About Value Chain Analysis: Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. A value chain identifies and isolates the various economic value adding activities such as differentiating a product, lowering the cost, and meeting need quickly that occur some way in every firm. It portrays activities required to create value for customers of a given product or service.
It tells where low cost advantages exist; in what ways each activity can be undertaken so as to differentiate it from that of a firm’s competitor, how to deliver satisfaction to customers as quickly as possible. Business is viewd as a process, a chain of activities in order to find the strengths and weakness of a firm operating in a competitive environment. Competitive advantage is created and sustained only when a firm is able to perform the most critical functions either more cheaply or better than its competitors.
The value creating activities of a firm, according to Michael Porter suggested that the is grouped under two headings: (1) Primary Activities – those that are directly concerned with creating and delivering a product . (2) Support Activities, which are not directly involved in production, but may increase effectiveness or efficiency and work to enhance or to help the functioning of primary activities. Linking Value Chain Analysis to Competitive Advantage A business which wishes to outperform its competitors through differentiating itself through higher quality will have to perform its value chain activities better than the opposition.
By contrast, a strategy based on seeking cost leadership will require a reduction in the costs associated with the value chain activities, or a reduction in the total amount of resources used. About Pizza Hut: Yum! Brands Inc is the owner of the Pizza Hut chain worldwide. A Fortune 300 company, Yum! Brands owns Kentucky Fried Chicken, Pizza Hut, Taco Bell, A&W and Long John Silver’s restaurants worldwide. Yum! generated more than US$ 25. 9 billion in worldwide sales in the year 2003, and has more than 33,000 restaurants in over 100 countries.
Pizza Hut entered India in 1996, and opened its first restaurant in Bangalore. Since then it has captured a dominant and significant share of the pizza market and has maintained an impressive growth rate of over 40 per cent per annum. Pizza Hut is believed to have close to 50 per cent market share of the organised pizza-retailing segment in India. I have chosen few objectives of Pizza hut in Indian Market and how did it use Value chain analysis to achieve its objectives. Pizza hut’s main strategy to remain competitive is being customer focused and service oriented.
So its main objectives based on this are: Objectives of Pizza Hut in Indian Market •To provide world-class facility and taste to its Indian customers in a cost effective way. •To maintain uniform taste across all its outlets. •To present its products when and where the customer wants within committed half an hour time. •To delight the customer, ie more beyond satisfaction. Lets us see that how Pizza hut worked to achieve its objectives by improving its activities using value chain analysis. VALUE CHAIN OF PIZZA HUT:
Inbound Logistics: Buying of all raw materials as mozzarella cheese, pepperoni, sauce, base, potato, vegetables, wheat, babycorn, spices, chicken. Manufcaturing Operations: Preparing of pizza base. Customising Pizzas at outlets. Outgoing shipping and Logistics: Transporting pizza base to all pizza hut outlets, Delivery of Pizza to the customers, mainly in home delivery. Customer service: Catering to the needs of the customers before and after pizza supply. Marketing: Advertising and Campaigning of Pizza hut products.
It is mainly the support activities that make product differentiation or cost reduction and add value to the product and increases customer’s satisfaction and delight. Lets see how pizza hut works out each of the support activities that improves the functioning of primary activities. Procurement: (This concerns how resources are acquired for the business) Main issue for Pizza hut was to provide quality tasty Pizza’s at affordable cost in Indian Market. They aimed to provide a quality product to their customer and on the other hand be responsive as well.
The cost will go high and so to be efficient enough they need to maintain the supply chain. For this they concentrated on economies of scale and developed a chain of local suppliers for 95% of its ingredients. However as they aim to provide world class facility and taste, Pizza hut imports the main taste causing ingredients like pepperoni, mozzarella cheese from Australia and spain resp. But due to this the cost of the product increases. But by local sourcing of all other ingredients like vegetables, tomatoes, wheat they could compensate this increased cost.
Carton boxes are also purchased locally to benefit from the economies of scale Their strategic decision here is to form a chain of local suppliers to reduce their cost of material procurement. However further because of entry of other competitors like Domino’s to Indian market Pizza hut further tried to reduce its cost without affecting quality or taste. For this Pizza hut has established a tie up with Bangalore based Dynamix Dairy Industries Ltd(DDIL) for sourcing mozzarella cheese.
By this the cost and lead time for cheese has reduced greatly. Landed cost of cheese comes to US$ 3. 3 to 3. 5/kg and the domestic price is US$ 2. 9 to 3. 1/kg, the lead time has reduced from 60 to 30 days. Innovation and Development: The company invest resources for research on customers’ needs and analysing customers’ feedback about what people think about pizzas; what do they like or dislike about pizzas; and what do they want from pizzas. The feedbacks and research are the basis of the company for innovation and development of new products.
Telephone numbers are provided for customers to give their feedback about the product and suggestions. Separate teams are dedicated for continuous survey in all the outlets and studying customer preference and taste. Through customer quiestionairre, focus group, market study changing customer needs are studied and new products introduced to continue delighting the customers and make Pizza hut different from the competition. Human Resource Department: Pizza hut invests on skills, Knowledge, training and development of employee for different positions.
The company has program like annual performance appraisals designed for Team members to know exactly the expectations and existing opportunities for improvement. Information and skills are well-communicated internally among employees; the company allows open communication all the way to the top. Customer Mania is a program developed for Pizza hut employees and it is a program based on three principles: operational excellence, great marketing and real ‘sit up and take notice’ standards of customer service. The program aims to instil the basics of customer service to every team member of Pizza Hut.
These include smiling and greeting the customer, presentation, good service and dealing with service problems themselves without seeking managerial help. Employees set their own targets without supervision. All over the world, Pizza Hut holds a quarterly customer mania mindset session for its team members who include all the crews, managers and Restaurant Support Centre Team to reiterate and motivate employees on the importance of providing consistent product quality, service, ambiance and value for money to the customers.
In this session, employees outstanding in customer service are recognised and awarded. Technology Development: Information Technology usage. Proper IT system and information management was absent in Pizza hut. This lead to billing problem, misinterpretation, miscommunication between the suppliers and the outlet managers and wastage of resources. No customer database was maintained and no knowledge about customer demand pattern, preferences, need existed. This lead to improper inventory control and excess, short supply to outlets.
Built in server storage system of Pizza hut collapsed due to exponential growth of the organisation network. Pizza hut faced huge loss due to this. To solve this problem it deployed SAP ERP. Now SAP ERP plays the crucial role in helping to manage the internal operations and to maintain the extended supply chain. By this Pizza hut managed its database and invented way to maintain its increasing database. Usage of temperature controlled trucks is also a technological advancement. Other support activities for each of Primary activity: For Operations and logistics:
Material handling and Transportation- In order to maintain uniform taste across all its outlets, Pizza hut had set up four commissionaries(Noida, Mumbai, Kolkatta, Bangalore) where Pizza base in made and transported to different Pizza hut outlets. Here same base is transferred to different outlets and there depending upon customer’s order toppings made and served. This also avoids problem rising out of sudden demand of particular pizza, as only plain base is transferred to all places and at outlets customised Pizzas are made to provide varieties to customer.
It is a Push & Pull strategy employed here, customers are satisfied on getting custom made pizza and Pizza hut also enjoys economies of scale in manufacturing base. The bases produced are transported by use of refrigerated – temperature controlled trucks to keep the base as fresh as possible. There are sufficient trucks employed and also vacant space is there and when demand increases this space can be filled and by this Pizza hut doesnot incur any additional charges when the demand increases. By this way they add value by transportation and cut off cost, also increase the efficiency.
Adding on, when planning for new outlets, they do so such that it locates along the trucks route so that no increase in transportation charges and there is optimum use of trucks. Supporting and enhancing Customer service: Timely delivery- As they aim to deliver Pizza’s within thirty minutes, Pizza hut opens outlets in bulk numbers across the cities. So when an order is placed by customer, the outlets communicate with each other and the nearest counter delivers the pizza to the customer within 30 minutes. So by this the responsiveness and efficiency is increased.
Catering to local Taste – leveraging the Indian Advantage: Pizza hut offers pure vegetarian dine ins in some Indian cities and also offers jain Menus. By this it attracts minority segment customers. Pizza hut’s Indian Menu offers varieties that match to local tastes and thus it takes good care of the Indian culture and religions and designed its outlets and offerings accordingly, thereby making it a international brand with local taste. Service for differently abled people: As part of its customer service, most Pizza Hut restaurants provide facilities for people with disabilities.
The company has improved its physical environment with more easily accessible facilities and has trained its employees to better understand and meet the needs of customers with disabilities. Pizza hut also offers loyalty cards to customers as a token of appreciation and makes them come back to Pizza hut again. Enhancing Marketing activity: Pizza hut has formed partnership with Nestle, Pepsi and it offers combo offers to delight its customers. They have massive TV advertisements and campaigns to enhance its visibility and attract the Indian youth and children especially.
It has concepts like ice cream factory, where for one payment persons can take as much ice cream as possible. This attracts many children. Pizza hut employs various techniques like offering surprise gifts to customers, buffet system, and new concepts like hot dots to impress customers by their timely delivery. Brand image is increased by quickly resolving customer complaints, integrating feedbacks in the processes, compensating immediately for dissatisfaction, keeping up promise of delivery.
All these are made possible by closely weaved communication system among the outlets. Thus by analysis of every activity in Pizza Hut’s business chain, it successfully modified processes which did not add value into processes that adds and increases value of end product, thereby delighting customer and make them feel as receiving more value for money spent. This tool helped Pizza hut to be cost effective and customer focused and maintain its competitive advantage.