MK Restaurants Co.’s Food Supply Chain Management

Executive summary

Food supply chain management refers to the management of the total process that food undergoes from the farm to the consumers’ plate. This is a very important concept in sustaining any food business. In order to bring out the concept clearly, this has availed a good example of a company with efficient food supply chain management systems. The company is referred to as the MK restaurants company limited and it’s a major restaurants company in Thailand and has a number of branches in other countries.

The company has successful marketing strategies which mainly focus on high-quality products and services. Backed with health finances and good management systems the company has developed efficient service delivery for the restaurants. The food is prepared in centers called kitchen centers and distributed to outlets, each center feeds 300 outlets. The company has gone further to improve the quality of products and services by investing in technology. It has developed GPS systems to monitor its fleet, has an intranet to monitor stocks, and ordering for supplies by outlets is done by email.

The company has gone further to ensure quality by guiding farmers through the crop production process and assisting where need be. Currently, the company has embarked on an ambitious expansion program to explore new markets and extend its quality services to them. For the purpose of studying food supply chain management by example, this company offers the best opportunity.

Introduction

Overview of the Company

Food supply chain management refers to the management of the total process that food undergoes from the farm to the consumers’ plate. In order to enhance their competitiveness, many restaurants have devised different approaches for optimum food supply chain management. This paper seeks to examine the management strategies put in place by MK Restaurants Company limited to maintain its food chain. The company is a full-service restaurant that sells Thai and Chinese food. The restaurants are owned and run by Rit Thirakomen who is also the Chief executive officer. MK offers hot pot (Thai people call it Suki) with a special sauce that sets MK restaurants apart from others. The business has grown steadily for over 30 years. It has 13,000 employees, receives products from 82 suppliers to its 280 outlets. So far MK has established 20 outlets in Japan, 2 in Singapore under franchising systems, and is planning to enter the Vietnam market.

Aim

The aim of this study is to provide a clear understanding of the concept of food supply chain management by examining the strategies applied by MK Restaurants Co., Ltd.

Scope of the report

This report is on food supply chain management based on an example of MK Restaurants Company limited. The report explores how the company conducts its business in relation to the subject of the study. The areas examined include current business status: marketing strategies, financial position, and management Style. Current Supply Chain strategy; distribution centers management, operations management, inventory management, transport management, supply chain policy, and supplier relations. Issues Identified, such as inconsistent supplier quality, the complexity of controlling storage temperatures, late deliveries, and SWOT analysis. Finally, the paper offers recommendations, how to implement them, and a conclusion.

Methodology

The study was meant to demonstrate the concept of food supply chain management by example. The study required the use of one sample and the MK restaurants company was selected based on its success in the food business. Relevant data were collected by examining the literature on the company from various sources such as; the internet, books, and magazines.

Current Business

MK restaurants Ltd is currently a market leader as a result of successful management strategies that focuses on innovation and continuous improvement of quality and service to satisfy customers. Most outlets are in a prime location, mainly in Shopping Centers and Discount stores.

Marketing Strategies

The company focuses on sales promotion such as “healthy eating and provision of perfect conditions” for friends or family outing (MK Restaurant edit 1). Every year, the company undertakes seasonal campaigns during public holidays and festivals (such as Mother’s Day and Chinese New Years) and popular marketing activities is discount voucher and offers “free eating challenges” to attract customers (MK Restaurant edit1). The company has more than 200 outlets that are favorable for all age groups. All the outlets have a standard menu and offers staff training. The outlets provide quality service through high standards of hygiene and cooking. Recently, MK has launched 2 co-branding strategies;

• MK Gold: is meant for upper class market. It serves special dishes and premium supplies are used for production. There are 6 outlets already, more are coming up.
• MK Trendy: This is aimed at targeting young people.

Financial status

The company’s fortunes are projected to increase as it ventures into new markets as part of its expansion program. Previous growth is provided by the figure below.

In the year 2009, MK made a profit of Bt 900 million from its domestic market and the figure is expected to increase by 10% in this year. MK is planning to invest 8 to 10 million Baht to open new restaurants in overseas market to enhance the business performance but mainly focus on domestic market. It has budgeted Bt20 to 30 million for maintenance of its IT systems. “The company also plans to invest in robots to serve food to customers.” (Nation Technology, 2009)

Management Style

The company attributes its success on the workforce and focus attention on it to improve innovation and maintain its position in the market. The business has adopted “Kaizen philosophy”, progressive development and improvement. For example, Suki is served on several dishes therefore condo-style has been applied to maximize the use of tables. The management believes in continuous improvement and invests in training staff to provide high service standards. “The company allows the workers to contribute ideas for service improvement” (Itthiopassagul, P et al. 2009).

Current Supply Chain status

Distribution Centres Management

MK took initiative to improve its competitiveness by focusing on reducing cost while improving quality. This led to creation of distribution centers or kitchen centers (KC) that can support up to 500 outlets. The first centre is located in Nawanakorn, in Northern part of Bangkok and responsible: for outlets in the Northern-East and North of Thailand and the second is located in Bangna-Trad in the Southern part of Bangkok and is responsible for the outlets in East and South. Supplies are delivered to these centers. The KCs are divided into 3 kitchens and make products that are forwarded to its outlets as shown in the figure 2.

Operations Management

MK receives orders from outlets everyday at night through e-mail, which are processed and then supplied in the morning. At this KC, there is only one shift and work starts at midnight and that is when suppliers deliver goods to ensure freshness. Once products arrive from suppliers, they are placed into baskets then send to quality control section to verify the quality. The items are then processed to make final products which are packaged quickly to maintain freshness. Color labeling is used to indicate the type of food in the box. The food is stored in cool room awaiting delivery.

Inventory management

There are 3 types of food categories (fresh, chilled and frozen) making 500 SKUs, more than 50 SKUs are fresh items. The manual inventory system is used; stickers are placed on cycling materials. The time duration KC can hold stock of frozen food categories is between 3 to 4 days, one day fresh and for chilled food categories. (The Nation Technology 2009)

Transport Management

MK uses GPS system to trace its trucks and vans used to deliver products. Products to outlets on same route are delivered together to minimize costs. Hired carriers are used for delivery during high season like festivals or public holidays. MK current transportation structure is:

• Departing Time: “the freight leaves the KC at 6am or 1 to 2 hours earlier for long distances to avoid traffic congestions.” (The Nation Technology 2009)
• Short distances (within 200miles): the products are delivered daily with both trucks and vans.
• Long distances: Products are delivered twice a week using to trucks to cut costs.

Supply Chain policy

MK puts focus on quality of food by guaranteeing the freshness, cleanliness and safety of all food served at the outlets. It has developed a standard system called QCQS (Quickness, Cleanliness, Quality and Service) to gain customer satisfaction. It uses FIFO (first in first out) policy for standard management to create flow of food and reduce waste. MK uses old inventory where by the kitchen uses the back door for stock loading and waitress uses front door to serve the customer. Each product is differentiated on quality and quantity basis. MK Gold would serve for example a large size of prawns where as in MK Restaurants would serve a medium size.

MK developed strict rules in supply chain policy to ensure food safety and quality certification standards such as ISO 9000 quality certificate. Raw materials are purchased directly from suppliers and it must not contain MSG and preservations. Contact farming is also one of the important policies that it uses for continuous improvement of suppliers quality. For instance, audit programs whereby the company will send staffs to visit farms to check for quality.

Supplier and company relations

MK has classified its suppliers into 2 groups; group A and group B. The company works closely with suppliers to share ideas for continuous improvement. For example, during the bird-flu threat period.

Issues Identified

“Workers share responsibility of a mistake to maximize efficiency. (Waters 2007) However, other factors can contribute to inefficiency as shown by figure 3.

Inconsistent supplier quality

“Poor suppliers might be one of the risks that disrupt the whole supply chain such as reliability, availability of raw materials, lead time, and delivery problem that can affect the flow of material” (Waters 2009) “Quality assurance presents a major challenge for the company because suppliers” quality level may not always close to zero defects (Trent 2008 )The expansion to MK gold has posed a challenge where supplies are subjected to long procedures to ascertain the quality therefore causing delays. “The supply chain is dependent on quality materials” and if one component misses then the product fails to be produced (Waters 2009). “Supply chain risks also come from weather conditions and climate changes affecting all members in supply chain network” (Waters 2009). Bad climate conditions such as floods and drought as well as disease affect farmers produce which may lead to supply disruption due to poor quality.

Complexity of controlling temperatures in transit

The company faces a challenge in providing cold temperatures “for products in transit.” (Salin & Jr Nayga 2002) There are two factors affecting cold storage in transit:

1. It is difficult to maintain cold temperatures when long distances are involved.
2. Different products transported require different storage temperatures, this is a “real challenge and at times it compromises the quality of the product.”(Gustafsson & Smith 2006)

Late deliveries

Providing services on time is the benchmark for any efficient working system the MK included. The company faces problems posed by late deliveries. “The late deliveries are mainly due to: traffic congestion, lack of large capacity transportation method, staff errors and the old inventory method.”( Water 2009 ) during peak season the outlets experiences fast stocks depletion leading short notices to the KCs which at times causes late deliveries.

SWOT Analysis

See appendix for more details on SWOT analysis.

Recommendations

Various strategies can be applied to improve standards of products and services offered:

• Increase collaborative among supply chain member: The company should develop mechanisms to counter risks posed by the chain supply system. By working closely with suppliers and other organizations through sales promotions the company can perform better. The company should exert more control over its suppliers to reduce risk of shortage of materials.

• Develop better ways of handling products in transit: The company is challenged with the “issue of transportation o products to outlets especially maintenance of cold temperatures.” (Water 2009). The company should do extensive research on the issue. Should look for ways create a multi sectioned to track with different temperatures to handle different food stuffs

• Automate inventory system: With a barcode and EDI system in place, MK will be able to track it inventory movements within in the company and its suppliers. The firm will have real time inventory information on what they have in their stock room and better manage stock levels to stop the occurrences of disruptions in the manufacturing process.

Implementation

In order to reduce supply chain risks, all departments should work together closely to identify risks, and plan ahead so that member of supply chain has a clear picture of what is going to happen in future. Once planning is accomplished, communication to suppliers and among departments in the organization (production department, financial department, marketing department and purchasing department)These will effectively deal with logistical problems occurring in the whole production process. The MK should provide supplies with the required inputs to ensure quality farm produce. For example, packaging of farm produce is a challenge the MK should help them package them better to maintain the quality. MK could provide baskets for suppliers those who have limited capital. Then provide guidelines on how the baskets should be used. After which the MK should make a criteria of assessing the farmers for consistency in quality and come up with ways of effecting penalties for supplies who are adamant, including termination of contracts; the supplier must do his part to maintain efficiency, quality of product and service, flexibility and responsiveness (Lusine et al. 2007)

The company should implement an efficient all time transportation system. The strategy should include mechanisms of dealing with various challenges, for example, there should be no delays in transportation due to traffic congestion. Cold storage conditions should also be developed optimally for all the food stuffs. Staff to handle food in transit should be specially trained to enable better handling.

Conclusion

Food supply chain management is the bench mark for successful entrepreneurship in food stuff. Order to provide quality services to the customers, suitable strategies must be formulated that will provide efficient service delivery. This paper sought to identify a suitable company/ organization that has efficient food supply management systems and can be used as a classical example in gaining knowledge about the topic. MK Restaurants Company limited, a successful company in Thailand was selected for its advanced food supply management systems. The company has developed an efficient strategy that cuts across all the requirements of quality food supply management systems. The information gained from the study includes current business status: marketing strategies, financial position and management Style. Current Supply Chain strategy; distribution centers management and operations. The MK company is indeed in a class of its own and very suitable in studying food supply chain management.

Appendix

Appendix 1: SWOT Analysis

Strengths:

• Development of a transportation strategy that reduces costs. The strategy involves delivery of products to outlets depending on customer numbers. However, for long distances the company deliveries large stocks to cut cost due repeated supplies over a short time. (Trent 2008).
• The company monitors the quality of farm products by supporting and guiding farmers in crop production. This ensures that the quality of products is managed right at the start.
• The company has done away with the issue of middle men farm produce is directly delivered to the KCs.
• The company has invested in technology to monitor products in transit thereby solving a great deal of logistical issues. The company has developed a GPS system monitor its vehicles while transporting products. This ensures safety to the goods and delivery within the required time.
• Management style using Kaizen concepts to try to eliminate waste, reduce costs, and time for efficient.

Opportunities:

• The company intents to start making orders of frozen shrimp through the internet. This will lead to efficiency by eliminating errors involved with paper work.
• The company intents to invest in IT and R&D systems improve its business performance. Such as helping suppliers to set up barcode or EDI system.
• The company has a chance to reduce labor costs by investing in robots to serve customers in the outlets. Though the initial cost of acquiring robots will be high the company will benefit in the long term by saving the money that could have been paid to workers to do the serving.
• Distribution centre capacity to support future growth. KC is able support 500 outlets, currently it supports 300 outlets which means that they have the capacity to expand another 200 outlets before it exceeds the limit of storage.

Weaknesses:

• Manual inventory system that is prone to errors and causes unnecessary delays. The manual inventory system deals with a lot of paper work, which is subject to many clerical mistakes, loss of data and subsequent constraints in running the business.
• It is difficult for the company to control temperatures for products during transportation. The company transports food in cold storage, different types of food requires different temperatures, catering for that is the hardest challenge posed to the transportation.

Threats:

• Political conditions and climate changes that affect the quality and quantity. This causes delays in transportation and compromises the quality. (Nabhani & Shokri 2009)
• Expansion of outlets without increasing production will lead to inefficient supply which may result in customer dissatisfaction. “The company has embarked on a mission to expand outlets and yet it maintains the same number of farmers, they may course shortage of farm produce to cater for the extra outlets.” (Trent 2008 )

Appendix 2: The advantage of implemented EDI and bar-coding

Distribution centre: Through the intranet system MK is able to monitor efficiency of most of its services it’s able to pinpoint the location of each item on the shelves.

Supply Department: The supply department of the company is able to see immediately what requires attention, how much stock they have left, and which/when products need to be re-ordered. Having this information, budgets can be controlled as inventory costs would go down. Staff would also not be required to go through intense training of the specifications of products as departments would be able to use the part number or name that it is assigned to in the system.

Finance Department: Through the EDI system, the supply department is able to provide the finance department with confirming orders as it is entered in the system when it is required instead of making up confirming orders to match invoices.

Production Department: Stock records are more organized and the expediters work load is minimized as groups would no longer be dependent on him to describe items. Ideally, as the barcode system is centralized, there would not be as many rush orders and stock levels are controlled more accurate.

Appendix 3

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