Supply Chain Management Relationships – Rob Morton

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. www.papajohns.com

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): $1,217.88 Million³ Net Income (2011): $55.66 Million³ Inventory Days (2011): 12.35³ Papa’s first store was opened in Kentucky in 1985. 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 $1,217.88 Million with a net income of $55.66 Million. Their inventory days in the supply chain is 12.35 days. http://www.papajohns.co.uk/our-story/flash/history.aspx http://www.bloomberg.com/quote/PZZA:US http://banker.thomsonib.com/ta/TAdashboard.aspx - Thomson One ¹http://www.papajohns.co.uk/our-story/flash/history.aspx ²http://www.bloomberg.com/quote/PZZA:US ³Thomson One

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.) ¹http://store.mintel.com/pizza-and-pasta-restaurants-uk-january-2011.html ²Global Market Information Database ³http://pmq.com/digital/201109/files/52.html ¹http://store.mintel.com/pizza-and-pasta-restaurants-uk-january-2011.html ³http://pmq.com/digital/201109/files/52.html ²Global Market Information Database

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. http://www.sdcexec.com/article/10231206/papa-johns-scores-a-supply-chain-touchdown http://www.papajohns.com/careers/business_03.shtm http://secure.foliotek.com/files/opennew.aspx?file=YFXcY8/rftk=&ext=D9RN8Imp3Hs=&eval=D9RN8Imp3Hs=&user=fUgFH/7wS0Y= ¹http://www.papajohns.com/careers/business_03.shtm

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. http://secure.foliotek.com/files/opennew.aspx?file=YFXcY8/rftk=&ext=D9RN8Imp3Hs=&eval=D9RN8Imp3Hs=&user=fUgFH/7wS0Y= http://www.wikinvest.com/stock/Papa_John%27s_International_%28PZZA%29/Quality%20Control%20Centers%20Strategic%20Supply%20Chain%20Management http://www.middleby.com/MidCorp/InvestorServices/awards/awd_pj00.htm ¹ http://www.wikinvest.com/stock/Papa_John%27s_International_%28PZZA%29/Quality%20Control%20Centers%20Strategic%20Supply%20Chain%20Management ² http://www.middleby.com/MidCorp/InvestorServices/awards/awd_pj00.htm

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. http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt

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. http://www.dailyfinance.com/2012/05/14/how-fast-is-the-cash-at-papa-johns-international/ DIO: Days inventory outstanding DSO: Days sales outstanding DPO: Days payable outstanding FQ: Fiscal Quarter http://www.dailyfinance.com/2012/05/14/how-fast-is-the-cash-at-papa-johns-international/

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 2009. 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. http://www.entrepreneur.com/franchises/papajohnsintlinc/282662-0.html http://smallbusiness.chron.com/papa-johns-pizza-franchise-owner-spend-workday-39924.html http://franchises.about.com/od/pizza/fr/papa-johns-franchise-review.htm http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt ¹ http://www.entrepreneur.com/franchises/papajohnsintlinc/282662-0.html ²http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt

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. http://www.wikinvest.com/stock/Domino%27s_Pizza_%28DPZ%29/Suppliers

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.

References BLOOMBERG. 2012. PZZA:US. [online]. [Accessed 21 November 2012]. Available from World Wide Web: <http://www.bloomberg.com/quote/PZZA:US > ENTREPRENEUR. 2012. Papa John's Int'l. Inc. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://www.entrepreneur.com/franchises/papajohnsintlinc/282662-0.html> GLOBAL MARKET INFORMATION DATABASE. 2012. Pizza Industry. [online]. [Accessed 17 November 2012]. How Fast Is the Cash at Papa John's International? 2012. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.dailyfinance.com/2012/05/14/how-fast-is-the-cash-at-papa-johns-international/> MIDDLEBY. 2001. Papa John's Quality Supply Partner of the Year. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.middleby.com/MidCorp/InvestorServices/awards/awd_pj00.htm> PAPA JOHN'S. 2012. Business Function. [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.papajohns.com/careers/business_03.shtm> PAPA JOHN'S. 2012. History. [online]. [Accessed 16 November 2012]. Available from World Wide Web: <http://www.papajohns.co.uk/our-story/flash/history.aspx> Pizza and Pasta Restaurants UK. 2011. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://store.mintel.com/pizza-and-pasta-restaurants-uk-january-2011.html> PIZZA MAGAZINE. 2011. Pizza Power Report. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://pmq.com/digital/201109/files/52.html> SHARPE, David. 2012. Supply Chain Management - Lecture 11 – Relationships. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://www2.warwick.ac.uk/fac/sci/eng/eso/modules/year4/es4c9/resources/lecture_resources/lecture_-_11_-_relationships_slides_and_notes.ppt> THOMSON ONE. 2012. Papa John's. [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://banker.thomsonib.com/ta/TAdashboard.aspx> WIKINVEST. 2007. Domino's Pizza (DPZ). [online]. [Accessed 17 November 2012]. Available from World Wide Web: <http://www.wikinvest.com/stock/Domino%27s_Pizza_%28DPZ%29/Suppliers> WIKINVEST. 2009. Papa John's International (PZZA). [online]. [Accessed 20 November 2012]. Available from World Wide Web: <http://www.wikinvest.com/stock/Papa_John%27s_International_%28PZZA%29/Quality%20Control%20Centers%20Strategic%20Supply%20Chain%20Management> Here are the references.