Supply Chain Management Helps Domino's Deliver

"Let's order a pizza!" It's a common phrase uttered thousands of times each year in households around the world. When the pizza is finally delivered, the last thing we think about is where its ingredients came from. We are usually too busy stuffing our faces. However, if the pizza was stale or had spoiled ingredients, we would immediately have a negative perception of the pizza shop. After all, freshness counts.

Domino's Pizza (Ann Arbor, MI) realizes the importance of fresh ingredients. In 1999, the company sold 360 million pizzas and reached $3.36 billion in sales. In the United States, Domino's distribution division ensures that its 18 DCs (distribution centers) are never overstocked or run out of fresh ingredients. These DCs supply more than 4,500 Domino's Pizza outlets with items such as pizza dough, sauces, toppings, and even boxes for the pizza.

In 1999, the DCs relied on general desktop computing tools and Excel spreadsheets to create forecasts for ordering supplies. Often, the DCs ordered an extra supply of products to create a "safety stock." If the perishables in this safety stock were not sent quickly enough to the Domino's outlets, the company had to throw these items out. Additionally, in some emergency cases, the DCs were forced to pay expedited freight charges to deliver products at the last second. Domino's executives knew they had to improve the company's forecasting methods. The company needed a real-time system that would:

• allow Domino's to increase inventory "turns" (This refers to how long inventory is kept at a DC. Since many of Domino's items are perishable, it is imperative to "turn over" this inventory quickly.)
• improve customer service by reducing out-of-stock ingredients
• increase efficiency in its purchasing process
• adjust stock for variables such as bad weather and coupon promotions.

Forecasting For Supply Chain Variability
To solve this forecasting problem, Domino's chose Prescient XE – a supply chain management (SCM) software solution from Prescient Systems, Inc., (Fort Washington, PA). "We chose Prescient XE because it is specifically designed to handle supply chain variability and uncertainty," said Barry Smitherman, implementation manager for Domino's Pizza distribution division. First, Domino's identified two groups of users for the software. One group consisted of national purchasing managers from Domino's corporate headquarters who negotiate annual contracts with suppliers. The second group included the buyers at each of the individual DCs. These buyers are responsible for securing the goods that are shipped to the Domino's Pizza outlets.

The next step was to enter each DCs historical demand data into the Prescient XE's demand planning software. This software calculates future forecasts of product by DC. Once a forecast is made, the software's replenishment function suggests safety stock, order date, and order quantities. This data goes to the order-generation function, where rules for optimal shipping configurations are established. Once the suggested orders have been reviewed and approved, they are sent to the purchasing function of Domino's ERP (enterprise resource planning) system. The ERP system then executes the order.

Delivering The Right Amount, On Time
"The Prescient system standardizes our purchasing procedures so we are not inputting data from 18 different spreadsheets," Smitherman said. "Our deliveries are now 99% complete (the proper product, in the proper quantities, in non-damaged condition) and on time in the first delivery attempt. That means out-of-stocks are practically nonexistent."

With the new system, Domino's can create a true weekly forecast instead of the previous system's monthly average report. In addition, Domino's inventory turns have increased, and safety stock levels are now under control. This division's success has prompted Domino's to add its equipment and supply division as a user of the Prescient software. This division provides Domino's stores with everything from pizza ovens and store signage, to uniforms and promotional items.

Questions about this article? E-mail the author at DanS@corrypub.com.