Zaxby’sAn Inquiry Into

TOC & Lean Thinking

MGMT 4250 - BlackstoneNovember 21st, 2013

Logan RodmanBrandon AddingtonSean DelagrangeSabrina Alanis

Zaxby’s

History 1990: Zach McLeroy & Tony Townley

The market for fun fried chicken was lacking in Statesboro, GA

They decided to take advantage by providing quality wings and

fingers

They consolidated money and opened first Zaxby’s in college town

of Statesboro

It was a hit! Soon the demand was so great that they had to franchise

just to keep up

They set up headquarters in Athens, GA and began serving their

licensee family

Zaxby’s

Principles Mission: “Consistently create encore experiences that enrich lives one person at a

time.”

Corporate Vision: “Guest-Focused Growth”

Growth through Increased Guest Loyalty

Growth through Developing Talent

Growth through Increased Velocity

Growth through Expansion

Core Values:

Guest-Focused – Our success is linked to satisfied guests. We will keep the guest at the center of everything we do.

Develop Talent – We recognize that people are our most important asset. We strive to attract, motivate, recognize and develop the best, most diverse talent possible.

Operational Excellence – We execute our systems with excellence. We strive to achieve the highest quality possible in everything that we do.

Continuous Improvement – We deliver what we promise, but strive to deliver more than is expected. We will embrace change when it allows us to improve excellence.

Why Zaxby’s?

“We believe our culture is the soul of our brand. From the beginning, Zaxby's has been known for having just the right “combination of great food, a comfortable vibe, and fun people that care about each other.”

Zaxby’s

Leadership

Zach McLeroy – CEO & President

He's been the only CEO since the Zaxby's concept began.

An Athens, Georgia, native, Zach is also an alumnus of the

University of Georgia in Athens.

Tony Townley – EVP & Co-Founder

Tony Townley is one of the "founding fathers" of Zaxby's.

Tony is responsible for the overall fiscal health of the company.

Robert Baxley – COO

Blake Bailey – CFO

Zaxby’s

Profile Fastest-growing chicken chain in the

country

Full-service restaurants in

freestanding buildings that provide in-

store seating and drive-thru windows.

The average restaurant is 3,300 to

3,800 square feet.

Suburban or rural locations with

excellent visibility and access, as well

as strong residential and daytime

populations driven by office, retail

and university environments.

Zaxby’s

System Constraint

Capital Resources:

Without ample funds it is difficult for Zaxby's to expand. While discussing

the issues that Zaxby's is currently facing, we realized how many of their

problems revolved around a lack of capital, which is difficult in an industry

full of wealthy firms. (e.g. McDonalds, Burger King, Taco Bell) The amount

of money that is spent by these firms greatly dwarfs the amount spent by

Zaxby's. Therefore, all of our analysis has revolved around dealing with

issues that help to mitigate or eliminate the problem of having insufficient

capital.

Zaxby’s

1) Systems Goal: “Consistently create encore experiences that enrich lives one person at a time.”

2) Performance Measures: Sales, Labor Cost, Labor Turnover, Avg. Hourly Pay, Food Cost, Stock Vale, Best Selling Items, Sales Per Head, Total Customers, Seating Efficiency, Improvement trends, Quality trends, Development of the workforce

3) Constraint: Capital Resources – Lack of centralized capital resources due to disintegration of capital to franchise level

4) Exploit: Zaxby's Franchising, Inc., actively seeks highly qualified individuals to become Licensees.

5) Subordinate: Prior business experience, financial qualifications, motivation, team spirit and a track record of personal success are all important factors in the evaluation process. Collective net worth of at least $700,000, with liquid assets greater than $400,000. Pass Background Check. Guarantee Obligations. Commitment within 60-90 days of signing agreement. Belief in guest service.

6) Elevate:a) Advertising Cooperatives – Local advertising cooperatives make it possible for a handful of stores to

generate the impact of a major national chain.

b) Purchasing Power – Clout within supply chain reduces cost, boosting profits.

c) Innovative Product Development – Marketable food items invoke consumer excitement, and thus sales.

d) Training – Initial Training Program, Licensee Managed Training Program (ZLC System), Ongoing Coaching

7) Constraint Broken, Return to Step 3: Now that we have broken the constraint, new ones will appear.

Managing Constraints

Zaxby’s

UDE’s1) Zaxby’s sells tangible products requiring a physical location, and is

currently only established in the southeastern United States.

2) The product selection has historically only been chicken based products.

3) The main focus has always been a localized approach at food service.

4) It is hard to monitor and control widely dispersed franchises.

5) Local franchises lack top-down direction and backing.

6) The recent trend of increasing concerns around food-related health risks results in backlash against the fast food industry.

7) It is difficult to retain quality workers while paying low wages that are in line with industry standards.

8) Fiscal and human resources are disintegrated at the local levels, effectually stemming national growth.

9) Zaxby’s experiences limited success, sustainability, and outreach.

10) A gap exists between Zaxby’s being a local establishment and a nationally known brand.

11) Zaxby’s lacks capital and resources.

12) It is difficult to expand while remaining a privately-held company.

Zaxby’s

Current Reality Tree

12. It is difficult to

expand while remaining a

privately-held company.

Core

Problem

11. Zaxby’s lacks capital

and resources.

8. Fiscal and human

resources are disintegrated

at local levels, effectually

stemming national growth.

3. The main focus has

always been a localized

approach at food service.

10. A gap exists between

Zaxby’s being a local

establishment and a

nationally known brand.

4. It is hard to monitor and

control widely dispersed

franchises.

5. Local franchises lack

top-down direction and

backing.

7. It is difficult to retain

quality workers while

paying low wages that are

in line with industry

standards.

1. Zaxby’s sells

tangible products requiring

a physical location, and is

currently only established

in the southeastern U.S.

.

2. The product selection

has historically been only

chicken-based foods.

6. The recent trend of

increasing concerns around

food-related health risks

results in backlash against

the fast food industry.

9. Zaxby’s experiences

limited success,

sustainability, and

outreach.

Leading UDE

Zaxby’s

Evaporating Cloud #1

More central control of franchise

operations and strategy.

More autonomous franchise

owners with the authority to set

strategy and local restaurant

persona.

Tighter control over operations

opens potential for kaikaku and

sets stage for kaizen. Allows for

transformative change without

local obstacles

Less corporate micromgmt of

franchisees allows more time for

brand-wide strategy. More

autonomy empowers licensees.

Licensees act like employee, are

heavily invested with capital, and

best understand local markets.

Unified vision, where

corporate and local franchise

procedures and goals are in

line, facilitating a meaningful

and successful service

experience.

Assumptions:

BD- Corporate management understands TOC and lean thinking, works to implement it, and has a vision for

sustainability.

CD’- The licensees understand operations, are locally fluent, and take their role and capital investments seriously.

DD’- A more centrally operated company is mutually exclusive to a more autonomous and empowered franchise

structure.

Injection: Breaks CD’

Welcome licensees into Zaxby’s corporate culture, have stringent licensee entry barriers, and a heavy capital

investment requirement in place.

A

B

C

D

D’

Objective

Needs WantsUDE #4: It is hard to monitor and

control widely dispersed franchises.

Zaxby’s

Evaporating Cloud #2

Open more stores to cover a larger

area and draw from a larger

customer base.

Continue to focus on current

locations, hoping to improve on

profit margins.

In order to continue to grow and

profit, Zaxby's must be able to

reach a larger audience.

In a price sensitive market, such

as the fast food industry, it is

important to keep costs low so as

to be able to remain competitive.

Be able to sell an affordable

product to a large geographical

area, while maintaining

company values.

Assumptions:

BD- People would choose to stop at the newly opened restaurant.

CD’- It takes a large amount of money to build and advertise for new locations.

DD’- Are mutually exclusive as it is impossible to focus solely on current stores, while opening new ones.

Injection: Breaks CD’

By franchising the business out to independent owners much of the cost, liability, and responsibilities can be

transferred.

A

B D

D’C

Objective

Needs WantsUDE #1: Zaxby’s sells tangible

products that require a physical location,

and is currently only well-established in

the southeastern United States.

Zaxby’s

Evaporating Cloud #3

Zaxby's must become a publicly

traded company, in order for them

to have the financial resources to

compete with the other industry

giants.

Zaxby's must remain privately

owned in order to promote

continuity.

Zaxby's must expand its business

geographically, buy large amounts

of commodity goods, and spend

enough money on advertising to

continue promoting their brand.

Zaxby's must maintain its reliance

on culture as that is important for

them to sustain a competitive

advantage.

Zaxby's is competitive within

its industry, and competing

firms recognize them as a

threat.

Assumptions:

BD- An IPO for Zaxby's would be successful in raising the capital required to take the necessary steps to

compete with industry giants but would cost Zaxby's its corporate leadership.

CD’- Corporate leaders are the reason that Zaxby's has been able to maintain its culture, and therefore its

competitive advantage.

DD’- Are mutually exclusive, the company can't be both publicly and privately owned.

Injection: Breaks BD

Instill policies within the Zaxby's corporation that stresses the importance of maintaining current values and

insure that corporate leaders remain with the company.

B D

D’C

A Objective

Needs WantsUDE #11: Zaxby’s lacks capital

and resources.

Zaxby’s

Generic Cloud

A. Zaxby’s becomes the

most successful fast food chain

by offering affordable products

to the largest customer base,

while staying true to company

values.

.

AB. Becoming a successful fast

food chain relies on

geographical expansion and

reaching a larger audience

through promotion and

advertising..

D. Becoming a publicly traded

company, allow the opportunity

to open more stores and expand

while maintaining central

control over the franchises.

.

B. Zaxby’s should tighten

control over operations, while

expanding geographically by

increasing promotion, in order

to reach a larger audience.

C. They must allow franchisees

more managerial control and

strategy, while keeping costs

low, and maintaining a strong

understanding of local markets.

.

AC. Having franchise-level

managerial control allows for a

better understanding of the local

audience, thus providing the

best opportunity to reach the

largest customer base.

.

CD’2. Franchisee goals are

in line with corporate’s vision.

BD2. Corporate management is

ethical and committed to

Zaxby’s success.

CD’1. Heightened managerial

control for franchisees allows

them to implement a low-cost

strategy due to their greater

understanding of local markets..

BD1. The chance to expand and

reach a larger audience is

increased by becoming a

publicly traded company.

D’. Zaxby’s remains a private

company to keep focus on

continuous improvement in

existing locations and give

franchise owners more

authority.

Zaxby’s

Future Reality Tree – Positive Branch

Licensees are competent

and business savvy.

Zaxby’s invests in

developing licensees.

Less micromanagement

and more empowerment.

Licensees fully

invested.

More centralized control of

franchise operations and

strategy, and a greater

connection to licensees.

Inj: Welcome licensees

into Zaxby’s corporate

culture, have stringent

licensee entry barriers,

and a heavy capital

investment requirement

in place.

Licensees willing to be

more strategically

involved.

Tighter control over

operations allows for

transformative change

without local obstacles

Unified vision, where

corporate and local franchise

procedures and goals are in line.

8. Collaboration of

resources.10. Concrete direction.

9. Success, sustainability, &

outreach.

DE’s UDE’s

8.) Resources are disintegrated to local levels

9.) Limited success, sustainability, and outreach

10.) A gap exists between Zaxby’s being a

local establishment and a nationally known

brand

DE’s

8.) Collaboration of resources

9.) Success, sustainability, and outreach

10.) Concrete direction

Effects can

be realized!

Zaxby’s

Future Reality Tree – Negative Branch

Injection:

Welcome licensees into Zaxby’s

corporate culture, have

stringent licensee entry barriers,

and a heavy capital investment

requirement in place.

Licensees lack understanding of

corporate’s culture and vision

Heavy capital demands will

encourage licensees to take

franchise management seriously.

C. Licensees will behave more

like an invested employee,

promoting Zaxby’s brand &

success.

Franchise owners not

competent brand ambassadors.

More autonomous and

empowered licensees are ridged

and have egos.

Less transparency in

franchise operations.

Zaxby’s corporate must

increase trust and training.

Licensees hurt profit and brand

image.

Franchise managers work

against corporate protocol.

Effects Mitigated

Limit licensee control over

operations.

Effects Eliminated

Go public, increasing

capital and corporate

control over operations.

Injection

Injection

Positive Effect

Neutral Effect

Negative Effect

Zaxby’s

Lean Thinking JIT – Deliver items just as needed.

Zaxby’s is essentially a focused factory in and of itself, focusing production on their competitive advantage, chicken.

Products made at the point of purchase, ensuring maximum freshness, minimal muda, and a pleasurable service experience.

Small-batch logic: Cooked to order products promotes level scheduling, where production is in line with demand and is being pulled by the customer. This process provides faster feedback and will reduce errors because greater attention is required.

Allows for greater variety in product selection, enhancing the food-customer experience, and resulting in high-quality service with low response times.

Performance Measurement – Improvement Approach

Improvement trends, Quality trends, Development of the workforce

Obsolete: Equipment utilization, Worker efficiency, Individual

incentives, Costing on direct labor hours

Continuous Improvement:

1.) Price 2.) Quality 3.) Delivery

Time

Per

form

ance

Zaxby’s

A Lean SystemMulti-skilled workers play a huge role in the JIT philosophy

“That's why all Zaxby's training reflects the latest thinking in the learning industry and includes tools for engaging all the learning styles. Developing talent is one of our core values. We're dedicated to developing talent within our system so our people are positioned to enhance performance.” Initial Training Program, Licensee Managed Training Program (ZLC System), Ongoing Coaching

Programs such as these minimize bad multitasking by cross-training franchise owners in quality initiatives.

Licensee Managed Training Program - provides a scalable resource, enabling licensees to conduct training for their own employees.

Supplier involvement is essential to lean thinking

“Being the fastest-growing chicken chain in the country has its benefits. For starters, it means that we have clout with all the key links in the supply chain. And that translates into favorable food costs for our licensees.” Close vendor ties like the aforementioned enables concurrent engineering of Zaxby’s products and processes.

Total Quality Management (TQM)

TQM is a management approach to long-term success through customer satisfaction. TQM is based on the participation of all members of an organization in improving processes, goods, services, and the culture in which they work, and it begins with upper-level “management commitment.” Annual Conferences, Zaxby’s Advisory Council, Ad Campaigns and Cooperatives, Pre-Opening Assistance,

Opening Teams

“Variety is the spice of life”

One of Zaxby’s key competencies is their innovative product development (Core menu and Limited Time Offers). There are small windows to introduce new products or services, so the faster a company comes out with new

ideas, the shorter the response times for committing these to customers, and a higher price can be charged.

Zaxby’s

Recommendations In order to “consistently create encore experiences that enrich lives one

person at a time,” Zaxby’s must remain true to their lean initiative of

operational excellence and continuous improvement

Establish heavy capital requirements for all potential licensees

Welcome new franchise owners into corporate culture, and strengthen a fundamental

understanding of the overall vision

Elevate current leadership and promote a nationally engaged franchise base

News“Georgia chicken chain Zaxby’s to open 18 Utah locations”

Zaxby’s plans to open 18 Utah locations in the next five years under the management of

a Nevada-based group.

Zaxby’s which has more than 575 restaurants in 13 mostly southern states, is expanding

its brand westward.