Formalised Sales & Operations Planning (S&OP)– KFC Case Study

Elizbe Rohde

Implementation Project Manager

KFC Supply Chain Manager (South Africa)

Agenda

• About KFC

• Complexity in QSR

• The Project

• Lessons Learnt

Did you know the following about KFC?

Sell 400+ tons of chicken per day which to give a visual representation, is equal

to the weight of 57 fully grown elephants (1.3m birds/ week)

57x

Total Weight of KFC Mash sold per year equivalent to 2 Boeing 747’s (total

dressings will fill up an Olympic sized swimming pool)

2x

Add Hope feeds 100k children per day, enough to fill Ellis park stadium

Yum! is the parent company of the brands KFC, Pizza Hut and Taco Bell

which is the largest restaurant company in the world with ~41k restaurants in 125

countries

KFC’s Original Recipe® chicken is still prepared to Colonel Sanders’ exact

standards, using the secret blend of 11 herbs and spices he perfected back in

1940

Proud heritage in South Africa for the past 40 years with ~800 restaurants (~120 in the rest of Africa). Voted the most loved fast food brand in South

Africa for the last 16 years

Agenda

• About KFC

• Complexity in QSR

• The Project

• Lessons Learnt

QSR Store Dynamics differ to other industries and the way in which we need to forecast

Clear Menu Item Trends

• 800 Stores with similar menu items and trends (not multiple brands) sold directly to consumers• Products sold directly to consumer with immediate consumption vs. buying for future use results in

clear POS sales data and trends• Significant growth from new stores (40 opened in 2014), forecasting needs to consider volume and

store growth - forecast on Weekly Per Store Average (WPSA)• Different store types i.e. breakfast stores• Different menu types which include Permanent Items and Limited Time Offers (LTO’s) which adds

additional complexity• Need to consider abnormal activities in the past that affects forecasts such as strikes impacting

supply

Easter Christmas

Large component of Limited Time Offers (LTO’s) or Promotions that have a high level of uncertainty

• LTO = Promotion running for 7 – 15 weeks• Combination of unique and existing

ingredients• Unique lifecycle: Need to balance out-of-

stock vs. write-off’s through planning• Challenge: All ingredients on time in stores

with high level of sales uncertainty which is greatest within start-up and growth phases

• Consideration to impact on permanent items (cannibalisation on other items)

LTO: Menu Item LTO: Ingredients

New Menu Item

Unique Ingredient (significant impact)

Existing Ingredient (limited impact)

Menu Items are converted via a BOM to Ingredients

1 Bun

15g Sauce

6 Doritos

10g Lettuce

1 Fillet

BOM Menu ItemIngredients

• Menu Items are assembled from ingredients based on the Bill of Materials (BOM) or recipe • Forecasting is based on menu item store sales• Menu item sales are converted through the BOM to ingredients and gives a view of ingredient sales out of

the store• Ingredient sales out of the store is compared to ingredients sales into the store from the 3PL supplier• Ingredients to Menu items have a one-to-many relationship

Agenda

• About KFC

• Complexity in QSR

• The Project

• Lessons Learnt

Why the need for a formalised Sales & Operations Planning (S&OP) process and system that balances supply and demand

The importance of Planning to bridge the gap between Strategy and Execution

TACTICAL SUPPLY CHAIN PLANNING

Plan supply Match demand and supply Plan demand

Return

OPERATIONAL EXECUTION

STRATEGIC PLANNINGSTRATEGIC PLANNING

Plan Source Make Deliver Sell

KFC South Africa S&OP journey and the way forward

20142013

Sustain the achievement and prepare for the next step to be a best in class

organisation

Complete/ In Progress

Next focus areas

No S&OP Processes and

ad-hoc LTO Planning

Bi-Monthly DemandPlanning (with

Excel based LTO’s)

2015 2016 Time

Value

S&OP for all items with supplier sharing and 3PL replenishment (LTO’s &

permanent)

Integrated Business Planning

Extend to New Africa Markets

We are here

Select & Implement Planning System

S&OP for current & upcoming LTOs (with

Planning System)

A formal S&OP process and system allowing KFC to be more pro-active and flexible with 3 main objectives

Planning

Forecast-ing

Finance & Marketing

Maintain good stock availability (involving less

effort) especially with increased marketing

complexity

Improved Supply Chain control and pro-active

forward visibility

Increased visibility on permanent items (not only

focused on LTO’s)

1

2

3

Main Objectives

Supply Chain, Suppliers & 3PL

Re-align supply with changing

demand

Stock Availability &

Write-Offs

Actual vs. Forecasted

Demand

We set detailed sub-objectives to guide our journey and the implementation of the project

Good stock availability

Reduced effort to plan (increased automation and fewer resources required)

Improved Supply Chain control

Pro-Active visibility of supply issues (LTO & permanent)

Supplier & 3PL plans

Forecasts and plans for permanent items (not current)

Actual vs. Forecasted Demand

Improved storage capacity planning visibility

Better write-off management

Integrated BOM management

Current Future

Planning for the KFC South Africa Supply Chain

3PL 5 DC’s 800 KFC’s100 Suppliers

Supply Planning Demand Planning

What the next level in the maturity curve required given the multi-layered Supply Chain

Store Supply ChainSource: Deliver: MakeStore Supply Chain

Source: Deliver: Make

3PLSource: Deliver

3PLSource: Deliver

Supplier Supply ChainSource: Make: Deliver

Supplier Supply ChainSource: Make: Deliver

Plan 1 week ahead

Forecast LTO’s Nationally

New Process

Old Process

Forecast all menu items at regional level (some by store)

Forecast and plan all ingredients by DC & Supplier

Menu ItemsConverted

through BOM to Ingredients

… with a tailored system

InterfaceMaster Data

Forecasting ToolDemand Planning

Open PO’s & Planning

Parameters (lead time, minimum

order quantities)> 3PL System

Stock on Hand (SOH) from

> 3PL System

Ingredients/ DC Sales

> 3PL System

BOM (recipe info) > KFC System

Menu Item/ Store Sales

> KFC System (POS)

Reports and data extraction

Statistical and consensus

forecast by week for menu items and ingredients

Suggested purchase orders for ingredients by DC and supplier within constraints

Sales History (weekly)

SOH, PO’s, Planning Parameters (daily)

Planning ToolSupply Planning

In Summary

Planning (Supply Plan)Forecasting (Demand Plan)

Store Sales

Sales

INT

ER

FA

CE

Menu Item Forecasting (by Region, LTO by Store)

Ingredients Forecasting (by DC)

DC and Supplier Planning for Ingredients

BOM CONVERSION

S&OP Process

1

2

3

4

Agenda

• About KFC

• Complexity in QSR

• The Project

• Lessons Learnt

Choose the right service provider in accordance with your requirements

Sample of Key Clients Barnton Competitive Edge

• Significant advanced forecasting & planning experience

• Blue chip SA (incl. international) clients

• Only planning systems vendor with local QSR experience (i.e. Famous Brands)

• Highly recommended by SA Supply Chain practitioners

• Flexible, configurable systems

• “Simple” advanced planning system (not “overkill”)

Strong project management and a rigorous approach with strong governance is a critical success factor

20

Project Charter

Governance & Stakeholder Management

Approach & Timeline

Project Plan

What worked well and what didn’t

What Worked Well Areas for Improvement

• Interface effort and complexity underestimated

• Data cleansing effort underestimated

• Clearly defined scope i.e. BOM module development

• Availability of key stakeholders

• Implement consensus S&OP (Demand Planning) process prior to systems implementation

• Project leadership very involved in understanding and guiding solution design

• Strong project manager with good methodology & governance

• Good buy-in through Cross Functional Team and stakeholder involvement and communication

• Choose the right demand & supply planning solution with flexibility to tailor for KFC specific functional needs

• Defined new roles and responsibilities in line with S&OP process (one new role)

• Hands-on training with KFC’s real data and on-the-job coaching

Since formalising the S&OP process, write-off spend has reduced by ~60% whilst doubling the number of promotions

7

10

14

0

2

4

6

8

10

12

14

16

0

100

200

300

400

500

600

700

2012 2013 2014

Th

ou

san

ds

Promo Performance: Execution vs Write Off (ZAR)

Write Offs Promos

Effective write off cost per promo has been improving

0

2 000

4 000

6 000

8 000

10 000

12 000

14 000

16 000

2013 2014

Out of Stock Occurance at Order Line Level

… and Out of Stocks at DC’s have reduced by 48% (despite 6% volume growth in the last year)

48%

Our journey has already yielded benefits, but at substantial effort (permanent items on auto-

pilot)

Q&A and Contact Details for more information

For more information please

contact:

Thinus HermannImplementation PartnerBarnton ConsultingMobile: +27 (0) 79 502 7515Email: thinus@barnton-consulting.co.za

Elizbe RohdeImplementation Project ManagerKFC Supply Chain Manager (South Africa)Landline: +27 (0) 11 790 9149Mobile: +27 (0) 82 416 7029Email: elizbe.rohde@yum.com