1. Supply Chain Management Relationships – Rob Morton

2. Supply Chain Management Relationships – Rob Morton
“No one does quality like Papa John’s!”
‘Papa’ John Schnatter,
Founder of Papa John’s
Presentation Ingredients:
Company Overview
Pizza Industry + Competitors
Supply Chain Overview
Supplier Relationships
Kraljic’s Supply Positioning Matrix
Cash-to-Cash Cycle
Franchise Relationship
Questions
Contents as shown above. There’s a picture of a pizza.

3. Company Overview Background¹ Financials: Opened first store in 1985.
‘Papa’ John famously sold his Camaro car to buy his first Pizza oven.
Now have 4,000 stores in 36 countries.
In US there are 648 company owned stores and 2,112 franchised stores.
Papa John’s pride themselves on using quality ingredients, to make
better pizza at an affordable price.
Financials:
Share Price $49.52²
Sales (2011): $1, Million³
Net Income (2011): $55.66 Million³
Inventory Days (2011): 12.35³
Papa’s first store was opened in Kentucky in The business started doing well and Papa John’s famously had to decide between his two great loves- cars and pizza. He chose pizza and sold his Camaro car to buy his first pizza oven. Since then he’s bought it back to his original buyer for a meagre $250,000…
There are now 4000 stores in 36 countries and most are franchised. There are more than 3x franchised stores in US than PJ owned.
Papa John’s pride themselves on using quality ingredients to make better pizza at an affordable price.
For their financials, PJ share price is currently $49.52 as of 21st Nov. Their sales in 2011 were $1, Million with a net income of $55.66 Million.
Their inventory days in the supply chain is days.
- Thomson One
¹ ² ³Thomson One

4. Pizza Industry + Competitors
UK Pizza and Pasta/Takeaway market valued at £1,520 Million (2011 Est) and set
to be £1,854 Million by 2016¹.
US market valued at $17,578 Million (2011) and set to be $18,298 Million by
2016².
With economic downturn, people are more likely to order in than go out for a meal.
Market Share:
UK¹: USA³:
As an industry, the Pizza/takeout industry is a very profitable one with the UK market in 2011 valued at £1,520 Million with a projected increase to £1,854 Million by 2016.
There is an even bigger industry in US, which makes sense due to its size, of $17,578Million, set to rise to $18,298 Million by 2016.
The economic down turn has favoured this industry as consumers are more likely to order in than go out and spend on an expensive meal.
Papa John’s has a similar market share percentage in both UK and US, with Dominos and Pizza Hut both beating them. Interestingly the number of independents is vastly more in the US than in the UK. (Just an interesting observation.) ¹
²Global Market Information Database ³ ¹ ³
²Global Market Information Database

5. Papa John’s Store/ Franchise
Supply Chain Overview
PJ Food Service (Quality Control Centre)¹
Produces:
Fresh pizza dough
Cheesesticks
Breadsticks
Tomato Sauce
Provides one-stop shopping for
virtually all the ingredients and
supplies used in Papa John's
restaurants. This includes more
than food products:
Paper items
Cooking equipment
Cleaning supplies
PJ Food Service (PJFS)
Papa John’s Store/ Franchise
Customers
Approved Suppliers
Delivery Service
Here is a quick schematic of the Papa John’s supply chain. As can be seen Papa John’s have these PJ Food Services which are essentially Quality Control centres where PJ can monitor the standard of ingredients supplied. These are where Papa John’ make their own dough for pizza bases, cheesesticks, breadsticks, and they also make their own tomato sauce for their pizza bases. They also have deliveries from the other ingredient suppliers here so there is a one-stop shop for all stores for everything, even paper items, cooking equipment and cleaning supplies. There are 10 of these QC centres around the US and a more around the world meaning that the travel times are shorter than having a centralised one, which is in keeping with PJ’s focus on freshness and quality. They all work 7 days a week and make over 5,000 deliveries a week.
The franchises or stores have to order the dough and sauce from the PJFS, and can either order other ingredients from PJFS or from a list of approved suppliers. The stores receive two shipments of ingredients a week. ¹

6. Supplier Relationships
Use a mixture of single or multi-sourcing depending on the ingredient.
Due to amount of QC centres and company focus on fresh produce,
need to multi-source from around the country (US) to provide the
QCs¹.
They have joint venture national purchasing agreements which they can leverage through the companies purchasing power and vertical
integration to lower costs.
Rewards suppliers at their Quality Supply Partner of the Year Awards².
PJ uses a mixture of single sourcing and multi-sourcing depending on the ingredient. Obviously dough and sauce is from themselves (vertical integration), the olives are grown in Spain's famous “Herrera” grove by the largest quality-focused, grower-owned olive producer in the world. Onions and peppers are sourced locally so they are multi-sourced.
They have joint venture national purchasing agreements which they can leverage through the companies purchasing power and vertical integration to lower costs.
PJ have yearly supplier awards that they give out to suppliers as an incentive for suppliers to deliver on time and a quality product. ¹ ²

7. Kraljic’s Supply Positioning Matrix
Supply’s impact on financial results
Low
High
Supply risk
Leverage products
Alternative sources of supply available
Substitution possible
Bottleneck products
Monopolistic market
Large entry barriers
Routine products
Large product variety
High logistics complexity
Labour intensive
Strategic products
Critical for product’s cost price
Dependence on supplier
Tough competitive stance by buyer
Competitive systems tendering + E-commerce
Performance based partnership
Secure supply +
search for alternatives
Buyer
Strength
Number of available suppliers
From Kraljic’s supply positioning matrix, I think the Papa John’s suppliers are between leverage and strategic products. This is because, PJ have quite good buyer strength, from the previous slides, and the supply depends on the availability of the main commodities required; oil, flour and cheese. There are alternative suppliers for some things, but not all, and from the awards there is an element of performance based partnership.

8. Cash-to-Cash Cycle C2C Cycle time of 2.1 days in latest quarter.
Better than average of 2.5 over the past 8 quarters.
Better than 5-year average of 2.3 days.
Shows focus on reliability of suppliers as it only takes 3 days for Papa John’s to sell the ingredients it bought as pizzas.
On a 12-month basis, the trend at Papa John's International looks OK. At 3.3 days, it is one day worse than the five-year average of 2.3 days. The biggest contributor to that degradation was DPO, which worsened 1.1 days when compared to the five-year average.
Considering the numbers on a quarterly basis, the CCC trend at Papa John's International looks good. At 2.1 days, it is 0.4 days better than the average of the past eight quarters.
DIO: Days inventory outstanding
DSO: Days sales outstanding
DPO: Days payable outstanding
FQ: Fiscal Quarter

9. Franchise Relationship
Papa Johns was #10 of top franchises in the world (2009) (Franchise 500®) ¹
Forms good relationship with franchises by:
Providing training at HQ and additional training after that locally.
On going support e.g. Newsletters, Meetings, Toll-free phone line
As well as marketing support.
Industry leading customer sales to investment ratio per restaurant.
Shows contractual, competence and goodwill trust for all involved².
High
Low
C3 behaviour
Trust
Win/Lose or Lose/Win [1+1=1 !]
Compromise [1+1=1.5 !]
Win/Win [1+1=8 !]
Adapted from: Covey, 1989
From the franchise to Papa John’s side of things, PJ are pretty good at forming relationships between them and the stores. They were #10 in the world of franchised businesses in They also provide training at the HQ, as well as locally to the franchise after that, totalling in 6 weeks of training. They also provide on going support in the form of Newsletters, Meetings, Toll-free phone line, Grand opening, Internet, Security/safety procedures, Field operations/evaluations, Purchasing cooperatives.
They are the Industry leading customer sales to investment ratio per restaurant franchise.
Follow Dr Mari Sako’s trust model with contractual, competence and goodwill trust for all involved. Owner has responsibility for inventory and customer service.
In the C3 behaviour diagram I’d put them up in the win area as the owner wants to make profits him/herself which then are added to the business, so everyone wins. There is a high level of trust there too as the $25,000 franchise cost to PJ and total $160,000 to $395,000 investment assumes the franchise will want to do their best. ¹ ²

10. Questions Q: Are Partnerships Common In This Industry?
Suppliers: Yes, so they can get bulk discounts.
Franchise: Franchising is a big partnership between store and company, other brands do this e.g. Dominos.
Q: Do The Participants In This Supply Chain Trust Each Other?
S: They seem to as they need each other to survive.
F: The stores need to do well for their own profits as well as the parent company’s profits.
Q: Are The Relationships In This Industry Likely To Change In The Next 5 Years?
S: Depends on how the prices of the main commodities (cheese, wheat and oil) fluctuate.
F: Some stores that do very well may be able to have a bit of bargaining power over the parent company than others in terms of what they provide/ bigger cut.
Q: How Can Relationships In This Chain Be Improved?
S: More vertical integration, maybe buy areas of land near the PJ Food services to grow/produce more of their own ingredients.
F: More specialisation allowed in individual franchises, whilst maintaining core values.
Q: Are Partnerships Common In This Industry?
Suppliers: Yes, so they can get bulk discounts e.g. Dominos have remained active with over half of their suppliers for 15 years+.
Franchise: Franchising is a big partnership between store and company, other brands do this e.g. Dominos.
Q: Do The Participants In This Supply Chain Trust Each Other?
S: They seem to as they need each other to survive; the suppliers to sell their food and the companies so they can sell the food on the pizzas/ maintain quality.
F: The stores need to do well for their own profits as well as the parent company’s profits.
Q: Are The Relationships In This Industry Likely To Change In The Next 5 Years?
S: Depends on how the prices of the main commodities (cheese, flour and oil) fluctuate. This will drive the position of the supplier/buyer relationship. If they increase in price, the pizza companies are not likely to absorb these costs.
F: Some stores that do very well may be able to have a bit of bargaining power over the parent company than others in terms of what they provide/ bigger cut.
Q: How Can Relationships In This Chain Be Improved?
S: More vertical integration, maybe buy areas of land near the PJ Food services to grow/produce more of their own ingredients.
F: More specialisation allowed in individual franchises, whilst maintaining core values.

11. Supply Chain Management Relationships – Rob Morton
“No one does quality like Papa John’s!”
‘Papa’ John Schnatter,
Founder of Papa John’s
Over to you!
Questions from the floor. Here is a picture of John.

12. References
BLOOMBERG PZZA:US. [online]. [Accessed 21 November 2012]. Available from World Wide Web: < >
ENTREPRENEUR Papa John's Int'l. Inc. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <
GLOBAL MARKET INFORMATION DATABASE Pizza Industry. [online]. [Accessed 17 November 2012].
How Fast Is the Cash at Papa John's International? [online]. [Accessed 20 November 2012]. Available from World Wide Web: <
MIDDLEBY Papa John's Quality Supply Partner of the Year. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <
PAPA JOHN'S Business Function. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <
PAPA JOHN'S History. [online]. [Accessed 16 November 2012]. Available from World Wide Web: <
Pizza and Pasta Restaurants UK [online]. [Accessed 17 November 2012]. Available from World Wide Web: <
PIZZA MAGAZINE Pizza Power Report. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <
SHARPE, David Supply Chain Management - Lecture 11 – Relationships. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <
THOMSON ONE Papa John's. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <
WIKINVEST Domino's Pizza (DPZ). [online]. [Accessed 17 November 2012]. Available from World Wide Web: <
WIKINVEST Papa John's International (PZZA). [online]. [Accessed 20 November 2012]. Available from World Wide Web: <
Here are the references.