causes demand to rise. External factors such as beef production, rising cost of beef and other meats, also drives the demand of chicken up, therefore decreasing supply. Other factors to consider are the regulatory requirements for chicken production and handling. Over the past ten years as technology has increased, bird production can be enhanced with the use of steroids and hormones. This yields much controversy today as many people are raising health concerns, questions, and often now want free range or all organic grown birds. KFC must take into account these concerns while managing its supply for its stores. These concerns also have a direct affect on supply and demand of chicken.
Another consideration that KFC must analyze is that of chicken's use. Not only is the chicken being used for pure meat production, its also being used for further growth of other chickens, feed, and fertilizer. KFC must analyze its suppliers and providers within its supply chain that it is partnered with to ensure that its partners abide by YUM's set code of Ethics. This ensures that partners are growing, producing, and exporting its chickens in an acceptable manner, and therefore, KFC and YUM will not have bad publicity or the like manner from producer's miss use.
Supply Chain Detailed
Supply chain management (SCM) is the combination of art and science that goes into improving the way a company finds the raw components it needs to make a product or service and deliver it to customers. Supply chain management is important in business. The term SCM comes from a picture of how the organizations are linked together as viewed from a particular company. Many companies have enjoyed significant success due to unique ways in which they have organized their supply chains. "Planning supply chain operations is a critical activity for the success of any organization. Operational plans may be delayed and that will impact on the strategic plans for the organization. Delays in sourcing or procuring supplies of raw materials, work-in-progress, components, finished goods and merchandise for resale would cause underachievement of revenue budgets and affect period profitability. " (Hines, 2004).
The measures of supply chain efficiency are inventory turnover and weeks of supply. Efficient processes should be used for functional products and responsive processes for innovative products. This alignment of supply chain strategy and product characteristics is extremely important to the operational success of a company.
Companies that face diverse sourcing, production, and distribution decisions need to weigh the costs associated with materials, transportation, production, warehousing and distribution to develop a comprehensive network designed to minimize the costs.
There are the five basic components of SCM. Planning, Sourcing, Making, Delivering, and Returning.
This is the strategic portion of supply chain management. One needs a strategy for managing all the resources that go toward meeting customer demand for a product or service. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers.
Choose the suppliers that will deliver the goods and services one needs to create a product or service. Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And put together processes for managing the inventory of goods and services one receive from suppliers, including receiving shipments, verifying them, transferring them to its manufacturing facilities and authorizing supplier payments.
This is the manufacturing step. Schedule the activities necessary for production, testing, packaging and preparation for delivery. As the most metric-intensive portion of the supply chain, measure quality levels, production output and worker productivity.
This is the part that many insiders refer to as "logistics." Coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments.
Create a network for receiving defective and excess products back from customers and supporting customers who have problems with delivered products. In these five basic components the "sourcing" becomes the most significant one, which inter-links all other components. The objective of sourcing is the identification and selection of the Supplier whose costs, qualities, technologies, timeliness, dependability and service best meet the firm's needs.
Strategic Sourcing is a systematic process that directs a Supply manager's plan, to manage and develop the supply base in line with a firm's strategic objectives. It is the application of current best practices to achieve the full potential of integrating suppliers into the long-term business process.
It is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs. In order to achieve JIT the process must have signals of what is going on elsewhere within the process. This means that the process is often driven by a series of signals, JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency. Some have suggested that "Just on Time" would be a more appropriate name since it emphasizes that production should create items that arrive when needed and neither earlier nor later.
Quick communication of the consumption of old stock which triggers new stock to be ordered is key to JIT and inventory reduction. This saves warehouse space and costs. However since stock levels are determined by historical demand and sudden demand rises above the historical average demand, the firm will deplete inventory faster than usual and cause customer service issues.
JIT emphasizes inventory as one of the seven wastes (overproduction, waiting time, transportation, inventory, processing, motion and product defect), and as such its practice involves the philosophical aim of reducing input buffer inventory to zero. Zero buffer inventories means that production is not protected from exogenous (external) shocks. As a result, exogenous shocks reducing the supply of input can easily slow or stop production with significant negative consequences.
Safety stock is a term used to describe a level of stock that is maintained below the cycle stock to buffer against stock-outs. Safety Stock or Buffer Stock exists to counter uncertainties in supply and demand. Safety stock is defined as extra units of inventory carried as protection against possible stock outs. It is held when an organization cannot accurately predict demand and/or lead time for the product. For example, if a manufacturing company were to continually run out of inventory, they would need to keep some extra inventory on hand so they could attempt to meet demand while they were producing more inventories.
Safety stock can be utilized as a tool for a new company to judge how accurate their forecast is in the first few years. Especially when used strategically with a materials requirement planning worksheet. With an MRP worksheet you can judge how much you will need to produce to not need to rely on your safety stock. However a common strategy is to try and reduce your safety stock to help keep costs low, which is extremely important to companies with not much financial room to grow, or those trying to run on lean manufacturing.
A lead time is the period of time between the initiation of any process of production and the completion of that process. Thus the lead time associated with ordering a new car from a manufacturer may be anywhere from 2 weeks to 6 months. In industry, lead time reduction is an important part of lean manufacturing.
To obtain inventory control, you must first have records. Secondly, you must have some way to activate these records so that intelligent use can be made of them. The burden of record keeping should not be allowed to become paramount. The important thing is the action taken on the records, not the records. Thirdly, one person should be given the authority to control inventories for a given number of items. He, of course, will work within the frame-work set up by top management as to the desired inventories to be carried, but within this frame-work there is a great deal of leeway and, by smart requisitioning, he can do much to obtain lower inventories. Achieving lower inventories means the saving of dollars. And, after all, profits are what people are after in business. By keeping inventories in balance, he not only reduces the amounts carried but puts the company in a much more flexible position. In modern industry ability to change is important. The inventory control group has the responsibility to see that for its part the company is always ready to meet this ever-changing sales picture.
Sourcing to Delivery
In a global company producing over one hundred million branded items everyday, the Supply Chain makes a major impact on success. So a career in Supply Chain offers a wide range of opportunities and a lot of responsibility. Our Supply Chain manages all stages of the process known as 'plan, source, make and deliver' - from sourcing raw materials to ensuring that products are delivered in time to keep supermarket shelves and cabinets well stocked. Here are some of the roles you could play at each stage:
Manufacturing takes place in either own or third-party factories and has two sub-processes: processing and packaging. The challenge here will be to ensure products and packaging is made as efficiently as possible and helps factories adapt to changing consumer needs. The manufacturer will be responsible for you'll be responsible for designing, building and maintaining high-speed production lines.
If we closely observe the processing practices at KFC, the most significant aspect is to keep the food hygienic. Major portion of the process consists of the cooking of chicken and fish which is being done on continuous basis, huge fryers are used for cooking chicken and fish on large scale, after frying these are placed in preheated glass ovens.
A company may hold inventories of raw materials, work in process or finished products for a variety of reasons. Inventories can serve to hedge against the uncertainties of supply and demand or to take advantage of economies of scale associated with manufacturing or acquiring products in large batches. Inventories are also essential to build up reserves for seasonal demands or promotional sales. Inventories management problems are characterized by holding costs, shortage costs and demand distributions for products specified at a detailed stock keeping unit levels.
Sourcing is the front end of the Supply Chain. It is concerned with both raw and packaging materials. Astute sourcing of materials and goods can greatly reduce costs. Here you'll be responsible for managing the interface between our suppliers and our business, including contributing to the rollout of new product innovations. Sourcing improves the value we receive from suppliers. Vendor development can be defined as any activity that a buying firm undertakes to improve a Supplier's performance and capabilities to meet the buying firms' supply needs.
Outsourcing involves the transfer of the management and day-to-day execution of an entire business function to an external service provider. The client organization and the supplier enter into a contractual agreement that defines the transferred services. Under the agreement the supplier acquires the means of production in the form of a transfer of people, assets and other resources from the client. The client agrees to procure the services from the supplier for the term of the contract. Business segments typically outsourced include information technology, human resources, facilities, real estate management, and accounting.
KFC chooses suppliers all over the world for its dry and other items but KFC generates its 70 to 80 percent suppliers for its various items within the country, mainly its chicken requirements fulfilled by local farmers, for drinks it selects Pepsi, the logistic support provided by the local firm and its own automobile fleet. KFC also generates its suppliers within the country and tries to make stronger and enhance their capacities to pace with. The ultimate goal behind the outsourcing is to make more profits and to develop a comprehensive network designed to minimize the cost. Ultimately, managing this process within the supply chain allows YUM brands, and specifically KFC, to maintain and sustain a strong competitive advantage.
For suppliers, YUM brands has specific code of conduct policies that each supplier must abide by. "Suppliers are required to abide by all applicable laws, codes or regulations including, but not limited to, any local, state or federal laws regarding wages and benefits, workmen's compensation, working hours, equal opportunity, worker and product safety. Yum also expects that Suppliers will conform their practices to the published standards for their industry." They further state, "KFC has had an animal welfare policy for a number of years. In 2000, KFC adopted specific, comprehensive welfare performance standards for processing chickens and audits its suppliers against those standards. As shown below, KFC's processing guidelines and audits are designed to manage and monitor each step of the process to determine whether the birds supplied to KFC are handled humanely and any suffering is minimized. KFC audits its suppliers for compliance, and non-compliance could result in termination of the supplier's contract. KFC's policies for its suppliers apply to all chicken intended to be sold to KFC." (KFC, 2010).
KFC and Supply Chain Risks
Several external factors can be considered risks for KFC when analyzing its supply chain management practices. These can include nearly every process within its supply chain as a peice of chicken moves throughout. Farmers and other lead suppliers can have a bad batch of chickens which can prohibit enough supply for stores. Suppliers of oil, breading, spices, and other raw materials can miss production also inhibiting stores from fully producing products. Local employees could miss work (although not a major risk for supply chains), but does need to be considered. Transportation processes could be limited due to faulty equipment or weather conditions. Governmental regulations could also affect the growth, production, and shipment of chicken to KFC facilities.
This study analyzed the aspect of chicken and its movement throughout the KFC supply chain. As the process map details, KFC must analyze several factors of the supply chain including external providers to internal factors such as distribution and final production. Supply and demand does play a major effect in KFC's supply chain management processes, and numerous external factors and risks have a direct effect on this. From the study, KFC is utilizing numerous local suppliers, has a stringent code of ethics and supply policy, has a detailed animal welfare policy, and is ensuring that detailed analysis and planning is being conducted on all areas of its supply chain. This management is yielding the company better profits, customer and stakeholder satisfaction, and therefore is increasings its bottom line.