Ordering a pizza seems so simple. Pick up the phone, call the local delivery shop, order more toppings than your diet allows, and half an hour later it arrives at your door. But for Domino's, the major player in the delivered pizza business, the process is far more complex.
Domino's operates a network of more than 8,400 stores around the world with over 5,200 just in the U.S. to meet the needs of a hungry public. Servicing these stores with a 24-hour order fulfillment 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 centers that supply all domestic U.S. stores, 90 percent of which are owned by independent franchisees.
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. Just nine planners are able to run the entire distribution operation using software from Prescient Applied Intelligence, a provider of supply chain and advanced 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.
However, centralization did not solve a significant challenge in Domino's supply chain system. The DCs are quite small, averaging only 20,000 square feet, including about 200 refrigerated pallet positions, says Phil Worley, manager of the central inventory group for Domino's distribution division at the Ann Arbor HQ. Every bit of space is used. The DCs not only receive all ingredients and supplies that the 5,200 U.S. retail stores require, but they also prepare the dough, so it can be shipped fresh to the stores.
"It is high velocity," says Worley. "Each DC holds about seven days of inventory that is turned at least three times during a month and 40 times during a year."
Because of the limited space at the DCs and the need for rapid delivery of fresh ingredients, Domino's needed the ability to stagger inventory receipts at its 17 DCs. For example, one distribution center receives five truckloads of frozen meat toppings per week. But because of space constraints and shelf life, planners wanted it to receive one truckload per day for five days to preserve freshness while still running only one weekly order generation. Some products have a 14-day shelf life, so the difference between a Monday and a Thursday shipment can be dramatic.
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 labor 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 center 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.
"Our matched receipts to demand module helps us maximize our overall supplier chain efficiency," says Worley.
Other companies may order by the truckload, but that is not how Domino's operates.
"We want trucks with smaller quantities of multiple items," he says. " The staggered ordering system allows us to balance inbound receipts just the way we need them."
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.
For example, for cheese it will consider on-hand inventory, forecasts and any promotions planned. It will then tell the planner to order a load of cheese on Monday, another on Wednesday, and another on Friday. The logic developed with the Prescient planning system helps create purchase orders with due dates that arrive when the product is needed.
"This capability is a key benefit of the system for us," says Worley. "We always have a quick and accurate read on our inventory planning. We can rely on the planning system to make sure our suppliers do not overburden our DCs."
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, and whether they are company-owned vehicles or for-hire carriers. The 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.
"We'd rather be heavy than wrong," says Worley. "Our supply chain mirrors our very high service level standard.
He points out that as planners become more confident in their new model they can back off, reducing distribution centers safety stocks-and cutting corporate costs - with no risk of running out. Also, the freshness requirement throughout the supply chain and the limited space at all points do not allow excess inventory anywhere.
"We have a hybrid JIT philosophy," says Worley.
In the highly competitive pizza business, promotions have become a major marketing tool. Domino's planners use the Prescient system for managing these promotions, which substantially increase supply chain volume for particular products.
To manage promotional forecasts, Worley looks out about four months to plan a promotional adjustment based on historical information and internal information. Using the Prescient demand planning module, he does an historical analysis of similar promotions. The system contains a library of promotion profiles and real-time analysis of the current period. The system can overlay new knowledge from the corporate marketing department that is likely to influence the new promotion. Based on this data, the system provides recommendations for promotion adjustments.
That demand planning information flows through to the distribution planning side where the system separates out the safety stock and inventory policy for quantity, so there is no inflation of safety stock. On a replenishment order, the planners see what is promotion and what is a regular order quantity.
Buyers also receive this information. They also have a screen showing quantity on hand and a six-week look at what the inventory is projected to be. This combination of information is what the buyers primarily depend on for inventory management during promotions.
"The ramp-up to a promotion is wild," says Worley. "Some promotions really take off and some do not. We have to deal with both situations."
Worley's team gets daily updates on promotion demand, so they can compare the actual with the expected uptake within that period. Domino's has very short lead times, so they can change order quantities very quickly to meet surges. The Prescient system provides daily inventory and demand alerts, so they can replenish outside of their regular order schedule.
According to Worley, this promotional planning capability also allows him to work better with the many suppliers they use around the country.
"I will work with suppliers a few months out, so they can build inventory and production to meet anticipated demand," says Worley.
For planning outbound shipments to the stores, the Prescient distribution suite integrates with the ERP system that 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. If for any reason the actual order is different from what was suggested by the system, the revised data is sent back to the Prescient system, so inventory information is current and accurate.
Store orders are filled every night at each DC. Every truck, which is part of a private fleet, is fully loaded to serve about 13 stores with 3000 pounds of product. The trucks handle both dry and refrigerated product. The deliveries are made during the following day when store activity is not at the peak. The standard order cycle is within 24 hours. Domino's guarantees its franchise stores first-time delivery accuracy.
"If we do not fill it correctly and completely, we will credit the delivery charges for that store," says Worley.
With Prescient automating much of the standard ordering and replenishment planning, instead of spending three-quarters of the week manually putting orders together, Domino's planners can focus more time and attention on making strategic decisions.
For instance, on Mondays, planners review last week's data, identify exceptions, and learn how accurate they were the prior week. By Tuesday, with an up-to-date forecast in hand, planners will kick off a batch job, say, 7 to10 truck orders (30 to50 shipments) per distribution center. After scanning the data and making small adjustments, the orders are transmitted to Domino's ERP system. On Wednesday, after receiving order confirmations, planners simply repeat the process for freight orders.
Domino's has been able to tame much of the complexity of its unique supply chain thanks to the efforts of Worley's inventory management and planning team using sophisticated tools from Prescient. Domino's growing ranks of retail stores are being replenished with a 24-hour service guarantee, even during the heaviest promotion periods, while the network of compact DCs operates at lean levels few companies can match.
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