SUPPLY CHAIN PRACTICES AT

DOMINO’S
Contents

DOMINO’S - INTRODUCTION.................................................................................................................3
BUSINESS MODEL..................................................................................................................................3
SUPPLY CHAIN LOGISTICS.......................................................................................................................5
MARKET SHARE.....................................................................................................................................5
Revenue...............................................................................................................................................5
BUSINESS UNITS....................................................................................................................................5
CENTRALIZED OPERATIONS OF DOMINOS DISTRIBUTION CHANNEL.....................................................6
Application of the prescient distribution planning suite....................................................................6
Managing Quick Inventory Turnover..................................................................................................6
Concept of Staggered Receiving........................................................................................................7
Maintaining Full Truck Load...............................................................................................................7
Outbound Planning............................................................................................................................7
APPLYING LEAN SUPPLY CHAIN STRATEGIES..........................................................................................8
EARLIER DECENTRALISED MODEL OF DOMINOS INDIA.........................................................................9
THE SUPPLY CHAIN...............................................................................................................................10
DOMINO’S DISTRIBUTION CHANNELS.................................................................................................10
ENABLERS OF DOMINO’S SUPPLY CHAIN.............................................................................................11
COMPARISON OF DOMINO’S & McDONALD’S INDIA SUPPLY CHAIN...................................................12
FUTURE CHALLENGES AND RECOMMENDATIONS...............................................................................13
Challenges.......................................................................................................................................13
Recommendations...........................................................................................................................14
REFERENCES........................................................................................................................................14
APPENDIX: SUPPLY CHAIN FOR DOMINO’S PIZZA................................................................................15

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DOMINO’S - INTRODUCTION
Domino's Pizza, Inc. is an international pizza delivery corporation headquartered in Ann
Arbor, Michigan, United States. Founded in 1960, Domino's is the second-largest pizza
chain in the United States. Domino's currently has nearly 10,000 corporate and franchisee
stores in 60 international markets and all 50 U.S. states. Domino's Pizza was sold to Bain
Capital in 1998 and went public in 2004. Domino's menu features pizza, pasta, oven-baked
sandwiches, wings, boneless chicken, salads, breadsticks, cheese sticks, and a variety of
dessert items.

 Founded in 1960 by Tom Monaghan

 Second largest Pizza chain in US
 Around 10000 corporate and franchised stores across 60 nations

The India chapter of Domino’s began in the year 1996 when the company set up its first
outlet here. Jubilant Food Works Limited, a Jubilant Bhartia Group company holds the
Master Franchise rights for India, Nepal, Sri Lanka and Bangladesh

BUSINESS MODEL
Franchisees are the cornerstone of business model of Dominos. Its 90% of 4900 stores in
US are franchisee driven whereas the same ratio is 100% for the 5100 stores internationally.
Franchisees are not allowed to pursue other commercial interests. They have a very focused
and efficient operating model comprising of delivery and carry-out.

Let us now take a look at the domestic (US) & international mode of operations

Domestic

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 1. Company owned stores
- These stores provide income for products, operational & technological testing.

2. Distribution Profits
- Ensure quality & consistency

- Leverages purchasing power

- Allows stores to focus on sales & customer service

International

1. Master Franchise Model

- A master franchise can sub-franchise or directly run stores

- Similar store model as US with modified menus

2. World Resource Centre

- Takes care of all the administrative resources for the worldwide system of stores from
marketing, accounting to quality

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SUPPLY CHAIN LOGISTICS
Logistics is all about managing the flow of materials & information from source to customer.
Generally a huge gap exists between the best practice & the average performers. This gap
can be bridged by

EDI – Electronic Data Interchange: It involves communicating the information effectively to

the supplier & order processing can be undertaken simultaneously.

JIT Logistics – Just in time Logistics: Under this, it delivers straight to retailers, thus
eliminating the goods-inward receiving process

The concept of “integrated logistics” is already taking foothold.

For the success of the supply chain processes, there are some qualifiers and some winners.
Qualifiers will be:

 Cost (purchase price or cost of ownership)

 Quality (ability of the product to meet the consumer expectation)
 Lead time (how much the customer has to wait to get the product)
 Service Level (how consistently is the lead time target being met)
 Stock Turns (how many times a stock is turned in a given period)

For Domino’s the major “winner” will be Lead Time.

MARKET SHARE

US Market Share
Other 2 national
Competitors;
27.00%
Domino's; 18.00%
Regional Chains
& Independents;
55.00%

Revenue
There are primarily two major sources of revenue of Domino’s:

 70 % from home deliveries

 30 % from OTC sale

BUSINESS UNITS

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Domino’s Business Units can be classified into three major categories:

Domestic Stores (US-based)

 4900 Franchised Stores
 457 company owned stores

Domestic Supply Chain

 17 Dough Manufacturing and Supply Chain Facilities
 One Equipment and Supply Facility

International
 4126 Franchised Stores
 Currently no-company owned store
 Six Dough Manufacturing and Supply Chain Facilities

CENTRALIZED OPERATIONS OF DOMINOS DISTRIBUTION

CHANNEL
Domino’s has a huge chain of Store Outlets all over the world. It runs a network of more than
8,400 stores all over the world with over 5,200 in the USA itself. In the recent 5 years it has
also opened a large number of outlets in emerging markets like India.

Servicing these stores with a 24-hour order fulfilment guarantee, so consumers can have
fast and reliable delivery service, is a complex task handled by the distribution division of
Domino’s Pizza. The division operates 17 distribution centres that supply all domestic U.S.
stores, 90 percent of which are owned by independent franchisees. The Company applies a
similar model for operations in other Countries as well.

Domino’s took a major step in supply chain efficiency in 2002 when it centralized inventory
management operations at its Ann Arbor, Mich., headquarters. Rather than have each DC
manage its own supply chain sourcing and planning, the centralized operation allowed the
company to:

 Standardize sourcing, planning, inventory management and replenishment

across the national network.

Application of the prescient distribution planning suite

Just nine planners are able to run the entire distribution operation using software from
Prescient Applied Intelligence, a provider of supply chain commerce solutions.
The Prescient distribution planning suite that Domino’s uses includes modules for
inventory and demand planning, optimized order management and advanced time-
phase replenishment. The demand planning piece handles forecasting and promotion
planning.

Managing Quick Inventory Turnover

The Distribution Centres of Dominos’ which provide supplies to the store outlets are quite
small. Having smaller DCs has helped the company save infrastructure costs.

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However the challenges are

1. To cater to the large demand of the store outlets with limited space in the DC.
2. To provide fresh supplies each day to ensure that end consumers get fresh pizzas

Therefore, the answer lies in having High Velocity as the Domino’s management puts it. It’s
about attaining a faster inventory turnover which:

 Reduces inventory costs

 Helps company provide fresh supplies to the stores each day (24 hr cycle time)
 Helps company to be able to manage supplies with limited space in the DC. This also
helps in reducing the infrastructure costs in maintenance of DC.
So, each DC holds about seven days of inventory that is turned at least three
times during a month and 40 times during a year.

Concept of Staggered Receiving

With the help of Prescient’s development and support team, Domino’s created a solution
called the “matched receipts to demand module” to accommodate the inbound
constraints. Before, Prescient would schedule the five weekly truckloads of frozen meat
toppings to arrive and load up in one day. But on the next day warehouse labour might have
had little to do. But with the new optimized order logic, Domino’s could load one truck per
day – optimized for the most efficient delivery.

This way, truckloads contain the amount of product a distribution centre will use in
one or two days—not a week. Similarly, other ingredients and supplies such as pizza
boxes can ship daily instead of weekly—although the forecasts are still made on a weekly
basis.

Trucks with smaller quantities operate multiple items, multiple times. The staggered ordering
system allows balancing inbound receipts with outbound retail store requirements.

This matched receipts to demand module helps maximize the overall supply chain
efficiency.

Monitoring Inventory and Real Time Demand

The Prescient planning suite monitors inventory and determines when a DC needs
product. It optimizes orders by looking at the minimum requirements for each product
based on inventory levels at the DCs and on days of supply to meet the minimum
requirements that Domino’s has established.

The planning system receives demand signals from the retail stores through the
company’s PeopleSoft enterprise resource planning system and aggregates these demand
signals to establish replenishment requirements. It also considers any constraints such as
dollar amount per purchase order. The next staged order will consider what was placed on
the prior order and go through the same process.

Maintaining Full Truck Load

While Domino’s needs to stagger shipments, inbound trucks must be fully loaded to
control freight spend. The system knows the weight and dimensions for each product as
well as the volume and weight restrictions of the trucks. Optimization logic builds fully
loaded trucks of all the product need for that delivery. The overriding constraint for the
planning system is to never run out of product at the DCs.

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As planners become more confident in their new model they can reduce distribution centers
safety stocks—and cut corporate costs – with no risk of running out.

Outbound Planning
Central Planning receives daily orders from the stores via a point-of-sale system or by
phone. The Prescient system creates suggested orders for the outbound trucks, and sends
the data back into the ERP system for execution at the DC. Store orders are filled every
night at each DC-this is done to maintain an Order cycle is of 24 hours.

The deliveries are made during the following day when store activity is not at the peak.
Domino’s also guarantees its franchise stores first-time delivery accuracy so that the
franchisees are able to meet the end consumers demand of chosen pizzas and keep them
satisfied.

APPLYING LEAN SUPPLY CHAIN STRATEGIES

Creating a lean supply was critical for Domino’s to reduce waste and inventory and increase
yield. As Domino’s raw materials are perishable it is important to ensure availability of raw
materials without wastage of raw materials.

Availability of perishable
items

Wastage due to
ingredients passing their
use by date

Each outlet needs around 60 raw materials. The useful shelf life varies widely. Both dough
and vegetables should be consumed within days; cheese within weeks, tinned sauces may
last months. With just 60 items, manual stock taking is also possible and is undertaken every
evening & information is fed into PC. To aid sudden spurt in demand, facility exists to make
urgent collection by sending a van to commissary or other nearby outlets.

In order to ensure full utilization of trucks, Domino’s Pizza has taken various steps.

For Example, Jalandhar is place where Domino’s Pizza gets the best quality wheat at lowest
price. Thus, from Jalandhar, wheat is transported to the nearest Commissary – Delhi where
dough is prepared from the wheat from Jalandhar. Instead of returning the empty truck from
Delhi to Jalandhar, Domino’s found that on the way Chandigarh comes with a cosmopolitan
population and is hence a potential market for Domino’s products. Thus, Domino’s opened
an outlet in Chandigarh. Cost of entry was extremely low as there was a very low additional
cost incurred in transportation of products. Domino’s opened outlets in every potential
market that fell between commissary and its prime sourcing base. Similar policy was
followed in Karnal where best quality cheese was procured.

Superior demand forecasting and long-lasting relationships have also allowed Domino’s to
keep inventory and purchasing costs low. Domino’s maintains supplier relationships by being

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one of the largest domestic volume purchasers of pizza-related products such as flour,
cheese, sauce and pizza boxes, which allows the company to maximize leverage with its
suppliers. Domino’s also uses a combination of single-source and multi-source procurement
strategies. Each supply category is evaluated along a number of criteria including value of
purchasing leverage, consistency of quality and reliability of supply to determine the
appropriate number of suppliers.

Results after Lean Application

Source: Domino’s Pizza

EARLIER DECENTRALISED MODEL OF DOMINOS INDIA

Self-contained
commissaries

Outlet

Customer

The earlier model of Dominos was a decentralised one. The company had three self-
contained commissaries in the three major cities of Delhi, Bangalore and Mumbai. Each of

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these three centres procured raw materials such as wheat and vegetables on its own and
produced the dough for pizzas. This dough along with other ingredients was then
transported to the nearby outlets using a hub and spoke model. The outlets then carried out
home deliveries to customers or served them in-store.The problem with this model was that
it didn’t allow for the expansion of outlets and a number of activities were being duplicated.
It was felt that to support the future growth of the franchise within India; it was necessary to
adopt a more flexible and efficient logistics model.

THE SUPPLY CHAIN

The supply chain of Dominos mainly consist of

 The fast food outlets

 Domino distribution business
 Ingredient suppliers

Domestic Stores uses its company-owned stores as a testing ground for new products and
technologies which may then be passed onto franchisees. They generate income from
company-owned stores in the form of store profits. Domestic Supply Chain is vertically
integrated supply system automatic delivery of raw materials cuts out a lot of the “back of-
store” activities. Procurement of raw materials like wheat, baby corn, tomatoes and spices
are got, out of which wheat was bought in from Jalandhar and then sent to the commissaries
in refrigerated trucks. They have 4 commissaries (Regional Centralized Facilities):

 Delhi
 Bangalore
 Kolkata
 Mumbai

These centres ensure a timely delivery of raw materials and helps maintain consistency in
quality. Domino’s has centralised its purchasing, sourcing, warehousing and distribution of
raw materials, as well as the production of dough at its commissaries; this reduces the
storage space required at the store level, thus minimizing store operating costs. Because of
its centralised sourcing, Domino’s is able to leverage and monitor strong supplier
relationships to achieve the cost benefits of scale and to ensure compliance with its rigorous
quality standards.

Domino’s has a requirement for a cold supply chain because it transports frozen foods,
which have to be sent at a temperature of minus 18 degree Celsius. It also makes use of
refrigerated trucks in which food is sent at a temperature range of between 1 to 4 degrees
Celsius. In addition to the movement to and from each commissary, there are inter-
commissary movements that are regularly required. In the North, approximately fifteen
deliveries a month are made to stores in the NCR and approximately ten deliveries a month
to outstation stores, which are in excess of hundred in total.

SUPPLIERS
Dominos has documented “Supplier approval procedure”. Suppliers of food ingredients and
packaging agree to a detailed product specification for the products they supply. This is
reviewed by the Food Technologist to ensure the product is safe, legal and of consistently
high quality. All food products are risk assessed and their production is either audited by the
Food Technologist or is certified to the BRC Global Standard for Food Safety. A database of
Domino’s approved products and suppliers is maintained. Quality checks are carried out on

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delivery, samples sent for analysis or feedback received from stores or consumer. Suppliers
are continually assessed in various ways.

DOMINO’S DISTRIBUTION CHANNELS

Domino’s manufacturing and distribution centres are generally located within a one-day
delivery radius of the stores they serve. Domino’s has currently four, planning to add one
more distribution centre. They act as a warehouse. Supply is on a regular ‘milk round’ basis.
They have private fleets of trucks and act as supply and support channel for the outlets.
There is provision for best store equipment and are responsible for delivery of fresh, ready to
use ingredients, Installation and Individual store management.

Retail Outlets consist of regular stores, Super stores and Express stores: those where
people were expected to walk in and order rather than ask for home delivery.

ENABLERS OF DOMINO’S SUPPLY CHAIN

 Innovative Strategies

Dominos is constantly innovating process and system improvements to increase quality: the
efficient, vertically-integrated supply chain system that allow the franchise owner to dedicate
more time to human resource management rather than engage in “back-of-store” activity
typical of the industry, a sturdier corrugated pizza box and a mesh screen that helps cook
pizza crust more evenly; and the Domino’s Heat-Wave hot bag, which was introduced in
1998, that keeps pizzas hot during delivery.

In addition to its long history of innovations, Domino’s added a few new innovations:

1) Domino’s introduced the Pizza Tracker in 2009, for its US customers. Accurate to 40
seconds, this allows the customer keep a track not only of the entire pizza delivery
process but also provides information such as delivery truck number, delivery
personnel name and number.
2) Domino’s installed an Order Management System to help automate its purchase
order-to-invoice processes and enhance the pizza chain’s data management
capabilities. The new system will allow Domino’s to develop electronic business
relationships with suppliers.

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  Supply chain end-to-end visibility
Various inventory strategies and using point‐of‐sale data to improve inventory levels and
shipping practices has allowed Domino’s to increase its supply chain visibility. Because
Domino’s Pizza Distribution delivers only to Domino’s stores, it is both supplier and retailer.
That means efficiencies gained anywhere in the supply chain – from better labour and pallet
utilization in the warehouse to optimized deliveries – go directly to the Domino’s bottom line.
Domino’s needed the ability to stagger inventory receipts. For example, the average
distribution centre received five truckloads of cheese per week. But because of space
constraints and shelf life, the centre wanted just one truckload a day for five days – just one
order, but spread over five shipments to preserve freshness. As some products have a 14‐
day shelf life, the difference between a Monday and a Thursday shipment can be large.

 IT Infrastructure and Customer Relationship Management (CRM)

Domino’s computerized management information systems are designed to improve

operating efficiencies, provide corporate management with timely access to financial and
marketing data and reduce store and corporate administrative time and expense.

Further, Domino’s added optimized orders and advanced time phased replenishment.
Domino’s manages its data for a more complete, 360-degree view of their customers
through CRM applications. A centralised database in the US, for example, allows the
company to tailor its direct mail to location-specific requirements. Flexibility is allowed to
Domino’s franchise owners such that each franchise to select its creative offer and then
order the pieces. This has cut the order-to-deliver time from eight weeks to two weeks.

Domino’s also installed Domino’s PULSE, its proprietary point-of-sale system. Some
enhanced features of Domino’s PULSE over its previous point-of-sale system include:

 Touch screen ordering, which improves accuracy and facilitates more efficient order
taking;
 A delivery driver routing system, which improves delivery efficiency;
 Improved administrative and reporting capabilities, which enable store managers to
better focus on store operations and customer satisfaction; and
 Enhanced online ordering capability.

COMPARISON OF DOMINO’S & McDONALD’S INDIA

SUPPLY CHAIN

Supply Chain is one of the critical factors for the smooth functioning of any business. And
when we are talking about fast food business, Domino’s supply chain in India can be
compared with McDonald’s. The success of McDonalds India was achieved by sourcing all
its required products from within the country. To ensure this, McDonalds developed local
businesses, which can supply highest quality products. Today, McDonalds India works with
38 different suppliers on a long term basis and several other stand-alone restaurants for its
various other requirements. McDonald’s distribution centres in India came in the following
order: Noida and Kalamboli (Mumbai) in 1996, Bangalore in 2004, and the latest one in
Kolkata (2007). The Domino’s also operates with 4 commissaries as Regional Centralized
Facilities at Delhi, Kolkata, Mumbai and Bangalore.

Cold Chain was one of the unique concepts of McDonalds supply chain in India, on which it
had spent more than six years to get the system into place. The Domino’s supply chain is

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also very similar and operates similarly. The procurement of raw materials is also widely
distributed on similar lines for both the food joints. The following list of suppliers, who build
up the major supply chain of McDonalds, reveal how this ‘Cold Chain’ works and contributes
towards the efficiency of McDonalds:

 Dynamix Dairy Industries (Supplier of Cheese)

 Trikaya Agriculture (Supplier of Iceberg Lettuce)

 Vista Processed Foods Pvt. Ltd. (Supplier of Chicken and Vegetable range of
products including Fruit Pies)

 Radhakrishna Foodland (Distribution Centres for Delhi and Mumbai)

 Amrit Food (Supplier of long life UHT Milk and Milk Products for Frozen Desserts)

The supplier system that McDonalds has is very similar to Domino’s. In fact, Domino’s
benchmarked from the cold supply chain of McDonalds and created its’ own in India. The
main difference that arises between the two is the Domino’s commitment for home delivery
system. Domino’s according to its vision lays major stress on home delivery while,
McDonalds, as of now delivers only in selected parts of Mumbai. For proper home delivery,
Domino’s has Online Ordering System, Hunger Helpline, Direct Phone Ordering and TiVo
ordering systems. It rightly does the brand positioning by ’30 minutes or free’ in India. The
major components of the delivery system are Delivery Boy, Delivery vehicle, Hot Bags and
Pizza Boxes.

The Home delivery process:

 The order number and order details are handed to the delivery boy

 The delivery status is updated in Pulse (Point-of-system for delivery)

 The delivery boy delivers the pizza

 The payment is received from the customer

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  The delivered package is updated in Pulse.

FUTURE CHALLENGES AND RECOMMENDATIONS

Challenges

1) Rising raw material and energy costs: The prices of the key ingredients for pizza –
wheat and cheese – have been on the rise. Similarly, costs of fuel have risen four-fold since
2001. These inflated costs will have a direct impact on Domino’s profit margins.

2) Increased competition: As demand for Quick Service Restaurants (QSR) increases, so

will the competition between the players – McDonald’s, KFC, Pizza Hut etc. – who currently
dominate this segment, as each vie for a larger slice of the market.

Recommendations
1) Extend use of IT: Technology such as GPS could optimise the time taken and fuel
required for deliveries from outlet stores to customers. Further, it could also help Domino’s
map the location of logistics movement from commissaries to outlets.

2) Expand into newer territories: Domino’s is present across 16 cities in India. In order to
address increased competition, it could expand into newer geographies which could be
served by existing commissaries. Greater expansion will also enhance the need of additional
commissaries.

3) Use a combination of own and third-party vehicles for transportation requirements:

Domino’s can outsource its transportation requirement from and between commissaries to
optimise costs. However, inter-city transport, i.e. between outlets and customer destinations,
should be handled through a Company-owned fleet. This will not only allow greater control
over time taken for delivery but also help Domino’s use more fuel-efficient means of
transportation to save on energy costs.

REFERENCES
 Datamonitor Case Study (March 2009): Domino’s Pizza (UK), Building from a
platform of scale and innovation to grow during recession

 Domino’s Pizza Annual Report 2009-10

 Domino’s Pizza Inc.: www.dominos.com

 Jaideep Motwani, Manu Madan, A. Gunasekaran, (2000) "Information technology in

managing global supply chains", Logistics Information Management, Vol. 13 Iss: 5,
pp.320 – 327

 McDonalds Corporation: www.mcdonalds.com

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 Ogden, James R. and Ogden, Denise T., (2005) “Retailing: Integrated Retail
Management,” Houghton Mifflin Company

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APPENDIX: SUPPLY CHAIN FOR DOMINO’S PIZZA

Source: Domino’s Pizza Annual Report 2009-10

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