Executive summary:

KFC is the world's second largest restaurant chain overall after McDonald, it's a subsidiary of Yum! Brand, which became the largest fast food chain in China since it first opened in 1987. This report would focus on KFC China.

This report wound include a comprehensive analysis of KFC China's supply chain system, it aims to analyze the supply chain process and issues, giving recommendations that wound help KFC China to improve their supply chain system.

This report would consist of introduction, discussing KFC China's current situation, followed by the competitive advantage of KFC China's supply china system. The report also comprises an in-depth analysis of KFC's supply chain system in China, following which will be the strategy fit and how supply chain strategy fit competitive strategy. Strategy fit is critical to a company's supply chain as it could show a company is using it to meet customer's needs.

Subsequently, this report would mention the specific delivery model that KFC use in China, some of the delivery advantages and weakness would also be analysis in this report, and four points of recommendation will be suggested to solve the weakness.

Introduction:

KFC is the world's largest fried chicken restaurant chain as well as the largest fast food restaurant in China, it's holding by Yum! Brand now. Since it was founded by Colonel Harland Sanders in 1952, until now, there are over 17,000 KFC outlets in 105 countries and territories around the world. KFC primarily sells chicken pieces, sandwich and hamburgers; its primary focus is fried chicken. In China, where KFC first open in 1987, it has a significant growth in China, and it is the only one country that McDonald is not the dominant fast food restaurant. KFC has been successful in China with nearly 4,000 restaurants in more than 800 cities. Now China has become one of KFC's main markets in the world because they almost open more than one new KFC restaurant every day.

Current situation and structure

November 12, 1987, the first KFC restaurant opened in Beijing Tian'an men to start it in the history of the development of the world's most populous country. To be a successful fast food restaurant in China, it is not only because China is a country with a large population, but also the eating habits of the Chinese people for the development of the fast-food industry. However, one of the key factors is the KFC supply chain management.

KFC headquarters established supplier evaluation system, which is called "STAR audit" which include technology, quality, reliability, communication and other necessary factors. Every three to six months to assess the time, these materials from the end of the purchasing department. Moreover, The KFC distribution follows DRP system which effectively to meet the needs of the market and reduce logistics costs. According to the survey, the supply chain operation costs of KFC are reduced at a rate of 3.0% annually, and the logistics costs reduced to the lowest point in the end of

2009, mainly reflected in the increase in the distribution center and logistics improvements.

Further, KFC in distribution part showing two aspects of the advantages and disadvantages, such as the number of distribution centers and distribution variety, the distribution of the product is very comprehensive, however, KFC have been expanding, so there are still have some problems in the delivery aspects, it will be discuss in detail in the following research.

Competitive advantages:

Since KFC China is using a differentiation competitive strategy, so for supply chain responsiveness is a strategy priority. The competitive advantages are described into 6 factors: facilities, inventory, transportation, information and suppliers.

Facility: KFC's distribution centers are designed to be decentralized, KFC now has 16 distribution centers which locate in different part of China, Each distribution center serves a certain area to become more responsive by being closer to the customer, it helps KFC to react faster to demand fluctuation and prevent stockout.

Inventory: Due to the large number of distribution centers, it allows KFC to keep a large amount of finished goods inventory close to customers. KFC uses inventory file to keep a close monitor on its inventory in every restaurant, to avoid excessive inventory. KFC can remain its supply chain responsiveness at lower cost.

Transportation: KFC's transportation cost will be reduced based on the location of DCs, All of the 16 DCs are close to market, and KFC's DRP system will select the best delivery route, thus it shorter delivery lead time, KFC also hire third-party logistics companies to help then.

Information: KFC has a good information system based on its DRP, it can help to improve coordination between supplier, distribution center and KFC's restaurants, a good information flow helps to avoid indirect delivery and supply uncertainty.

Suppliers: KFC takes suppliers relationship into account, KFC focuses on long term relationship with suppliers to make sure the quality of food and to control cost. KFC take control of 50% its logistics service; outsource 40% of its logistics service. This specific mode reduces KFC's logistics cost and maintain supply chain responsiveness at the same time.

The logistics of the supply of KFC

- Supplier Management of KFC

The quality control of KFC from the supply of all the raw materials, therefore KFC conduct an annual supplier system called STAR audit to select the alternative suppliers; it is specifically for a global assessment of supplier management system in China since 1996 and similar in many ways to the ISO approach. The STAR audit has been full implementation of the KFC suppliers, and it consists of two main versions which are the food safety and the quality systems audits that either conducted by a third party international auditing company appointed by Yum or the own team of professional food technologists from the KFC quality assurance department. The results are reported to and reviewed by the regional franchisor for continuous improvement. Suppliers performances are constantly monitored through regular submission of quality reports.

- Distribution Requirements Planning System (DRP) of KFC

From the supply chain process perspective, KFC required the restaurants to report the

order demand to the branch distribution center and then places an order to the suppliers while suppliers receive orders, they would deliver the materials to the DCs, and finally, DCs will operate those distribution missions for restaurants which are beyond service range. The supply of logistics model for KFC is based on DRP system; which functional is to determine the need to replenish inventory at branch warehouses. It is a technique to ensure that inventories, both incoming and outgoing are managed effectively and it used within the business administration function to efficiently plan orders within the supply chain. The DRP assist KFC in setting various parameters for inventory control and then calculate the requirements over a certain length of time. It includes inputs files and output plans which are social needs of file, inventory documents, plant resource files, purchase order program and delivery plan. This logistics system is a powerful weapon ahead of the competition of KFC which helps the restaurants to manage the flow of materials between firms, warehouses and distribution centers.

1. Social needs of file

Social needs of file include all users purchasing orders, bills of lading and supply contracts, as well as subsidiaries and business orders. In addition, improve market forecasts conducted, so as to accurately determine the part of the demand. For the main requirement planning, KFC has divided their raw materials into three parts which are refrigeration and room temperature goods. Firstly, the store manager used the regularly polishing orders to order the materials for three times a week. Moreover, the manager calculate the turnover of the order cycle by considering the historical sales data, promotional activities and weather factors and then converted to the number of materials that it needed to be order. The format of the requirement plans can be a list form which should include the raw materials, demand forecast, floating cargo, closing stocks, order quantity and the number of distribution of retail purchases etc. Finally, the form can be sent out to the distribution centers after signed from the store manager.

2. Inventory File Inventory documents to own stock supplies for tables are necessary for social demands in order to determine the purchase amount. For the inventory information, the staffs must ensure the provisions of the important raw materials before they off the work every day, and register others materials such as low value consumption goods by weekly or monthly. Those data can be used for calculate the daily cost and these are important data base when they purchase orders.

3. Plant resource file Plant resource files include the supply of plant material species and location, and also lead time. The supply resource file is very important because it affects the delivery lead time of suppliers. The delivery time is depends on the time of transmission and processing orders, supplier response time of the order and the efficiency of distribution centers, therefore the supplier must consider those factors carefully so that it can be delivery on time.

4. Purchase order program Purchase order program is the order of the plan from the production plant and the demand for materials. If the warehouse is not available or inadequate inventory, it needs to order the production plant. So that it must also consider some lead time. For the procurement plan, the branch distribution centers should confirm and well communicate the number of orders with the restaurants and to ensure that the order quantity is stable. The order confirmation must be finished by 3pm every day, this can help the purchasing department to check and update the data with the existing

inventory and floating goods, so that they can arrange the quantity and delivery time by using email or fax with the suppliers.

5. Delivery plan On the users delivery plan, in order to ensure on time delivery, they must consider the operating time and journey length and begin operations some time in advance. The demand for high-volume delivery can be implemented directly, but for the large number of small-volume needs can make delivery. For this plan, the KFC DC will generate the picking lists and shipments according to the order quantity which indicated by the restaurants, after that the sorters will pick and pack the orders. Furthermore, the delivery man will manage the delivery plan according to the shipments which include the capacity approval, selection of vehicle, transferring and so on.

Strategy fit:

The competitive strategy of KFC is differentiation, fast food is a fast moving consumer goods which has a large quantity demand and variety of product needed, and it requires supply chain to be more responsive to customer's needs. So KFC's supply chain was designed to be more responsive.

The "STAR audit" allows KFC to select the best suppliers for them. The qualified suppliers are always able to meet a very high service level such as on time delivery, food quality, response time to urgent order, flexibility and ability to supply a large variety of products. Based on KFC's particular delivery mode, some of the regional suppliers will deliver directly to KFC restaurants. Suppliers are playing a very important role in KFC's supply chain system, the "STAR audit" helps to improve

responsiveness.

The DRP system is used to achieve competitive strategy in KFC's distribution network. The social needs of file, inventory file and purchase order program give KFC a faster respond to wide range of quantity demand. Restaurant managers will do a demand forecast, and then send a form of requirement plan to KFC's DCs, they normally order three times a week, the order lead time is very short, it's easier for KFC to deal with demand fluctuation, and thus it increases responsiveness. Restaurant staffs would check inventory everyday in order to make sure accurate demand forecasting, distribution centers check the data from restaurants and order raw materials from suppliers. The plant resource file allows KFC to handle supply uncertainty; the less supply uncertainty will results in more responsiveness, suppliers can reduce the delivery lead time to decrease the supply uncertainty. The delivery plan will be able to shorter lead time by making a delivery plan, this plan will make a effective use of transportation resource, it saves transportation cost as well as increase responsiveness.

KFC delivery Delivery model The KFC delivery model is based on Yum group logistics model. That means KFC has good logistics fundament compare with other fast food enterprises. So far, KFC also provide the special logistics model which is self service + suppliers logistics service + third party logistics. Actually, in Unite State, Yum groups delivery was always outsourcing to Meclan Food Service which is the 3PL company in 1980s. However, while KFC come into Chinese market in 1987 and Pizza Hut followed in 1990, due to there was little number of people knows this brand and limitation of operating condition, Meclane gave up Chinese market. Therefore, at that time, Yum expected to create a new flexible delivery model can suit the situation in China which

was self service + suppliers logistics service + third party logistics.

KFC operates its delivery can be divided 50% delivery service come from Yum group. Usually, Yum delivery these foods to core cities, it operates core business distribution and some foods which required strict temperature standard e.g. chips and salad. Its worth noting that Yum has capability to control food temperature requirement during distribution, integrate different Yum brands delivery request can help these restaurants reduce their transportation cost, and ensure the quality of food. In addition, 40% delivery service outsource to third party logistics companies include some foods have low temperature requirement like sauces, bags. And the other reason is some KFC restaurants located out of Yum delivery services range. The last 10% is provided of suppliers, these suppliers almost are brand suppliers, their responsibility are supply fresh brand around the city.

Delivery advantage

1. Particular model helps KFC be more flexible. Firstly, Yum integrate different brands food distribution can help KFC increase material flow and reduce transportation cost and stress. Supply chain delivery try to achieve full container delivery, thus, Yum help KFC to reach low transportation cost advantage in the industry. 2. Large number of DCs help KFC is more responsive. Yum has 16 distribution centers in China and provide service for more than 400 cities. The huge number of DCs would fit each restaurants order at any time, make sure KFC restaurants avoid short selling problem, and ensure every customers can buy any foods they want.

Delivery weakness 1. As KFC expansion, due to reduce delivery ability. There is 40% delivery service is outsource to third party logistics companies. However, with KFC rapidly expansion, these companies may not provide service of high quality any more. As the number of store is increasing, some 3PL companies cannot meet KFC delivery demand, it lead to delay, increase uncertainty and effect smooth material flow. 2. Waste resource, DCs space do not full utilization. Though DRP system improves KFCs information flow and material flow, however, it also leads to unreasonable of DCs space utilization. There are different sizes of tray in KFCs DCs, however, as the fast material flow, foods placed randomly in DCs. Because of lack of foods placed standards, the result is waste of space and increase risk of delivery incorrect foods to restaurants. 3. Repeat handling and increase staffs pressure. KFCs foods can be divided into frozen, refrigeration and room temperature. In order to reduce operation cost, KFC decided to delivery same temperature foods for a truck. Especially, while DCs choose delivery foods at night, the problem is a store receives two or three trucks of goods and at a different time, so that staffs who are responsible for handling would feel pressure. 4. Trucks do not full utilization. Existing delivery time and line is fixed for KFC, though it is good for management, but container may not always be full. Moreover, if too many trucks do not work in majority time, it also leads to increase cost.

Recommendation

1. Evaluating third-party logistics companies on a regular basis. For companies which cannot meet KFC distribution requirement any more, when the contract

ending, it should be promptly eliminated. Secondly, the contrast is still long term, but the distribution requirements have been unsatisfied with KFC. KFC should help these companies to optimize delivery routes, and ensure the use of limited resources to maximize truck utilization 2. Strengthen DCs standards of trays size. To achieve full utilization space in DCs, for example, DCs should design a standard size of trays instead of exciting trays size which have 1x1m, 1x1.2m, and 1.2x1.2m. As KFC expected to quick response customers demand and avoid short selling in each restaurants, thus standard size of trays would be convenient during delivery and avoid waste space while storage in restaurants. 3. Reduce delivery frequency and improve trucks size. Large trucks can be loaded more foods at a time, one time of milk runs can be distributed to more restaurants. Therefore extending the transit time of the trucks, and increasing its effective operation time. 4. Redesign delivery line and time. Fixed delivery line and time may limit the use of trucks. As KFC DCs are operating for 24 hours, thus some trucks can distribute secondary at night. Therefore, timetable of restaurants receipt foods can be divided into in the morning, afternoon, and midnight three time segments, which established DCs operation schedule to support trucks time utilization. In addition, DCs should redesign distribution line. Because some restaurants which involved in the normal route do not need distribution any more at night. So, DCs need to design a new route to ensure maximize truck utilization.

Delivery strategy fit Above has been presented competitive strategy of KFC is differentiation. Thereby, in order to quick response customers demand, KFC adopt these ways to achieve competitive strategy in delivery. Firstly, in case of not increasing transportation cost, with Yum delivery service helping, KFC improve its delivery frequency. Moreover,

3PL partners solve KFC problem which is some restaurants out of DCs service range. Therefore, KFC delivery model assist KFC achieve goal of quick response to customers at any time, any place.

Secondly, KFC DCs are decentralization. There are 16 DCs in China, before design DCs and its facilities, KFC had considered ensuring these DCs can provide high quality delivery service. Although some DCs facilities have not capability to service new restaurants now, KFC also expect its 3PL partners to help it to provide high quality distribution service and meet customers demand.

Conclusion

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