Pizza Hut Inc. Operations Management Analysis and Strategy
Pizza Hut is a restaurant chain that was established in 1958 by Carney brothers. Dan and Frank Carney, at the time, were university students at the Wichita State University (Schweig, 2007). To start the business, Dan and Frank loaned US$ 600 from their mother. They appropriated this money to their startup capital (Aamoth, 2014). Pizza Hut has experienced rapid growth, becoming an internationally recognized brand. It is a fully owned subsidiary of Yum! Brands Inc. Currently, Pizza Hut is ranked as the world’s leading restaurant chain. It is also the largest employer since it hired more than 160,000 employees around the globe. Its average annual revenue is about US$ 12 billion (Pizza Hut, 2015). In 2013, the company owned upwards of 6000 stores in the US alone (Pizza Hut, 2015). Its5139 stores were further distributed across 94 countries (Pizza Hut, 2015). Pizza Hut’s mission is to bring more flavors to its customers’ lives. This popular restaurant chain aims to provide more pizza with as many varieties as possible. Its main promise to its customers is that as long as they remain its consumers, they will get flavorful experiences (Pizza Hut, 2015).
I visited and analyzed a Pizza Hut store located in New York, 22003 Hillside Avenue, to conduct operations management analysis. Operations standards of Pizza Hut are the same across the board regardless of where the store is located around the globe. The insights and recommendations given in this analysis are representative; therefore, they should be applied in all of its stores. Hopefully, the analysis will guide the company in the right direction to eradicate its operational challenges and leverage its opportunities to optimize profitability.
Pizza Hut is a restaurant company. As such, all its key products are foodstuffs. However, it specializes in baking high quality pizza (Aamoth, 2014). This international company makes a wide variety of pizzas with different types of crust, crust flavors, and sizes. For instance, there is a thick crust golden pizza, which is thick as the name suggests. There is also a thin and crispy variant alongside the family size standard pizza (Pizza Hut, 2015). Apart from these traditional pizzas, Pizza Hut also offers customized pizza for its clients if they make orders with explicit specifications (Pizza Hut, 2015). Some of these orders have been adopted as pizza brands, including Cheesy Crust and Philadelphia Crust. Thus, the main peculiarity of Pizza Hut is that it is an innovative company, which is frequently inventing and experimenting with new specialty pies. The varieties that do not gain popularity among consumers are discontinued.
Apart from pizzas, the company also offers a host of Italian-themed dishes. The decision to include elements from Italian cuisine is connected with its diversification strategies to hedge against the risk of competition posed by its most direct competitors, such as Pizza Express (Aamoth, 2014). The competition started in order for restaurant chains to diversify their products and gain market share. Pizza Hut had to do the same to adapt to changing environment or else it would have been phased out of the market. Thus, other key products of this company include toasted sandwiches, penne pasta, garlic breads, fresh salads, and a wide range of desserts (Pizza Hut, 2015). Recently, the company has also introduced and expanded its barbecue and cheese bread products. Therefore, the chain has diversified its products and has expanded its target market in the process. At the start, Pizza Hut baked and sold pizza only. The types and flavors were also limited. However, as the company expands and the resources increase, it has been able to spread its key products to meet more customers, as well as increase its market share and profitability.
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Design of Goods and Services
Optimal design of goods and services can reduce the cost of production and enhance the quality of products. Four approaches, which include the moment of truth, modularization, delayed customization and automation, can be used to analyze the design of goods and services.
Moment of Truth
The moment of truth, as an operation management concept, refers to the instance when the customer and the seller come into contact (Heizer & Render, 2013). The experiences of the customers must be enhanced in order for them to form a favorable opinion about the organization and be persuaded to utilize the seller’s products or services. If a client uses its service for the first time, the moment of truth helps the prospective customer to form an opinion about the company. If consumer chooses the restaurant chain not for the first time, the moment of truth helps to reinforce the positive experiences or recover from the negative ones.
This is how a customer interacts with personnel of Pizza Hut store at the 22003 Hillside Avenue. When customers arrive, they are met with a large colorful Pizza Hut board, displaying the name and logo of the company at the entrance. There is also a white, red and black-themed decoration inside the store. The shopping process starts with making an order via a touch screen table (Aamoth, 2014). There are counter staff who are responsible for addressing the customers’ questions. All the available products as well as their prices are explicitly indicated on counter display. If the customer intends to buy take-away products that are ready for consumption, such as cheese bread, they can pick a chosen foodstuff and present it to the checkout counter for billing. If the customer wants to order a pizza and wait for it, they can make an order at the touch screen table. The customers who want to dine in have to wait at the dining area. When leaving, a client should use a single checkout counter with five registers to pay for the ordered food.
The store employs most of the best practices in food retail industry. However, as the world continuously shifts towards organic food, Pizza Hut should place the ingredients lists and origin lists for organic-conscious customers. Currently, this restaurant chain does not provide an origin list even though it implicitly provides calories and ingredients lists by specifying the flavors and some basic commodities. The placement of those lists on the unit package will aid in decision making (Griffin, 2011). Furthermore, the store should increase the number of staff. While the world is increasingly shifting to online platforms, the pizza-eating community has been rigid. There are still many people who visit Pizza Hut to make orders, even takeout ones. Thus, there are long lines near table screens. Some of them, especially the ones using the service for the first time, face difficulties and stall the lines. Increasing the number of staff would streamline the process. This way, the staff can focus on taking orders from first-timers and teaching them to use the automated ordering system. The experienced patrons can use screen touch tables to make their orders. Lastly, since there are long lines at the checkout counter, Pizza Hut should increase the number of registers to decongest the area. Fast and efficient services would grant favorable experiences known as the moment of magic (Besley & Brigham, 2008). These moments of magic enhance customer satisfaction and convert them from experimenters to loyal Pizza Hut clients. However, increasing the number of people at the counter is only a short-term solution. The number of frequent customers is quickly increasing as well. Pizza Hut should consider opening a new branch alongside 2203 Hillside Avenue.
Automation/Reduced Customer Interaction
Currently, Pizza Hut employs several automation strategies. The increased use of machines has reduced the interaction between the customers and Pizza Hut employees. For instance, instead of making orders directly to the staff at the counter, the customers use a touch screen table as an interface. What is more, the customers can also create profiles on Pizza Hut’s website (pizzahut.com) and then make orders. Pizza Hut also offers a mobile application that runs on iOS and Android phones (Aamoth, 2014). Customers can use it to place orders, make an electronic payment, and receive home deliveries. The implication is that the timeframe for service delivery reduces. Currently, the average time for a home delivery in New York is 30 minutes. For those who make orders and pick them at the store, the waiting time is 15 minutes. A customer can make an order while on his way to the store and arrive just in time to pick his pizza. It becomes a seamless transition, which enhances positive customer experiences and eventually turns them into loyal Pizza Hut clients. Moreover, it results in the increased customer base and subsequent profitability (Evans & Lindsay, 2012).
Pizza Hut employs the best practices of service delivery through automation. It has an automated ordering system in its stores, on the website and on mobile technology platforms. However, Pizza Hut does not have a self-checkout system. The customers pay at the counter on their way out (Aamoth, 2014). Thus, the company should introduce a self-checkout platform where the visitors can make payments even in cash. The time spent on the line waiting to pay for the products will reduce substantially, especially if several electronic points of sale are installed.
Customization is delayed
Customization of products and services is aimed at enhancing a positive customer experience and self-worth (Heizer & Render, 2013). The customers are able to experience care from the vendor by being offered a platform or opportunity to design their own products. In this instance, Pizza Hut has a platform, the touch screen table, where one can make a customized order. The customer can specify size, crust flavor, pepperoni and sauce to be added. The client can also specify whether they wish for the pizza to be sliced into pies or not, or whether the pizza should be cut into smaller square pieces or not. This way, the customer is able to control their purchases.
Recommendation. While customization creates self-worth, it takes longer to make uniquely customized orders due to advanced complexity. There is a tendency to overlook making those special orders in favor of the ‘ordinary’ orders that are more quick and straightforward. The management should set up more entertainment spots for those who would have to wait longer than the normal 15 minutes. Apart from the music and television, the store should provide free Wi-Fi. Therefore, the customers can surf the Internet and avoid boredom (Schweig, 2007). A gaming area would also be a pleasant distraction. Lastly, to improve the speed of ordering, the store should offer a list of all possible types of customization. Providing a list of the flavors and types being experimented on may also predetermine improvement of a positive customer experience. One of those types and flavors may be the exact product the customer requires.
Currently, Pizza Hut provides excellent customer services. The products are also of high quality. However, the customers’ positive experiences will be enhanced if they obtain the chance to make special deals or to make orders with unique requirements. The company has tried to solve this by allowing the customers a chance to take the ingredients and bake on their own in their homes.
Recommendation. Pizza Hut should become more flexible. In as much as there is an opportunity to customize the products, the changes are not substantial. Pizza Hut should allow the customers to mix their favorite flavors according to their own wish. They should also be allowed to order pizza of any sizes they want within the realm of possibility. Such initiatives will increase customer satisfaction (Griffin, 2011).
Pizza Hut applies several standards and measures using the Total Quality Management (TQM) to guarantee that it offers high quality pizzas. For instance, it uses a timing system to ensure that the dough is of good quality (Schweig, 2007). The dough is prepared a day before its use and stored appropriately at the required temperatures. The dough has to be ready at the time of use or else it will lead to products and services deterioration. Consequently, it can cause dissatisfaction of the customers. The yeast should always be fresh. The chief chef checks it before using it. The ingredients and products are also appropriately dated using a standardized dating system. The shelf life is explicitly indicated, enabling the company to maintain a 100% quality through using fresh products (Scweig, 2007). Food temperatures are also maintained between -18 and +5 degrees centigrade to ensure it does not spoil. The supply chain is also monitored to ensure the suppliers comply with the HACCP standards (Aamoth, 2014). Consequently, Pizza Hut conducts regular audits to maintain quality along the supply chain. Obviously, a compromise on quality at the start of the supply chain will affect the quality of the final product (Heizer & Render, 2013). Finally, the employees are also trained sufficiently to be capable to handle the Total Quality Management provisions.
To ensure excellent quality of products, Pizza Hut should actively collect customer feedback (Besley & Brigham, 2008). In my analysis, I did not see any form of sourcing for customer feedback. There is a box that was labeled ‘customer complaints’. However, it is obvious at a glance that it was not being used.
- Pizza Hut should actively seek customer feedback along with customer focus. The feedback would be essential in tailoring the products and services to suit customer wants and needs.
- Secondly, the company should choose a team dedicated towards product design. The pizza sub-industry is a very competitive one. The risk of competition and substitute is very high because customer loyalty is low (Schweig, 2007). Having a professional product design team will not only eradicate internal and external costs resulting from product failures, but will also optimize the efficiency of the products (Heizer & Render, 2013). Product design, as a principle of TQM, enhances manufacturability and reliability of the resultant products.
- Thirdly, Pizza Hut should not only conduct audits of its suppliers to ensure they meet the HACCP standards, but also be one step ahead and share its quality and engineering expertise with its suppliers. The suppliers should enroll in a certification program to improve supplier quality (Griffin, 2011). Additionally, Pizza Hut should embrace a more integrative approach towards product design where the suppliers are also included in the process. Lastly, customer satisfaction should be enhanced through maintaining high standards of product quality, staff training and development, as well as product innovation.
Evidently, customer satisfaction is only achievable if the sales targets and benchmarks are complemented by competency of the staff. Product innovation and standards observation improve the quality, which, in the face of increased competition, inadvertently leads to improved customer satisfaction (Evans & Lindsay, 2012).
Pizza Hut’s process analysis can best be analyzed using a process chart as opposed to time function mapping or service blueprint. Figure 2 is Pizza Hut’s process chart.
The process starts with order placement. A customer uses the touch screen table to make a specific order. Every client is prompted on whether they want their pizza delivered or collected at the store. If it is a delivery, a message will appear on the screen with a promise that delivery will be made within the next 30 minutes. If the order is a collection, the customer will receive a message inviting him to wait for 10 minutes for the order to be fulfilled.
Irrespective of whether it is a delivery or a collection, the order progresses to the order making table where it takes an average of 3 minutes to process it. The necessary ingredients and specifications are taken into consideration. There is no room for error since it can disorient consequent service provision. The order is then taken to the oven for baking, which takes an average of 6 minutes (Pizza Hut, 2015). After baking, the pizza is delivered to the cut table where it is cut according to the customer’s specification and pizza size. This takes a minute, including packaging.
If the order is a collection, a staff delivers it to the customer at the waiting bay or at the dining area. The customer can then realize the payment. If it is a delivery, the driver will be dispatched to make the delivery at the specified location. This takes an average of 15 minutes (Pizza Hut, 2015). Some delays may be experienced, depending on whether it is an off-peak or on-peak hour as this affects the availability of drivers. Traffic jams can also elongate the delivery time. However, Pizza Hut makes efforts to deliver the ordered pizza as soon as possible when there is a delay. If the customer have not made payments, they can do so when the pizza has been delivered.
The weakest link in the value process can be identified using the theory of constraints (TOC). This theory establishes that there is always a constraint that limits any system from performing at the optimal level (Heizer & Render, 2013). However, the constraint is usually not so significant. If it is significant, it has to be noticed and addressed. It continues to persist because its effects are not that apparent, but in real sense, they can be detrimental to the reputation or performance of the organization (Evans & Lindsay, 2012). According to Pizza Hut’s process analysis, we established that delivery dispatching (encircled in red, Figure 3 above) was a major constraint. This is where it has to deliver the ordered pizza to the customer’s door. However, at any moment, there are only four or five drivers at a single store. The largest stores have ten drivers during the weekends and seven during weekdays. The number of drivers is just not enough, which is inconvenient for some customers. Giving excuses for late delivery can only lead to negative perceptions and even dissatisfaction on the part of the customer (Griffin, 2011). Eventually, such customers opt for other pizza providers.
To hedge against such situations, Pizza Hut should outsource delivery to a firm that provides such services. There are many firms in New York, for instance, that run errands for other firms using bicycles, motorcycles and vans. What is more, there are car hire services such as Hertz and Zipcar that can run errands. Such firms should be contracted to make deliveries as they have the required personnel and equipment.
To facilitate this strategy, resources would be concentrated to establish a command center where all orders to be delivered will be collated. The resources that were used to facilitate the drivers will be used to contract firms that have better resources to make deliveries. Pizza Hut can then focus on baking pies. We expect that the outcome will be reduced delivery time, as these agencies cannot have shortage of drivers. Supply of Pizza Hut drivers has been a major constraint (Achweig, 2007). Outsourcing delivery services to professional delivery firms are apt since it should substantially reduce the delivery time. The implications are that the customers will not be dissatisfied due to late deliveries. On the contrary, customer satisfaction will considerably improve.
Pizza Hut Hillside Avenue Store current layout
The layout of the Pizza Hut 22003 Hillside Avenue roughly appears as follows:
Analyzing the layout, we established several structural problems. For instance, there is only one gateway that serves as both the entrance and exit. There were only five registers at the checkout counter. These is inadequate consideration of the number of customers that frequently visit the store. What is more, there is no self-checkout point of sale where the customers can bill and pay on their own. The waiting bay is also crowded since there are many lines at the touch screen table, service area, and checkout counter. Crucially, there is no Do-It-Yourself counter where the customers can select their favorite ingredients and recipes in order to bake their own pizza in their homes. Such customers had to line up in the service area and compete with other customers who cannot use the touch screen table.
Re-Design, Efficiency and Quality
Having identified the aforementioned problems, the following diagram demonstrates the re-designed layout addressing the problems to leverage core competencies.
Re-designed layout of the store
The redesigned layout has an enlarged daily commodities area. The idea is to increase the amount of other commodities on display. These include desserts, ginger bread, fresh salads, barbecue, and pastas. Increased area of display will attract more attention (Besley & Brigham, 2008). In the previous layout, the daily commodities area was constrained to a corner, which made it improbable to notice it. What is more, the Do-It-Yourself counter has also been introduced. Those customers who do not wish to have their pizza baked at the site can select ingredients and leave in an instant without having to wait for 15 or 30 minutes. The exit was also relocated. The relocation will reduce congestion near the entrance, which is a regular phenomenon under the current layout. Furthermore, the checkout counter also shifted to the area near the exit. The dining area was reduced to accommodate the self-checkout counter. It was imperative to have the self-checkout counter to reduce the waiting time and enhance service quality and customer satisfaction (Aamoth, 2014). The dining area was also not being used optimally. There were many unused spaces. Its reduction makes use of every space available while accommodating other additional functionalities with ease.
Employees are the most important assets of any organization (Besley & Brigham, 2008). Ergonomics considerations ensure that employees work within their capabilities, which reduces their constraints and limits (Heizer & Render, 2013). Pizza Hut offers comprehensive medical cover to its employees and their spouses. Such provisions decrease instances of employees’ illnesses and medical-related absenteeism (Pizza Hut, 2015). Increased employee wellbeing manifests itself in an increased productivity. Furthermore, the employees are adequately remunerated. The lowest paid employees receive US$ 14 per hour, which is above the industry average (Aamoth, 2014). Sufficient remuneration increases employee motivation, which results in an advanced efficiency. Therefore, the company is able to provide its products within the stipulated time.
However, the restaurant chain should also consider increasing the shift requirements to serve at least five drivers to improve delivery efficiency. Furthermore, they should be provided with motor bikes and bicycles to maneuver the traffic jams during the evening rush. Pizza Hut should employ flexible drivers who can switch between several means of transport with ease (Schweig, 2007). Moreover, since women are dexterous, they should hire man to work at the cut table to maintain the cutting and packaging process at the estimated one minute.
Supply Chain Management
Pizza Hut has a robust supply chain monitoring technique. It exercises control over the products it obtains from suppliers. It contracts farmers and other firms to provide the major ingredients, including flour, yeast, olive oil, sugar, salt, and onions. It also buys mushrooms, pepperoni and cheese of different flavors, including Mozzarella, Parmesan and Feta, among others (Pizza Hut, 2015). As indicated in the quality management section, Pizza Hut conducts audits at the suppliers’ premises to ensure that the supply chain conveys quality from the start to the end.
The theory of comparative advantage clearly indicates that the company does not engage in any processes of the supply chain before the production part. Pizza Hut merely supervises the processes to maintain quality, but does not take part in growth and production of the ingredients (Schweig, 2007). It has specialized in production and distribution where it can leverage its core competencies. As we established in the process strategy, Pizza Hut should specialize as much as possible to optimize its core competencies. It should outsource the delivery services and focus on the resources instead in order to produce high quality pizza. The theory of comparative advantage suggests that this restaurant chain should focus on adept activities, reducing the ones that have lower opportunity costs (Heizer & Render, 2013). The resources should be directed towards setting up self-checkout counters to improve customer flow and operational efficiency inside the stores. The stores will be able to handle more orders at a time. The increase in orders will be matched and complemented with the superior delivery services from a firm that specifies in services delivery provision. The main outcomes are improved efficiency, increased customer satisfaction, loyal customer base and network, and enhanced profitability.
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