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Supply Chain Management Relationships – Rob Morton

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“No one does quality like Papa John’s!” ‘Papa’ John Schnatter, Founder of Papa John’s

Supply Chain Management Relationships – Rob Morton

Presentation Ingredients:1. Company Overview2. Pizza Industry + Competitors3. Supply Chain Overview4. Supplier Relationships5. Kraljic’s Supply Positioning Matrix6. Cash-to-Cash Cycle7. Franchise Relationship8. Questions

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Company OverviewBackground¹• Opened first store in 1985.• ‘Papa’ John famously sold his Camaro car to buy his first Pizza

oven.• Now have 4,000 stores in 36 countries.• In US there are 648 company owned stores and 2,112 franchised

stores.• Papa John’s pride themselves on using quality ingredients, to makebetter pizza at an affordable price.

Financials:• Share Price $49.52²• Sales (2011): $1,217.88 Million³• Net Income (2011): $55.66 Million³• Inventory Days (2011): 12.35³¹http://www.papajohns.co.uk/our-story/flash/history.aspx ²http://www.bloomberg.com/quote/PZZA:US ³Thomson One

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Pizza Industry + CompetitorsIndustry• UK Pizza and Pasta/Takeaway market valued at £1,520 Million (2011 Est) and set to be £1,854 Million by 2016¹. • US market valued at $17,578 Million (2011) and set to be $18,298 Million by 2016².• With economic downturn, people are more likely to order in than go out for a

meal.

Market Share:UK¹: USA³: Pizza Hut

15%

Dominos9%

Papa John's6%

Little Caeser's4%

Other Top Chains

18%

Independants48%

Dominos25.7%

Pizza Hut24.8%

Pizza Express14.0%

Papa John's6.3%

Prezzo5.7%

Ask4.4%

Zizzi4.2%

Other Top Chains15.0%

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Supply Chain Overview

PJ Food Service (Quality Control Centre)¹Produces:• Fresh pizza dough • Cheesesticks • Breadsticks• Tomato Sauce Provides one-stop shopping for virtually all the ingredients and supplies used in Papa John's restaurants. This includes more than food products:• Paper items• Cooking equipment • Cleaning supplies

PJ Food Service (PJFS)

Papa John’s Store/

Franchise

Papa John’s Store/

Franchise

Papa John’s Store/

Franchise

Customers

Approved Suppliers

Delivery Service

Delivery Service

Delivery Service

¹http://www.papajohns.com/careers/business_03.shtm

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Supplier Relationships

• Use a mixture of single or multi-sourcing depending on the ingredient. • Due to amount of QC centres and company focus on fresh produce, need to multi-source from around the country (US) to provide the QCs¹.• They have joint venture national purchasing agreements which they

can leverage through the companies purchasing power and vertical integration to lower costs.• Rewards suppliers at their Quality Supply Partner of the Year Awards².

¹ http://www.wikinvest.com/stock/Papa_John%27s_International_%28PZZA%29/Quality%20Control%20Centers%20Strategic%20Supply%20Chain%20Management² http://www.middleby.com/MidCorp/InvestorServices/awards/awd_pj00.htm

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Kraljic’s Supply Positioning Matrix

Supply’s impact on financial results

Low

Low

High

High

Supply risk

Leverage products• Alternative sources of supply

available• Substitution possible

Bottleneck products• Monopolistic market• Large entry barriers

Routine products• Large product variety• High logistics complexity• Labour intensive

Strategic products• Critical for product’s cost

price• Dependence on supplier

Tough competitive stance by buyer

Competitive systems tendering + E-commerce

Performance based partnership

Secure supply + search for alternatives

BuyerStrength

Number of available suppliers

http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt

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Cash-to-Cash Cycle

http://www.dailyfinance.com/2012/05/14/how-fast-is-the-cash-at-papa-johns-international/

DIO: Days inventory outstandingDSO: Days sales outstandingDPO: Days payable outstandingFQ: Fiscal Quarter

• C2C Cycle time of 2.1 days in latest quarter.

• Better than average of 2.5 over the past 8 quarters.

• Better than 5-year average of 2.3 days.

• Shows focus on reliability of suppliers as it only takes 3 days for Papa John’s to sell the ingredients it bought as pizzas.

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Franchise Relationship

• Papa Johns was #10 of top franchises in the world (2009) (Franchise 500®) ¹ • Forms good relationship with franchises by:

• Providing training at HQ and additional training after that locally.• On going support e.g. Newsletters, Meetings, Toll-free phone line• As well as marketing support.

• Industry leading customer sales to investment ratio per restaurant.• Shows contractual, competence and goodwill trust for all involved².

High

LowLow HighC3 behaviour

Trust

Win/Lose or Lose/Win [1+1=1 !]

Compromise [1+1=1.5 !]

Win/Win [1+1=8 !]

Adapted from: Covey, 1989

¹ http://www.entrepreneur.com/franchises/papajohnsintlinc/282662-0.html²http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt

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QuestionsQ: Are Partnerships Common In This Industry? Suppliers: Yes, so they can get bulk discounts.Franchise: Franchising is a big partnership between store and company, other brands do this e.g. Dominos.

Q: Do The Participants In This Supply Chain Trust Each Other? S: They seem to as they need each other to survive.F: The stores need to do well for their own profits as well as the parent company’s profits.

Q: Are The Relationships In This Industry Likely To Change In The Next 5 Years?S: Depends on how the prices of the main commodities (cheese, wheat and oil) fluctuate. F: Some stores that do very well may be able to have a bit of bargaining power over the parent company than others in terms of what they provide/ bigger cut.

Q: How Can Relationships In This Chain Be Improved?S: More vertical integration, maybe buy areas of land near the PJ Food services to grow/produce more of their own ingredients.F: More specialisation allowed in individual franchises, whilst maintaining core values.

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Over to you!

“No one does quality like Papa John’s!” ‘Papa’ John Schnatter, Founder of Papa John’s

Supply Chain Management Relationships – Rob Morton

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BLOOMBERG. 2012. PZZA:US. [online]. [Accessed 21 November 2012]. Available from World Wide Web: <http://www.bloomberg.com/quote/PZZA:US >ENTREPRENEUR. 2012. Papa John's Int'l. Inc. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://www.entrepreneur.com/franchises/papajohnsintlinc/282662-0.html>GLOBAL MARKET INFORMATION DATABASE. 2012. Pizza Industry. [online]. [Accessed 17 November 2012].How Fast Is the Cash at Papa John's International? 2012. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.dailyfinance.com/2012/05/14/how-fast-is-the-cash-at-papa-johns-international/>MIDDLEBY. 2001. Papa John's Quality Supply Partner of the Year. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.middleby.com/MidCorp/InvestorServices/awards/awd_pj00.htm>PAPA JOHN'S. 2012. Business Function. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.papajohns.com/careers/business_03.shtm>PAPA JOHN'S. 2012. History. [online]. [Accessed 16 November 2012]. Available from World Wide Web: <http://www.papajohns.co.uk/our-story/flash/history.aspx>Pizza and Pasta Restaurants UK. 2011. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://store.mintel.com/pizza-and-pasta-restaurants-uk-january-2011.html>PIZZA MAGAZINE. 2011. Pizza Power Report. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://pmq.com/digital/201109/files/52.html>SHARPE, David. 2012. Supply Chain Management - Lecture 11 – Relationships. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt>THOMSON ONE. 2012. Papa John's. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://banker.thomsonib.com/ta/TAdashboard.aspx>WIKINVEST. 2007. Domino's Pizza (DPZ). [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://www.wikinvest.com/stock/Domino%27s_Pizza_%28DPZ%29/Suppliers>WIKINVEST. 2009. Papa John's International (PZZA). [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.wikinvest.com/stock/Papa_John%27s_International_%28PZZA%29/Quality%20Control%20Centers%20Strategic%20Supply%20Chain%20Management>

References