Better Data, Better Decisions

In just over 20 years, Papa John’s International has grown from a one-man pizza delivery business operating out of the founder’s father’s restaurant and bar to more than 3,000 units in 28 countries.

The rapid pace of growth has been exciting, but also left the company’s infrastructure struggling to keep up. In this country, Papa John’s uses a network of 10 distribution centers to transfer products from vendors to its stores. Until recently, however, the managers at each DC would order the supplies they thought necessary for their own locations; they lacked the ability to see what was available or needed in nearby DCs, limiting their capacity to economize on transportation costs by combining routes.

Moreover, to ensure that they didn’t run out, managers sometimes kept several months worth of ingredients on hand. That boosted carrying costs, and required some DCs to lease outside storage units.

In addition, store managers often would call — rather than use the formal supply chain system — to place orders, and most vendors negotiated directly with the freight carriers, and then incorporated the costs into the amounts they charged Papa John’s.

Further complicating the process is the fact that almost all the products moving from the DCs to the stores are perishable (in fact, to ensure freshness, each DC and store must get a delivery every four days).

To overcome these challenges, the team at Papa John’s began implementing the transportation application and demand forecasting/inventory optimization modules from Atlanta-based Manhattan Associates in early 2007. Those systems went live mid-year, and implementation of the warehouse management system should be completed by the end of 2009.

The cost of these systems typically runs into six figures, but the benefits are compelling. With their new demand planning and inventory applications, Papa John’s warehouse managers have a better handle on current inventory levels and upcoming needs, so they can more precisely determine ordering levels, rather than hold extra stock as a precaution.

That’s allowed Papa John’s to slash 90 percent of its outside storage units, says Eric Hartman, the pizza chain’s senior director of logistics. And, because the software allows visibility into the potential trade-offs between service levels and efficiency, Papa John’s has been able to reduce inventory levels without risking service failures.

Billing procedures and freight accounting also have been simplified. “Our carriers see all applicable costs prior to invoice creation,” Hartman says. “They must have all costs approved prior to submitting an invoice. That has reduced auditing and error correction.”

Slicing inventory costs
Equally important, centralizing inventory records gave Papa John’s “greater visibility to ensure that products were used before their expiration date,” reducing waste and write-offs, Hartman says. And, in the event of a food recall, being able to quickly track the path a particular ingredient has taken becomes increasingly important.

Overall, Papa John’s was able to chop $500,000 from inventory costs in the first year the system was live, Hartman says. Freight costs also have dropped, even though the centers are getting more frequent deliveries, because greater supply chain visibility across the organization allows Papa John’s to develop more efficient delivery schedules.

And when several vendors are located near each other, Papa John’s will direct the carrier to combine pick-ups from those vendors before heading to a DC.

Papa John’s also can track an order from purchase order to delivery at the DC, which allows managers to allocate in-transit products to outbound orders before they even arrive at a facility. The company also can track attributes like food temperature during transit to ensure safety and quality.

The upshot? Hartman and his team reduced freight spending by 10 to 15 percent within six months of implementation.

Improving internal communications
Several less tangible factors also were key to the successful implementation of the supply chain solutions. Increasing the dialog between different areas within Papa John’s, such as the buying and transportation departments, helped ensure the success of the project and generate savings, says David Cauffiel, product director for Manhattan Associates’ transportation management solution.

The various Papa John’s teams also scrutinized and improved their processes before implementing the systems. Had they not done so, Cauffiel says, the results wouldn’t have been as significant.

Hartman and his colleagues in areas across the organization, including the supply chain, transportation, operations, IT and accounting departments, had to dissect the embedded costs within the prices they paid for different products. For instance, in order to intelligently bid on new freight contracts, they had to figure out what portion of the amount they paid for a case of goods covered transportation expenses.

A phased implementation schedule also helps, says Cauffiel. “You do one piece, get an ROI, move to the second piece, get an ROI,” and so on.