Operation strategy assignment kfc

2015

Presented to Dr. Soroosh Saghiri Module -Operations Strategy

Kingston UniversityLondon

Submitted By: Pragnya SahooStudent Id- K1359395

Date of Submission: 2th April 2015

ContentsExecutive Summary......................................................2

Operation Strategy........................................................2

Introduction.................................................................2

Order winners and Order qualifiers.............................2

Competitive Analysis...................................................3

Delights.......................................................................3

The Importance –Performance matrix.........................3

The Operation Strategy matrix....................................3

The four -stage model of operation contribution.........3

Stage -1 – Internally Neutrality.................................3

Stage -2 – External Neutrality...................................3

Stage -3 – Internally Supportive................................3

Stage -4 – Externally Supportive...............................3

Recommendations......................................................3

Conclusion...................................................................3

REFERENCES...............................................................3

Appendices..................................................................3

Appendix-1..................................................................3

Appendix-2..................................................................3

Appendix-3..................................................................3

Appendix-4..................................................................3

Appendix-5..................................................................3

Appendix-6..................................................................3

Appendix 10................................................................3

Executive SummaryThis report analyses the major operational crisis of KFC which led to its fall of brand value and experienced a decline in sales and profit. It critically discusses the different aspects of operational strategy with market requirements, competitive advantages and its performance objective. Operating under the Yum brand, KFC lost the trust of the customers and had faced protest across globe.

The study shows the various areas of improvements using various models and frameworks to renounce into market. The importance –performance matrix is applied to KFC to understand the factors that could impact the customers directly for aligning and organising the resources. The operation strategy matrix helped to discuss various decision areas in KFC by mapping the different performance objective which contributed to market competitiveness. The analysis also uses a four-stage model of operation contribution which describes the various stages of improvements of KFC. The report high lists the importance of CSR value for the brand, enhancing the customer service and creating its brand value. A analysis has been done by using Porter’s five forces to understand the brand from all the aspects. As the frameworks we applied, the recommendations were simultaneously made.

The study shows the unethical usage of antibiotics which is an alarming situation for the brand as well as for its shareholders and stakeholders. This would have a major impact on its sales and profits. The suggestions in the report are made on the basis of providing various allegations faced by the brand. Be it unethical supply chain in china or unhygienic outlets in Australia.

The report was designed by studying and researching various articles from newspapers and books on operation management and operation strategy. Finally the report ends with conclusion and a summarization of recommendation.

Operation StrategyIntroductionKFC, founded in the year 1930 by Harland Sanders, is one of the leading fast food chain of restaurants, headquartered at Louisville, Kentucky, United States. It specializes in fried chicken and is the world’s second largest restaurant chain. (Appendix-1). It is one of the first fast food chain to expand internationally in a very short span of time by opening its outlets in United Kingdom, Canada, Jamaica and Mexico by mid of 1960s. It was very popular brand in the American history of culture,

KFC enjoyed promotional tie ups and corporate sponsorships till early 2000 till, the People for the Ethical Treatment of Animals (PETA) protested against KFC’s poultry suppliers worldwide(Wall Street Journal, 2013)(Appendix-6). This had a great impact on the brand value and its sales.

Order winners and Order qualifiersOrder winners and order qualifiers are the competitive features of any organization that the customers examine before making a purchase. So it is necessary

for a company to analyse the same. The following are the order winners and order qualifiers of KFC.

Figure -1 KFC’s order winners and Order qualifiers

The order winning factors directly has a significant contribution to the success of the business. KFC’s some order winning factors are important than others. For instance, the unique taste of the fried chicken tops the list and makes it an important order winner compared to the location of restaurant.

Competitive AnalysisThough KFC stands the second largest fast food chain in the world after McDonald’s, it faces huge competition from other brands (Appendix -1). They make a differentiation in market because of it unique taste of spices which still remains a secret. Operating under Yum! Brand, KFC continues the dominance compared to its sister brands like Taco bell and pizza hut. However, more than 275 KFC units were closed by 2011 and few

outlets of sister brands were opened (Forbes, 2013). China is one of the major consumer of KFC but it has been facing competitive threats from other brands like McDonald’s and burger King. It has been experiencing a strong impact on its sale from domestic competitors like Laibibao, Zhengongfu, Jijixiaosheng and Yonghe Bean Milk, which has been cannibalizing the exiting KFC stores (Businessinsider, 2013). The future threats for KFC has been predicted as ‘KFC Won't Be 'Eating Healthy' in Future’ (adweek, 2013). This is an alarming threat to the company and its various shareholders.

DelightsThe order winner, order qualifiers and competitive analysis helps to draw out a graph describing how the delights could contribute to a company’s sales, profits and customer service. Adding value to customer experience is considered to be very significant component in today’s business (The Guardian, 2014). An operation starts to perform successfully in terms of its delights, could be very significant. Delights are novel and also adds value to the customers there by improving customer satisfaction. However, delights could be applied at one point of time as they are very transparent to the competitors and could be easily imitated.

Figure -2 Order winners, qualifiers and delights

KFC must focus on its delight as a part of improvement processes. The following are the few delights recommended to KFC:

Keep a track of Anniversary and birthday dates of customers,

Special discount and Complementary cake on special occasions,

Customize seating arrangements for kids and physically challenged customers.

Return gifts on orders over particular amount. Treating kids with small gits like balloons and

chocolates. Surprise customers with free meal after few

number of purchases. For instance if a customer has been visiting the store on regular basis, then he should be given a adds on free after the tenth meal.

The Importance –Performance matrixThe importance –performance matrix is applied of KFC to compare the factors in terms its importance to customers and performance. In Figure-3, each contributing factor is positioned according to its scores and rating.

Figure -3 the importance –performance matrix

URGENT ACTION ZONE

This zone holds very critical factors that impacts the consumers directly. These factors are the major aspects of operation performance contributing to the business. The following explains the factors set up in the urgent action zone:

KFC has been facing challenges over its improper usage of antibiotics in chicken (Wall Street Journal, 2013).It is an alarming situation for the brand has an impact directly on the consumers and also on the business and hence needs an immediate attention.

These days, people are more health conscious and invest a lot in healthy lifestyle. KFC uses a lot of excessive oil in the food items (WSJ, 2014). Even though KFC has a big brand value, it must low down its oil usage to promote its healthy lifestyle.

KFC has franchise all over the world and these franchise work with different suppliers for different raw materials. KFC was highly criticized for working with unethical suppliers who used high amount of antibiotics in chicken. There were protest by PETA in multiple countries like India and the US (The telegraph, 2013). The celebrities like Pamela Anderson, Sir Paul McCartney, His Holiness the Dalai Lama and The Rev. Al Sharpton continue to motivate people not to eat from KFC (www.kentuckyfriedcruelty.com) .This has a direct impact on the business thereby loosing consumers and lowering its sales. Many KFC outlets were forced to shut down. In this scenario, KFC immediately stop their business with such unethical suppliers and give start contacting suppliers who follow ethical way of farming including organic farming.

People are converting into vegetarians to achieve healthy way of life (Dailymail, 2014). KFC must focus on expanding the veg menu depending upon the region. It must start including the local cuisines in KFC style. The vegetarians prefer McDonald’s

over KFC because of the wide range of veg menu (The economic Times, 2013).

THE IMPROVE ZONE

The factors falling in this zone are the non-urgent cases but are necessary for the brand. The following are few of the factors:

Improve the CSR value: The Company should focus in increasing the CSR value to enhance its brand value. The companies with high CSR value has a better image rating there by contributing to its sales and gaining new consumers. This factor is placed at a position where it is important to the customers and also gives a competitive advantage.

Better Layout: The outlets should be redesigned in order to accommodate kids play zone and also to facilitate the physically challenged consumers. The brand should display a great amount of hospitality towards it customers.

Organic farming: KFC must should move towards the organic food and drinks by growing its own organic farms or working with suppliers having organic farms. The trend of consuming organic food and drinks has been increasing from few years. (The Guardian, 2014). Many fast-food restaurants e started organic farming and are attracting lots of health conscious consumers. This factor indirectly impacts the consumer and hence it is placed at a position of a comparatively high importance to the consumers and also at competitive advantage in the market.

Reintroduce Breakfast: KFC is located majorly on high streets, malls and busy areas. The location is an advantage giving it a chance to draw

customers. It should reintroduce breakfast with healthy menu. People love to treat themselves on breakfast that is healthy, quick and easily accessible.

Auditing for quality check: This factor is placed at a position of medium importance to consumers and high rate of performance against competitors. The auditing process should be carried out with the suppliers as well as within the outlets to ensure hygiene and cleanliness. It was reported that

THE APPROPRIATE ZONE

This zone is the minimum boundary zone for the country to perform and satisfy its customers.

Factors like home delivery, drive away, take away contribute to this factors. Also to keep in mind the lead-time of the operations does have an impact on the customers. For instance, Dominos delivers pizza in 30 minutes and pizza hut takes more than an hour to do the same. Consumers prefer Dominos over pizza hut for its quick delivery.

THE EXCESS ZONE

The factors in this zone contribute to excessive usage of resources which could be low importance to the customers but has a high competitive advantage.

Chicken dominates the menu: KFC is known for the chicken recipes which doesn’t give much options to the consumers to select. It must dilute its menu. KFC has a benchmark for the taste of fried chicken. Its secret spices are the main attraction. It should continue to hold the benchmark but should also expand into other options including regional dishes and other meet

products like egg, fish and ham. It must balance its veg and non-veg menu.

Chicken is fried in batches: This factor is an advantage against competitors because the fried chicken is always available in the outlet and helps in lowering the lead-time of the consumers. But it doesn’t do any good to the consumers as it is not freshly fried.

Volume flexibility: KFC stores the frozen chicken in the outlets for a week .Hence there is a weekly supply of chicken to the outlets. This gives them the ability to provide extra capacity at short notice.

The Operation Strategy matrixAfter analysing the various competitive factors of KFC, the focus should be on the decision areas matching the performance objectives. This is done by using the following matrix to collaborate the decision areas, performance objective gaining the market competitiveness. Figure 4 displays various factors which contributes to the intersection of decision areas and performance objectives.

Figure 4. The Operation Strategy matrix

The four -stage model of operation contributionThe four-stage model of operation contribution, designed by Professor Hayes and Wheelwright of Harvard University, captures the organizational aims, expectations and aspirations of the operations function that contributes the ability of any operation to open up market potentials for the organization. This model is applied to KFC as shown in the figure 5.

Figure 5-Tthe four stage model of operations contribution

Stage -1 – Internally NeutralityIn this level, the operation is considered as a ‘Necessary Evil’ because this is the poorest level of

contribution by the operation functions. At this stage, the organization holds back its competitive attitude. The expectations on it are to be internally neutral, a position where the organization corrects its mistakes.

Discontinue working with unethical suppliers Ensure food safety and zero antibiotics in food

Stage -2 – External NeutralityAt this stage, even thought the company does not contribute to competitiveness, it adopts, the industry bets practice and the best ideas from the rest of the industry. This is expected to be external neutral with operation strategy similar to its competitors.

Work with ethical suppliers Increase the usage of organic food Introduce breakfast and heathy food in the menu. Grow organic farms Better layout in stores for kids and physically

challenged customers

Stage -3 – Internally SupportiveAt this stage, KFC might not as good as its competitors but he brand is broadly up to their best. The company tries to achieve this level by clearly understanding its market position and unambiguously the very best in the market. They organize and develop their operations function to be internally supportive.

Enhance customer service delights Regional and vegetarian menu Create better working policy and environment for

the staff Flexible working hours. Contract with ethical suppliers

Stage -4 – Externally SupportiveAt this stage, the company sees the operations functions as the foundation base for its future success. From stage 3, the company has grown in high competencies to place itself in the future market conditions.

Wide range of products at competitive prices. Increase CSR value Highly responsive to the consumer demand and

taste. Bonding with suppliers

RecommendationsOn the Basis of above analysis, the following are the important summarization of recommendations.

KFC faced lot of criticism because of its unethical suppliers who provided them with chickens with high antibiotics. So KFC should start working with ethical suppliers and create bonding with them.

It could also start Master Franchise where all the responsibilities are given to a single franchise. The master Franchise would be solely responsible for all the operations. This helps the brand to focus on other issues rather than concentrating on the supply chain network.

KFC should start growing its organic farms Should have wide range of Veg menu along with

seasonal and regional items. Redesigning the layout to accommodate kids play

zone Increase CSR value

Recycling process and Technology investment to increase efficiency of operations.

ConclusionKFC has a big brand value though it has seen a lot of crisis in the past 3 years. The brand needs to re-establish itself again in market and need to gain customer’s trust. KFC has a great advantage over its secret spices which gave an opportunity to still sustain in the market. Now, it should focus on expansion menu which is tasty and healthy. From the various models used in this report, it can be predicted that, it is very much realistic plan for KFC to bounce back and gain its customers in the market.

REFERENCES

Nigel Slack & Michael Lewis (2008).Operations Strategy.2nd ed. Edinburg: Financial Times.p65-179

Alex Hill & Terry Hill (2009). Manufacturing Operations strategy. 3rd ed. London: Palgrave Macmillan. P73-82

Hill, A .and Hill, T.2011.Essential Operations Management. London: Palgrave Macmillan.

Carol Matlack. (2015). Inside the KFC kitchen. Available: http://www.bloomberg.com/news/articles/2015-03-18/why-did-kfc-let-a-tv-crew-inside-its-chicken-operation-. Last accessed 21st March 2015.

DEBBIE CAI and NATHALIE TADENA. (2013). Yum's China Sales Fall 20% as It Tries to Win Back KFC Customers. Available:

http://www.wsj.com/articles/SB10001424127887324281004578354771518385886. Last accessed 21st March 2015

Trevor Jensen. (2013). KFC Won't Be 'Eating Healthy' in Future. Available: http://www.adweek.com/news/advertising/kfc-wont-be-eating-healthy-future-70651. Last accessed 21st March 2015

Sandra Mu. (2013). Fast-Food Wars: The 10 Big Chains That are Closing Restaurants. Available: http://www.forbes.com/pictures/feji45eeee/kfc/. Last accessed 22nd Mar 2015.

Ashley Lutz. (2012). KFC's Gravy Train In China Could Be Ending Soon. Available: http://www.businessinsider.com/kfc-facing-competition-in-china-2012-10#ixzz3W7Bxd1u5. Available: http://www.businessinsider.com/kfc-facing-competition-in-china-2012-10?IR=T. Last accessed 19th Mar 2015.

Reuters. (2014). KFC admits excessive antibiotics were used in its chicken. Available: http://www.wantchinatimes.com/news-subclass-cnt.aspx?id=20130101000006&cid=1103. Last accessed 25th Mar 2015

Reuters. (2013). KFC Parent Suffers After China Scandal. Available: http://www.nytimes.com/2013/02/06/business/global/kfc-parent-suffers-after-china-scandal.html?_r=1. Last accessed 22nd Mar 2015.

WANG HONGYI. (2012). KFC supplier used excessive additives in chicken feed. Available: http://www.chinadaily.com.cn/business/2012-12/21/content_16038309.htm. Last accessed 14th Mar 2015

COLUM MURPHY. (2013). KFC Criticized Over Suppliers in China. Available: http://www.wsj.com/articles/SB10001424127887324731304578189290798901754. Last accessed 20th March 2015.

KFC. (2014). our-story. Available: http://www.kfc.co.uk/about-us/our-story/. Last accessed 21st March 2015

Lara Morgan. (2014). Five steps to developing an effective sales strategy. Available: http://www.theguardian.com/small-business-network/2013/nov/11/five-steps-developing-effective-sales-strategy. Last accessed 19th Mar 2015

Reuters. (2013). PETA's Campaign against KFC. Available: http://www.kentuckyfriedcruelty.com/. Last accessed 21st March 2015.

Trevor Porter. (2013). KFC animal rights campaigner abandons protest after being pelted with chicken wings. Available: http://www.telegraph.co.uk/foodanddrink/foodanddrinknews/9787462/KFC-animal-rights-campaigner-abandons-protest-after-being-pelted-with-chicken-wings.html. Last accessed 18th Mar 2015

Jenny Hope. (2013). Are vegetarian diets secret to long life? .Available: http://www.dailymail.co.uk/health/article-2335444/Are-vegetarian-diets-secret-long-life-People-avoid-meat-better-health-lower-blood-pressure.html. Last accessed 25th Mar 2015

Writankar Mukherjee. (2014). McDonald's India ready to open first vegetarian-only outlet in Vaishno Dev. Available: http://articles.economictimes.indiatimes.com/2012-09-04/news/33582020_1_restaurant-chain-vikram-bakshi-mcdonald-s-india. Last accessed 21st March 2015.

Appendices

Appendix-1

2013

14.00

3.70 3.20 2.70 2.701.60 1.20 1.20 1.00 0.80

Fast Food Brand share

McDonald's KFC Subway 7-Eleven Burger KingWendy's Taco Bell Dunkin' Donuts Tim Hortons Chick-fil-A

Source: Consumer Foodservice: Euro monitor from trade sources/national statistics

Appendix-2

2008

2009

2010

2011

2012

2013

0.74 0.76 0.78 0.80 0.82 0.84 0.86 0.88 0.90 0.92

0.80

0.80

0.80

0.80

0.90

0.90

World


Appendix-3

2008 2009 2010 2011 2012 2013

3.60 3.60 3.60

3.70

3.60

3.70

World


Appendix-4

Asia Pacific Australasia Latin America North America Western Europe0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

KFC Brand share

2008 2009 2010 2011 2012 2013


Appendix-5

2008 2009 2010 2011 2012 2013

5.20 5.10 5.20

5.906.40

5.10

China Fast Food KFC (Yum! Brands Inc) Yum! Brands Inc


Appendix-6

Appendix 10

Porter’s five forces