Strategic Vision Drives Domino's Pizza Distribution

By James D. Krasner and Michael Soignet -- Supply Chain Management Review, 9/1/1997

Domino's Pizza Distribution (DPD) is the primary source for food service and equipment and supply (E&S) distribution for Domino's mainland U.S. pizza stores. Through a network of 18 distribution centers—all of which manufacture fresh dough—DPD regularly supplies over 4,300 stores with more than 250 products. These items range from all food items (except soft drinks) to pizza boxes, napkins, forms, and cleaning supplies.

All of the food products that the stores buy from DPD are shipped from one of our distribution centers on our private truck fleet. E&S supplies stores with everything from ovens and signs to pizza cutters and uniforms from two distribution points (and in some cases, we drop ship directly from our suppliers). Our International Division manages similar operations to support Domino's stores in Canada, Alaska, Hawaii, and Puerto Rico. From our private fleet and delivery and service specialists to our customer-service representatives and field managers, each distribution center acts as a key part of the support channel for the pizza stores it services.

The DPD Division started to grow in earnest in the early 1980s as Domino's store growth began taking off. In the mid-1980s, when nearly 1,000 stores were added in a single year, the DPD network grew to its most expansive distribution structure. Our distribution centers historically have acted autonomously, focusing intensely on excellent customer service. Each center had developed methods and procedures tailored to support its assigned market.

It was during the late 1980s that our existing core-information systems were put into place. At the time, these UNIX-based, customized systems employed leading technology. Back then, functionality was fairly limited to transaction process management.

After a period of limited change in the early 1990s, Domino's Pizza Distribution started to re-assess its strategic vision. In 1995, the current vision for DPD started to take form. The core guiding principles of our strategy are to:

• Achieve Customer Satisfaction and Success: Impress our customers and help their business succeed.
• Perfect the Supply Chain: Focus on delivery systems—from the farmer's field to the consumer's front door.
• Develop Individuals and Teams: Find, develop, and keep the best people.

Over the past couple of years, DPD has aggressively pursued this strategic direction and has been doing the groundwork required to support this vision. DPD now is in the midst of implementing advanced technology and operational solutions that will allow us to perfect our supply chain.

Although Domino's Pizza stores are not required to use DPD as a source for product or equipment, 96.5 percent do source through us. Our aim is to build an operation that ensures our continued position as the leading distributor/manufacturer servicing the pizza stores.

Strategy: Assume a Lead Role

Domino's Pizza Distribution has determined that its supply chain will play a key strategic role in supporting the operations and growth of Domino's Pizza stores by providing excellent service and quality products at the best available price. Our goal in perfecting the supply chain is twofold: (1) Streamline the supply chain and eliminate non—value-added activities and (2) Reduce or eliminate the order-fulfillment and logistics activities that our stores need to perform.

DPD is, and will continue to be, best suited to provide this value. We will invest in the most appropriate assets that maximize our effectiveness and efficiency, while providing the best return to our principal stakeholders—the more than 1,200 franchisees.

Importantly, DPD has a unique profit-sharing philosophy with these stakeholders. The arrangement dictates that we create a balance between value-added service and least-cost distribution that provides our customers with excellent service and a highly profitable business opportunity.

We strongly believe that our commitment to provide excellent service to our stores, to help them reduce the challenges of operating in a difficult and competitive market, and to do everything possible to enhance their profitability makes us the best sourcing alternative. Therefore, it is critical that we be the best in the business. Our strategic vision would lead us to that goal.

Operational Vision: Maximize Quality and Service

If we look at all of the activities—both value-added and non—value-added—within the entire supply chain, it becomes clear that different supply chain participants are best suited to perform specific tasks. DPD is positioning itself to provide the following services, which we believe we can do best:

• Overall management of and planning for inventory of food products, store equipment, and supplies.
• Control of the physical flow of products all the way to the picking locations within the back room of the store.
• Manufacturing and delivery of fresh, ready-to-use dough products.
• Sourcing of the best pizza ingredients for our stores.
• Sourcing of the best equipment and supplies for our stores.
• Management of the store order process, including determination of what should be delivered and when.
• Ownership of inventory from the point of Domino's possession to the time of use by the stores.

Much of DPD's supply chain is not complex. We have comparatively few SKUs. We have known customers, accessible demand information, and relatively small distribution centers. The complexity comes from the high-velocity, high-volume, synchronous processes required to plan, process, manufacture dough to order, route, pick, load, and deliver more than 10,000 deliveries per week.

DPD's current and planned operations are highly service focused. We typically have a 10- to 15-hour order cycle from initial order entry to dispatch. Actual delivery time varies from two to 24 hours. We do not have an order cut-off. In fact, we accept add-ons after the truck has left, either sending another shipment or meeting the truck with the additional product. We strive for a minimal number of service errors and currently ship over 98 percent of our deliveries 100 percent correct. (This is a measure of order-fulfillment effectiveness and does not incorporate product-quality issues that would not be apparent from the package. We also are working with our suppliers to maximize quality product at the stores.) At present, we're managing this service level with more than 50 inventory turns a year.

The most critical failure occurs when a store is unable to sell pizzas to its customers—a "store closing." A store closing counts no matter how little time the store is out of operation, and no matter what challenges nature has dealt. For Domino's Pizza stores, bad weather brings opportunity. Many consumers rely on fresh, hot delivered pizza while they are dealing with weather problems. Bad weather, coupled with unpredictable peaks in demand, provides unique challenges for DPD. Normally, we have fewer than 15 store closings per year.

One particularly innovative operational objective is to better manage the age of the four million pounds of dough that we produce and deliver to stores every week. This "living" product performs differently throughout its shelf life. Dough that is too young or too old should not be used.

Our delivery cycle allows for the stores to have very little old dough remaining at the end of shelf life. Our goal is to sequence the production of our dozens of dough SKUs so that the product at the time of delivery is aged correctly to meet the stores' needs. For example, if the store will have a fair amount of dough in stock when the delivery is made, we should ship dough that will be younger at the time of arrival. Our information-systems solution will provide a planning engine that allows us to perform this kind of dynamic product planning.

The Information Technology Solution

Domino's now is implementing an entire suite of operational and financial information-technology solutions that will provide us with advanced support for our business. In weighing the benefits of various best-of-breed operational solutions, we felt that the most critical functionality was the ability to have a fully integrated, work-flow—driven order-fulfillment process. This would allow complete, real-time visibility to the entire portion of the supply chain that we manage.

The need for advanced functionality to manage each individual process is limited given the simplicity of many of our processes. For example, in our dough-manufacturing process, we blend ingredients, mix, cut, form, cool, and package the dough product. There are no byproducts. All of our facilities are under 60,000 square feet, so warehouse functionality is not required to deal with distance-related zone optimization. Overall coordination of the integrated processes clearly is our competitive advantage in achieving high levels of flexible customer service at a low cost.

In evaluating information-technology options, we sought a solution that fit our business model and provided the tools and information team members needed to enhance business performance. This would allow us to build around the inherent functionality of the software instead of designing heavy modifications.

From a technology point of view, the new systems needed to provide a flexible technical infrastructure to support changing business requirements. In a distributed operation, it was important that hardware and software configuration not constrain where we chose to put systems functionality. With our large number of sites, we also wanted to ensure that a highly reliable technical infrastructure was inherent in the solution. This would provide an environment that minimized downtime risks and provided for high availability of all systems.

Our selection process incorporated the modern approach of paring down the pack to eight vendors using 20 to 30 key decision criteria. We then developed a demonstration script, building on our knowledge of what we saw in our operational vision as well as insights gained from standard product demonstrations of leading packages. We invited four vendors to perform a two-day scripted demonstration. Each of these demos was attended by more than 60 Domino's team members from the selection team and from the end-user community. The whole process to identify a supply chain IT solution took a relatively short five months.

Our solution will be built around PeopleSoft's complete supply chain, manufacturing, financial, and HR solutions. We will integrate additional functionality from Red Pepper, Manugistics, Prescient, DCSI, Kronos, Cadec, Cognos, and Essbase. (Exhibit 1 illustrates the key activities and vendors involved in the total solution.) The PeopleSoft solution will integrate into our current store systems (ULTRA), which continue to improve. It also will utilize our corporate intranet capabilities. The combination of functionality offered by these systems is expected to provide us with the appropriate tools to best manage our supply chain environment.

We already have implemented a central data warehouse and multi-dimensional analysis tools, and have been viewing our operations from an activity-based management perspective for about a year. Although posing quite a cultural change for most of our team members, these new broad operational measures have been key in driving operational change. However, the availability of analysis and decision-support information from our new technology solution far surpasses what we have to work with today. The PeopleSoft/Essbase/Cognos solution provides both excellent accessibility to information and the tools for end-users to analyze that information effectively.

We chose the PeopleSoft solution in part because of the software's ability to be flexibly configured and easily modified. By leveraging this single ERP and planning platform with modern technology and consistent tools, Domino's will be better able to take advantage of new releases and functionality, thereby improving the effectiveness of our Information System team. In addition, PeopleSoft's technical vision will provide DPD with a uniquely powerful tool to oversee and control all aspects of our Forecast-to-Cash core processes. We also feel strongly about the close cultural and visionary fit between Domino's and PeopleSoft.

Reengineering for Cross-Functional Excellence

Upon analysis, we determined that our current procedures and processes, though adequate for today's operations, would not leverage the advanced technological solution we had chosen. Therefore, we are designing our new core processes around the inherent functionality of our new IT solution. Our reengineering efforts will surely cause some system functionality modifications. Yet we certainly will try to limit these so that future upgrades and integrations are easier to accomplish.

Since the PeopleSoft solution allows us to manage entire processes, we have eliminated functional or department thinking from our design process. This has taken a bit of effort since Domino's as a corporation, including DPD, historically has been functionally aligned. Interestingly, the breakthrough really came during the scripted demos when team members had to sit through the functionality presentations of other departments.

Today, we take an integrated process view of our operations. The core supply chain process relates to the flow of inventory and its parallel flow of dollars. We call this process Forecast to Cash (see Exhibit 2). Within this process are several subprocesses. Notice in the exhibit that the corresponding systems' modules tend to relate to typical, current departmental definitions. Although focusing on modules will benefit our design team when dealing with the IT implementation, it confuses supply chain process reengineering.

To assure proper design and implementation, we have chosen to view our supply chain as both an entire process and as subprocesses. As we look at the entire process, different users may be involved in different portions, and different divisions may use certain portions of the entire process. We feel that the detailed (sub)process design teams and DPD's end-users will be overburdened and confused by complex functionality that does not relate to their subprocess. Functional integration is such a new and different concept for many team members that we have decided not to bring everyone up to the full detailed understanding of the interrelationships between processes. The solution will, however, give all team members easy and seamless access to all information required to perform their functions.

There also are processes that are relatively unrelated to this core Forecast-to-Cash process. These include budgeting, treasury, asset management, item management, maintenance, project management, and administration of travel/expenses. The overall integrated view, however, assures that we can create a completely integrated supply chain solution that also considers these other processes.

In order to accomplish this integrated supply chain reengineering, our project team is structured to promote cross-functional process design and team interaction. In our commitment to a successful and high-quality solution, we will actively involve end-users (primarily from DPD, but also representatives from our stores and our suppliers) in an iterative design methodology. Exhibit 3 shows the methodology to be used.

Each of the subprocesses will be developed using the same methodology. From a reengineering standpoint, the processes will be designed in parallel with overall Forecast-to-Cash process oversight (see Exhibit 4). From a technical development and modification perspective, IT configuration and modification will be structured around the system architecture.

Our goal is to simplify the solution by establishing consistent core processes throughout our divisions and functions. For example, several of our divisions process purchase orders. On the surface, Distribution's PO process looks much different from that of the Corporate Home Office. However, if we look deeper, we see that Distribution places different types of POs: food; store equipment and supplies; office supplies; and capital assets. The team believes that it makes sense for the whole corporation to buy supplies and capital assets using the same process, even if it is somewhat different from how Distribution purchases food. This approach will facilitate support of the continuous improvement to both our processes and the supporting systems.

Phased Approach to Implementation

We have developed a phased implementation approach for our supply chain solution. The first phase implements core transactional functionality that will allow the end-users to see and control the entire core set of processes. Some planning functionality and basic decision support will be included. The second phase will add greater functionality depth to many of our subprocesses to improve their efficiency and effectiveness. Sophisticated integrated planning and advanced decision support will be incorporated. We expect to continually improve upon our solution with additional enhancements and new releases from our software solution providers. The design of Phase 2 is planned to overlap the implementation of Phase 1, as reflected in Exhibit 5.

The team has struggled over this phased implementation approach. Different constituencies have their own needs and agendas—for example, minimizing the need to work on two systems at the same time, putting a solution in quickly, getting a fair amount of additional functionality (over and above current) in the first phase. To complicate matters, certain technology architecture attributes make some solutions easier to implement than others. After a couple of months of debate, we reached a consensus on at least the functionality goals of the phasing approach. There are still technical issues to resolve.

The large number of sites within our system complicates rollout of the phases. Our current plans are to first pilot the complete Forecast-to-Cash process at one distribution center. In parallel with this, we will implement the core financials functionality at our Corporate and Distribution Home Offices. Once all of these locations have been tested and the interface issues resolved, we will begin rollout to other distribution centers. Because of the impact on our team, we will probably limit rollout to no more than five distribution centers at a time. Our equipment and supply operations will be rolled out in a similar process once we have established control over the distribution-center implementation.

This phased implementation approach will provide a large increase in competitive functionality early on, while assuring high acceptance and minimizing risk. It leads us to a fully configured system with well-documented procedures and incorporates the user-supported reengineering efforts of the design phase. The target date for the Phase 1 implementation startup is May 1998. We expect full rollout of Phase 1 to take a year. The Phase 2 rollout could possibly overlap the end of the Phase 1 rollout.

Team-Development Initiatives

Many aspects of Domino's reengineering and information-technology solution involve implementation risks. And these largely center on our end-user team members' acceptance and understanding of the solution. We have several initiatives planned or under way to minimize this risk.

Communication of Our Operational Vision

Through communication programs, our team members are beginning to understand two important principles of this process. First, this solution is a core requirement for DPD to successfully achieve our mission in the future. Second, it makes sense to leap-frog several levels of systems solutions to take advantage of the latest supply chain solutions and technologies. This means that our process transitions cannot be gradual. In reality, many of our processes will change dramatically. It is important for team members to realize that the radical nature of the change is not because we have been performing poorly; we have, in fact, been providing service to our customers at levels that far exceed industry standard. Instead, we are making the leap purely to take advantage of the best tools now available to meet our mission statement.

As a result of this communication, most team members have embraced the need to implement the level of change required. Discussions throughout the organization following the scripted demos raised the level of excitement as people began to get a glimpse of the potential tools that will be brought to the operations. Most team members, however, still are not fully aware of the magnitude of the change—and the profound impact it will have on their day-to-day activities.

Functional Training

Many of the new processes that will be incorporated in our solution involve methods never before used at Domino's. Some of these methods are fairly complex. Thus, it's important for our team members to understand the underlying principles prior to using the system tools. For example, our managers and team leaders needed to really understand the principles of activity-based management before they could utilize this information for decision making. If we do not build the fundamental skills, we run the risk of a chaotic implementation because the users have neither visibility over nor understanding of the decisions made by the system.

Involvement in the Design and Implementation Process

Ownership is key in our strongly entrepreneurial environment. At Domino's, as in most companies, solutions forced down upon the end-users are resisted—no matter how good they are. Although it is impossible to have all 1,100 of our DPD team members involved in the design process, they can and will be involved in the implementation. To ensure that we do not miss anything during the design process, we will incorporate a diverse group of team members from all of our processes to ensure appropriate design, buy-in, and grass-roots communication on how the new solutions will work.

Advanced Systems End-User Training

Our team members are used to computer-based training. And we plan to leverage this experience through integral PeopleSoft training tools as well as CD-ROM and intranet solutions. PeopleSoft's on-line work-flow support provides new users with excellent information on how their process works and interacts with other processes.

Technology Support

The system must operate reliably and technical issues and concerns must be addressed quickly. We are transitioning to an environment where IT tools will support nearly all of our activities. Although we have not yet determined exactly how our systems will be supported, we recognize that placing the burden of technical support on the end-user community will only cause frustration and encourage inappropriate quick fixes.

Achieving the Vision

To sum up, Domino's Pizza Distribution's strategy is to support the operations and growth of Domino's Pizza stores by providing excellent service and quality products at the best available price. We need to make significant technology investments and undergo substantial process changes in order for DPD to provide the best return to our stakeholders, the franchisees.

DPD should continue to be responsible for the core value-added processes within our supply chain. New systems tools will allow us to significantly enhance our already excellent service capabilities. Advance planning and scheduling in our dough-manufacturing process will allow us to improve the consistency and quality of this critical pizza ingredient. Even though many of our core processes are relatively simple, our role as planner, just-in-time manufacturer, and distributor uniquely positions us to coordinate and synchronize the entire flow of product and cash.

Domino's has selected PeopleSoft's ERP solution as the core of our future systems direction. We will incorporate advanced work-flow—supported client server/network computing technologies while leveraging our corporate intranet. We believe this highly flexible solution will provide us with a close functional match that minimizes the need for dramatic systems modification.

Our reengineering will truly focus on our integrated process change—the main supply chain process being Forecast to Cash. Viewing this as a single process and a collection of subprocesses will facilitate our reengineering effort, while preventing us from missing integration requirements.

Our phased implementation approach will allow all of our team members to see and control the entire core set of processes, without adding too much complexity to them. Once the entire supply chain process is integrated by our systems solution, added functional depth and sophistication will be added to make the DPD supply chain truly world class.

During this whole effort, we cannot neglect our most important resource—our team members. Through communication, involvement, skills enhancement, training, and technical support, we can assure a successful implementation of this new technology and achieve the strategic supply chain vision.

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Author Information

James D. Krasner is vice president-supply chain management and Michael Soignet is president of Domino's Pizza Distribution, a division of Domino's Pizza Inc.

Information-technology solutions and business-process reengineering are the core components of Domino's vision of supply chain excellence. The company has selected best-of-breed technology with functionality that supports every aspect of the business. And to fully leverage that enterprise solution, it has launched a full-scale reengineering effort. For Domino's Pizza Distribution, the objective of these ambitious activities is simple and straightforward: To support the continued growth of Domino's stores through excellent service and quality product at the best price available. Team Play The team structure has been in place at Domino's since the inception of the company—long before the concept had become fashionable. Domino's Pizza Distribution's organization has both line operations teams (executive leadership, distribution center leadership, and departmental leadership) and support or special project teams. Our reengineering and information technology team structures are critical to the success of the process to perfect the supply chain. We have built our design and implementation teams to develop a cross-functional perspective, leveraging internal and external expertise. Every function of DPD is represented on the teams, both at a technical resource and end-user level. In addition, several members of the team represent corporate functions. During the development and implementation process, we also will include representation from our other supply chain participants—the suppliers and stores. Several team members have been assigned multi-year roles on a full-time (or near full-time) basis. Some of these individuals are former general managers of our DCs. Others are functional leaders in administrative and home-office support functions. Still others are lead technicians in information technology and operational design and implementation. Recognizing that a project of this nature has never been executed at Domino's, we have added several new people to the team who are the principal source of insight on methodology. We envision building our implementation team with additional internal resources, more new hires, and outside contractors. Because of the newness of the technology and functionality that we have chosen, we're also enlisting consulting assistance to provide specific technical knowledge about design and implementation. Principally, we have added to the team consultants from PeopleSoft Professional Services Group. We also will be utilizing PeopleSoft Training to develop our team's understanding of the solution's functionality and technology. In addition, Arthur Andersen is providing project management and technical assistance. Obviously, the effectiveness of our implementation will be impacted by the ability of the teams and sub-teams to work in concert and to leverage each member's expertise and experience. We are incorporating sophisticated project-management and project-communications tools leveraging our intranet and Lotus Notes. Our plans also incorporate continuous team building and team effectiveness training. Domino's Mission: Global Leadership Domino's Pizza has been dedicated to quality service, product, and delivery excellence for more than 35 years. Its mission: To be the leader in off-premise pizza convenience to consumers around the world. Domino's was founded in 1960 by Thomas S. Monaghan and owes its success to a few simple precepts: A limited menu offered through carryout and delivery. Domino's delivers quality products with a Total Satisfaction Guarantee: Any customer not completely satisfied with the Domino's Pizza experience will be offered a replacement pizza or a refund. Tom Monaghan's philosophy guides the entire corporation in how it accomplishes its corporate and divisional mission statements: Being fanatical about product quality and service consistency. Providing product variety to meet all customer needs. Placing team-member and customer safety and security above all other concerns. Creating an environment in which all team members feel valued, because they are. Building and maintaining trusting relationships that reward franchisees and other partners for their contributions. Domino's Pizza Inc.'s sales in 1996 reached $2.8 billion, marking the fourth consecutive year of increased sales. Domino's Pizza has over 1,200 franchisees, and operates more than 5,700 stores throughout the United States and in 57 international markets.

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