134 Suptply Chain Management
CASE STUDY: DECISION MAKING ON DEPLOYMENT OF A 4PL SERVICE IN FO
SEGMENT IN INDIA
(This is based on observations and competitive
intelligence and strictly meant for academic
purpose)
Tasty Pizzas (name changed) is a fast food brand in
the food service business, specializing in sale of
pizzas all over India. They operate both by setting
up own restaurants as well as by allotting franchise
rights to partners for particular locations/outlets.
The fast food business is based on four business
tenets:
1. Offering the same experience to the customer
wherever the customer-brand handshake happens,
presuming that the carefully thought out engage
ment is of value to the customer and enhances
brand value. Only if the brand value is high
encugh will they be able to tweak the prices for a
larger margin.
2. Growing as fast as you can, so that you can
utilize the inherent advantages in volumes.
3. Rolling out promos or other customer engage
ment changes so as to maintain customer
retention in a phased manner and manage associ
ated variations.
4. Optimization on non-core activities by reduc
ing the need for
limiting costs.
intervention,/involvement and by
Same Experience
It's a problem to offer the same experience given
the geographic distances, varying skills at the lo
cal level, and dependence on
franchisees for
volumes. Tasty Pizzas invest a lot in training and
auditing to enforce rigid discipline on operating
process, both on the restaurant floor as well inthe
kitchen.
Standardizing the customer experience is enabled
by a 4PL, which ensures
into the food production that products that go
are (a) from approved
vendors, (b) have been
product quality, and (c)handled
are
properly to retain
available on demand
at all times.
Furthermore,
an
in the case of
franchisees, making it
incumbent on the franchisee to buy from the
FOOD
food-service distributor enforces
norms. The brand also is able to product quality
control
formance of the outlet by
of materials from the 4PL. considering
the theoff per-
take
Growth
Bigger volumes mean higher visibility for the
brand as well as the ability to negotiate better
rates from the service/product providers, The
brand is at an advantage both because they can
demand higher royalty from the outlets as well as
because it lowers the cost of operation. Invest.
ment in centralized services such as merchandiz
ing, marketing, and food production research
becomes feasible.
Managing growth in the same geography has its
own risks. Scaling up may sometimes mean a higher
cost until the investment gets amortized over
higher utilization. Sometimes these are issues that
create problems in growth execution plans.
Typically, small fast food chains are looking to ex
pand into new geographical areas once the metro
areas are saturated. But they are constrained be
cause they cannot set up the logistical infrastruc
ture required toservice the distant areas, which is
otherwise prohibitively costly for them, canceling
out the advantage that they are seeking to gan.
Storage and movement of smaller lot sizes will
mean a higher per-unit cost of operation.
Change Strategy
Menu/theme changes are complicated since uig!of
involve coordination over a large nuumber
people who have to execute the change at defined
fran-
time period, especialy so when it involves
since it
chisees. The cost of failure is high
involves food products as well as made-to-order
after
non-food products that may not be of use
the change. Also not being ready with the new
promo-
items means that a lot of investment on
tion will go waste.

Optimization of Non-core Activities
Sourcing, purchase, stocking, inventory manage
ment, and delivery involve a lot of planning, inter
action, and activity. Handing them over to a 4PL
will enable the fast food chain to concentrate on
more core activities such as merchandizing and
food production.
HOW DOES A 4PL HELP
Same Experience
4PL standardizes the product quality across
locations by buying from approved vendors and
centralizing buying decisions. The 4-PL enables
through its buying process the same customer
experience across outlets and manages stock level
to ensure availability across outlets on demand.
Growth
4PLS are willing to invest and wait to amortize the
investment as a business strategy. Their amortiza
tion happens across brands and hence will be
easier to manage. The same goes for new geogra
phies. 4PLs have better geographical reach since
they are servicing various clients and hence will be
able to share the associated overheads.
Change Strategy
4PLs are trained to look for obsolescence risks,
and new product requirements. Products becom
areas, used
ing obsolete will be diverted to other
alternatively, and so on.
Strategic Decisions in Supply Chain 135
Risks are involved in the management of these ac
tivities. Typically they are the risks of obsoles
cence, expiry, damage, and non-availability. Fast
food chains would like to avoid the same.
Costs associated with these activities can vary due
to local conditions and/or uncertainties or market
conditions. Fast food chains would like to be buff
ered from these tendencies.
Optimization of Non-core Activities
KRAs ensure thata fast food chain need not spend
time and resources on supply chain management.
The cost of risks is capped by the margin that
chains need to pay to the 4PL. Any other risk is to
the 4PL account. A contractual engagement over
a longer time period with a 4PL ensures that
chains are insulated from market changes or local
conditions.
Questions
1. Is the decision of Tasty Pizzas to engage a 4PL
strategic in your opinion? If so, highlight the
strategic orientation in this engagement.
2. What are the advantages enjoyed by Tasty
Pizzas with the deployment of 4PL?
3. Explain the role and responsibilities of the 4PL
in this engagement and map the capabilities
which they require to be successful.