Supply Chain Management of Dunkin Donuts - Essay Example

Running Head: SUPPLY CHAIN MANAGEMENT OF DUNKIN’ DONUTS Supply Chain Management of Dunkin’ Donuts Table of Contents Introduction 3 Supply Chain Management 4 Overview of Dunkin’ Donuts’ Supply Chain 5 About Raw Materials 8 Dunkin Donuts Distribution Centers – Purchasing, Warehousing, Wholesaling, Logistics 10 Dunkin’ Donuts Franchise Stores – Manufacturing, Retailing 11 Dunkin’ Donuts Supply Chain Management 12 Conclusion 12 Works Cited 13 Exhibits 16 Introduction Started in 1950, the founder of Dunkin’ Donuts (DD), Bill Rosenberg opened the first Dunkin’ Donuts shop in Quincy, Massachusetts, which was welcomed whole heartedly by early morning breakfast lovers, coffee lovers, and everybody else who wanted a sweet snack with coffee. (DD-Corporate Backgrounder, 2008). With the success of the first shop, Rosenberg opened five more Dunkin’ Donuts shops by 1954. During the time, this entrepreneurial feat was worthy of recognition resulting in Rosenberg’s being featured as a young entrepreneur in national publications such as The Saturday Evening Post and Coronet magazine. By 1960, Rosenberg founded The International Franchise Association, which today has more than 800 fanchisors and over 30,000 franchisee members, accounting for almost 50% of retail business in the United States (DD-Our Founder, 2008). Today, Dunkin Donuts claims to be the largest coffee and baked goods chain in the world, selling 1.5 billion cups of coffee per year, with many varieties of donuts and a wide range of baked products such as muffins, bagels, croissants, pizza, flat bread sandwiches, cookies, apple pie and donut-hole treats called Munchkins, as well as hash browns, salads and soups. Aside from freshly brewed coffee, which today, Dunkin Donuts serves in nine flavors, shops also offer iced coffee, coffee lattes in various flavors, iced tea, ice blend fruit juices called Coolatta, hot chocolate and packaged coffee. Today there are close to 8,000 Dunkin’ Donuts distribution points in 30 countries, with 5,800 in North America. The rest are in key international markets including Asia-Pacific and Latin America (DB-Featured Products, 2008; DB-Dunkin’ Donuts, 2007). This study presents the working structure of the supply chain management system that has made Dunkin’ Donuts one of the most successful brands in the world. The scope of the study is limited to the product supply chain of Dunkin’ Donuts food and beverage items. It does not include other products used for promotional purposes but are also sold to customers, which are mainly non-food items. Supply Chain Management A supply chain is an interrelated collection of processes and associated resources that starts with the acquisition of raw materials that will be used to manufacture a product, and ends with the acquisition, purchase or delivery to an end-customer of that product. The chain typically includes suppliers, manufacturers, logistics service providers, warehouses, distributors, wholesalers, retailers and all other entities that lead up to delivery to the final customer (Supplychain, n.d.). For a global organization such as Dunkin’ Donuts, the supply chain consists of all processes involving suppliers of raw materials or food ingredients used to manufacture its products, the processes for manufacturing, logistics, warehousing, distribution, wholesaling, retailing, and even deliveries to final customers. Supply chain management (SCM) consists of the procedures and activities used to manage the supply chain to ensure that it is operating as efficiently as possible, generating the highest level of customer satisfaction, and incurring for the company the lowest cost possible. Depending on the complexity of a company’s operations three levels of activities are focused on – strategic, tactical, and operational. Strategic activities involve high level business decisions concerning the entire organization. These may be the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets. Tactical activities focus on measures to achieve cost benefits. These may be through the use of industry best practices, a purchasing strategy with favored suppliers, partnering with logistics companies for cost-effective transportation of goods, and warehousing strategies to reduce inventory carrying costs and obsolescence. Operational activities involve day-to-day operational decisions which affect how products and information flow along the supply chain. These include changes in the manufacturing process, new purchasing agreements with suppliers, changes in procedures for moving products in the warehouse, as well as in serving customer purchases (e.g. Aside from walk-in customers, express delivery is available by ordering through telephone.) (Murray, 2008). With the many advances in technology, various technological products may also be utilized to achieve benefits from the supply chain management process. Enterprise resource planning systems are used as a backbone for SCM processes. Internet technologies may be used for communication with dispersed functional departments, suppliers, and other business partners such as master franchisees in other countries, logistics service providers and the like. The internet, telephones, and the ubiquitous mobile phones may also be used for selling directly to customers (Murray, 2008). Overview of Dunkin’ Donuts’ Supply Chain The parent company of Dunkin’ Donuts is Dunkin’ Brands Inc. (DB), a name adopted Allied Domecq Quick Service Restaurants adopted in 2004 (DB-Corporate History, 2007). In the 1970’s, when Bill Rosenberg regained his health after fighting diabetes, lung and lymphatic cancer, he turned his attention to his favorite pastime, harness racing, and decided to sell Dunkin’ Donuts. In 1990, Allied Lyons acquires Dunkin’ Donuts (Marc, 2008). Allied Lyons later on became Allied Domecq Quick Service Restaurants after partnering with Pedro Domecq, the leading spirits marketer is Spain and Mexico (DB-Coporate History, 2007). Today, Dunkin’ Brands Inc. manages two brands, Dunkin’ Donuts and Baskin-Robbins. Within the Dunkin’ Brands organization, there are separate sub-organizations for each brand, which is headed by a President/Chief Brand Officer. In the case of Dunkin’ Donuts, the current President and Chief Brand Officer is William Kussel, who is responsible for all domestic and international operations, marketing, franchising and new business initiatives for the Dunkin Donuts brand (DB-Leadership, 2007; DD-Leadership, 2008). The operations sections of Dunkin’ Donuts include Brand Marketing, which oversees the development and execution of marketing strategies and initiatives, advertising campaigns and new product launches to further the brands growth worldwide; Operations Services, responsible for implementing new concept ideas, products and operating systems to benefit consumers throughout the world; Territory Development, responsible for crafting, implementing and executing the direction for the companys growth objective of doubling the business in the next five years, and conducts the day-to-day operations of development and construction teams; Eastern Seaboard Operations, responsible for restaurant operations in all of Dunkin Donuts markets throughout the US East Coast; Development of Alternative Points of Distribution, which leads the initiative in expanding Dunkin Donuts presence in nontraditional venues such as airports, colleges/universities, big box retail, grocery, hospitals, stadiums and arenas; Franchising, which oversees strategic growth for Dunkin Donuts in the United States; International Expansion, which is responsible for developing international markets to expanding the brand in key strategic global markets; and Development of Emerging Markets, which directs the companys national expansion plans to triple the number of stores in the US to 15,000 by 2010, as well as oversees restaurant operations in the Midwest (DD-Leadership, 2008). As such the Dunkin’ Donuts organization is all about conceptualization, development, supervision of implementation and monitoring of the Dunkin’ Donuts global operations. Except for the Dunkin’ Donuts Culinary Dream Team, which functions under the Creative and Innovation office of Dunkin’ Brands Inc., the Dunkin’ Donuts organization is hardly a part of the product supply chain (DB-Executive Council, 2007). However, all information related to the processes of the product supply chain are managed and/or supervised by the Dunkin’ Donuts organization. As stated earlier, the supply chain starts with the acquisition of raw materials that will be used to manufacture a product, and ends with the acquisition, purchase or delivery to an end-customer of that product. Using this definition, Dunkin’ Donuts’ supply chain can be depicted as follows, with black arrows showing the flow of materials and red arrows, the flow of information. Exhibit 1: Determination of Raw & Other Materials for Product Production Exhibit 2: Product Supply Chain from Raw Materials to End Customer in DD Restaurants Exhibit 3: Product Supply Chain from Raw Materials to End Customer of Alternative Distributor/ Retailer or Direct End Customer The different parts of the supply chain management system of Dunkin’ Donuts are explained in more detail in the succeeding sections. About Raw Materials There are two major product lines, involving food, at Dunkin’ Donuts. These are beverages and food items. In the beverages line, there are coffee, chocolate, fruit juices. In food items line, there are donuts, donut-hole treats called Munchkins, muffins, bagels, croissants, pizza, flat bread sandwiches, cookies, apple pie and donut-hole treats called Munchkins, as well as hash browns, salads and soups (DD-Featured Products, 2008). All ingredients and procedures, like recipes, are specified by the Dunkin’ Donuts Culinary Team, which are headed by well-known executive chefs. Taking a look at the coffee products line, with coffee as its basic ingredient, Dunkin’ Donuts proclaim that it only uses Fair Trade Certified Coffee Beans which assure that coffee farmers get a fair price for their coffee beans. The coffee farmers from different parts of the world supply to the coffee manufacturers who roast, grind and blend the coffee grounds according to Dunkin’ Donuts’ specifications. This represents the blown-up raw materials process in Exhibit 2, which follows a similar supply chain as the first part of Exhibit 3. Coffee-ground blends are then delivered to the distribution centers or are packaged into finished product coffee grounds packages which are sold at the restaurants, or delivered to alternative distributors/retailers such as supermarkets (DD-Dunkin’ Difference, 2008). An example of this would be Dunkin’ Donuts partnership with P&G Coffee. P&G, which claims to be the #1 coffee roaster in the United States has been licensed by Dunkin’ Donuts to manufacture, distribution and market Dunkin’ Coffee to alternative distributors such as supermarkets (DD-Procter & Gamble, 2007). Other examples of these kind of pre-manufactured product suppliers which Dunkin’ Donuts uses in its beverages operations are Tropicana Orange Juice, and Splenda for the Latte Lite products (DD-Featured Products, 2008). These brands have their own supply chain management systems to produce their products. In the food items product line, raw materials are sourced from suppliers by the Distribution Centers, according to the specifications provided by the Dunkin’ Donuts Culinary Team. For donuts and other baked items, regular ingredients for production include flour, milk, eggs, and many others. Since different food item variations require different ingredients, such as fruit flavors for donuts; pumpkin for muffins; bacon, cheese, and omelet ingredients for croissants; pepperoni for pizza; and many others; generic raw materials are sourced by the Distribution Centers from their respective manufacturers. Pre-manufactured ingredients are also sourced such as those from Jelly Belly Candy Company for three candy-flavored donuts and Mars Inc. for the Milky Way and M&M donut flavors. Dunkin’ Donuts online store also after food gift items which include Dale and Thomas peanut butter and popsters. Dunkin’ Donuts Distribution Centers – Purchasing, Warehousing, Wholesaling, Logistics The Dunkin’ Donuts Distribution Centers supply everything that a Dunkin’ Donuts franchisee needs for the franchised restaurant locations that the franchisee operates. These locations may be restaurants, stands or kiosks in parks or stadiums, or self-service machines at gas stations (DD-Press Room, 2008). In the United States, there are five distribution centers which are responsible for purchasing, transportation, logistics and warehouse operations that provide all beverage and baking materials, shop supplies like cups, napkins, stirrers, as well as equipment for the Dunkin’ Donuts stores. All of these Distribution Centers are cooperatives owned by the franchisees. Each regional distribution center is owned by the franchisees it services (Foster, 2005). According to Bill Rosenberg, Dunkin’ Donuts does not intend to earn profits from the materials used in the Dunkin’ Donuts stores, reason why all distribution centers are owned by the franchisees (Doherty, 2005). Dunkin’ Donuts’ National Distribution Center was established in January 2006 to unify the four distribution centers; namely Southeast, Mid-Atlantic, Mid-West and Northeast; that service the Dunkin’ Brands system across the United States. The National Distribution Center aims to optimize operational efficiencies and synchronize management efforts to deliver consistency throughout the country for the benefit of the franchisees and Dunkin’ Brands. The unified supply chain got together talent from all the regional Distribution Centers into one purchasing team, one member services team, and one marketing team. Through this, significant unit mark-up savings accrued to the franchisees, and increased efficiencies in the supply chain and distribution system (National DCP, 2006). In international markets, a franchisee for a particular territory is required by Dunkin’ Donuts to set up distribution center facilities and operations along with the setting up of the required number of store locations such as those in mainland China and in the United Arab Emirates (QSR Magazine, 2008; DD UAE, 2008) Dunkin’ Donuts Franchise Stores – Manufacturing, Retailing In the traditional supply chain model, there are manufacturing and retailing nodes in the supply chain process flow. Manufacturing usually follows raw materials acquisition, and then followed by product logistics such as warehousing, transportation, delivery to wholesalers, then delivery to retailers, until it is finally retailed out to the end customers. Dunkin’ Donuts peculiarity is that the actual product that end customers buy from a franchised Dunkin’ Donuts store is manufactured in that store. In fact, Dunkin’ Donuts boasts of its freshly baked and freshly brewed products (DD-Featured Products, 2008). Other non-restaurant Dunkin’ Donuts locations like stands, kiosks and self-service machines are also owned and operated by the franchisee in that territory. Stands and kiosks without food preparation facilities are supplied finished products by the franchised restaurant which prepares or manufactures and delivers. In terms of the traditional models of supply chains, self-service machines present another peculiarity. If the machine is simply a dispenser of finished products, the manufacturing occurred at the franchised restaurant, delivered and stocked into the machines. Retailing is done by the partner establishment which allowed the machine to be put there in the first place, unless of course, if the machine is also capable of retailing automatically. Some types of self-service coffee machines dispense coffee and then lets the customer finish the product manufacturing process by adding sweeteners and cream. Again, in terms of supply chain, the customer is the one completing the manufacturing process. Dunkin’ Donuts Supply Chain Management Dunkin Donuts franchising support team manages the Dunkin’ Donuts supply chain with its functions of development, construction, operational support, training, and field marketing. Each team member contributes specialized knowledge to help support your franchise (DD-Support System, 2008). In support of supply chain management, Dunkin’ Donuts uses technology to facilitate information gathering, summarization and monitoring. The FAST system allows franchisees to self-report their weekly sales via a secure online tool, a fast and effective process that eliminates unnecessary paperwork. Franchisee Central is a secure password protected website that allows franchisees to keep up with the latest brand news, product releases, and marketing strategies. Sophisticated Electronic Point of Sale Terminals enable restaurant operators to control operating costs and build customer loyalty (DD-Support System, 2008). In April 2007, Dunkin’ Donuts engaged Oco, Inc., a data integration and business intelligence solutions provider for the development and implementation of an improved management and reporting system, with an extensive library of over 70,000 reports and key performance indicators covering numerous functional areas (Supply & Demand Chain, 2007). Conclusion Dunkin’ Donuts supply change management system is peculiar and uniquely designed to fit its operations. Effective management of the supply chain is not only done by Dunkin’ Donuts’ managers but its franchisees and business partners as well. The entire supply chain management system is also very well supported with technological solutions. All in all, these combination of factors has made Dunkin’ Donuts one of the world’s most successful brands. Woks Cited Doherty, K. 2005. 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Retrieved 27 November 2008, from http://supplychain.ws/index.htm Exhibits Exhibit 1: Determination of Raw & Other Materials for Product Production Exhibit 2: Product Supply Chain from Raw Materials to End Customer in DD Restaurants Exhibit 3: Product Supply Chain from Raw Materials to End Customer of Alternative Distributor/ Retailer or Direct End Customer Read More