Analysis of E-Commerce and Supply Chain for Silver Spoon

Silver Spoon Snacks is a fast food eatery established first in Gulshan in the year 1965. It has expanded to a second branch in Tariq road. During its heyday it revolutionized the fast food industry by introducing the concept of ‘rolls’ on the menu. It enjoyed this untapped market till competitors jumped on the band wagon.

The menu is diverse, including Pakistani, Chinese, Continental, Western and Indian items. There is plenty of consumer traffic in both branches especially during the evening. The Tariq Road branch serves all kinds of BBQ items, club sandwich, zinger burger and the well known rolls.

The restaurant is owned and operated by a family. The branch managers are actually brothers and share shifts during the day and night. There are a total of 4 active brothers that are responsible for handling the day to day running and operations of the system. Key purchase decisions, menu expansion and supply chain decisions are handled solely by them.

They have been following a paper based system since its inception. All the accounting work and record keeping is done manually in registers that are stocked at the residence every month.

Literature Review

According to Laudon and Laudon (Information Systems and Decision making, 2000), the supply chain is a collection of physical entities linked together into processes that supply goods or services from source through consumption. The supply chain consists of suppliers, manufacturers, wholesalers, distributors, retail outlets, logistics and consumers. This list also includes those activities that are necessary in facilitating the supply chain.

Managing a supply chain is a difficult task that requires keen insight and understanding of the business processes and the environment in which it operates. The struggle is to create a network which has no weak links in terms of time delays, information gaps or inefficiencies – in other words, all processes must be integrated. This is best achieved by the creation of networks with a smooth inflow and outflow of relevant information. This is the heart of e-commerce.

The internet has allowed the growth of e-businesses across borders and physical limits. The use of an intranet is greatly appreciated within a company. Based on internet technology, the intranet is used primarily within a single company which allows the internal users to expand and share information across floors and walls. These locations may be domestic or may even be throughout the world (Bartoo, Elliot, and Naik-lyer, 2000).

E Commerce is one of the most important facets of the internet to have developed in this day and age. Ecommerce, sometimes referred to as E Business, involves carrying out business over the Internet with the use of computers that are linked to each other forming a network. E-commerce includes the buying, selling, marketing, and servicing of goods or services through telecommunication technologies.

E-Business, on the other hand, carries a broader definition, not just the buying and selling of goods and services, but servicing customers, collaborating with business partners, and conducting communications and transactions within and outside an organization. (Electronic Commerce – a managerial perspective by Efrahim Turban, David King, Prentice Hall; US Ed edition October, 1999)

According to ComScore – a marketing research company that provides marketing data and services to many of the Internet’s largest businesses, E-commerce has had its first $1B day on 2nd December 2010. The ‘heaviest online spending day in history and the first to surpass the billion-dollar threshold,’ declares ComScore. This goes to show how far and wide the scope of electronic buying and selling has reached. It is revolutionized the way business models are created and defined numerous opportunities for entrepreneurs and the like.

E- Commerce can help a supply chain over the internet in areas such as placing and receiving orders, providing product information, tracking orders, filling and managing inventory, and recording inflows and outflows (Sunil Chopra and Jan A, Van Mieghem, Supply Chain Management Review, April 200)

A critical area where e-commerce has established its presence in a supply chain is in the resource planning and inventory management function of an organization. It helps users track the inventory and where it is distributed from the organization. It helps plan for future forecasts and deal with shortages. It creates a hub where information is shared among relevant members of a business model; this is known as EDI – Electronic Data Interchange.

Similarly ERP (Enterprise Resource Planning) systems have emerged that serve similar functions in terms of smooth data flow between members of an organization. Relevant information relating to key business functions is then shared, matched and cross matched between departments and related companies that have partnered with the business. The goal is to streamline operations and produce a cost and time efficient process altogether.

IBM and Siemens are 2 prime examples of organizations that heavily rely on supply chain applications produced by business management software such as SAP. This application has streamlined its processes thereby creating a real-time and efficient business model.

Inventory management models are heavily used in large scale organizations in the fast food industry. Giant franchises such as Subway, KFC and Pizza Hut use business intelligence software for its operations. Zap is a leading software house that creates web based packages for KFC and Pizza Hut.

As a starting point, a basic open source inventory management software coupled with internet technologies is an ideal way for a small to mid-sized business to start.

The diagram below shows how e-commerce can efficiently distribute and coordinate the flow of information between the entities and business functions of the supply chain. The importance of information sharing and interchange is crucial to improve operational effectiveness.

Research methodology

Secondary research

Secondary research consisted of going through research articles and existing information on e-commerce and supply chain models.

Text books, class lectures and the internet served as sources for secondary research.

This type of research was necessary to gain an understanding of existing supply chain models that are benefitting with the integration of e-ecommerce and its technologies.

Primary research

This is first hand research that needed to be conducted to gain an understanding of Silver Spoon Snacks

This form of research was conducted over 2 face to face interviews and short telephone calls with the Branch Manager and Operations Manager

A set of questions were asked to understand the existing supply chain model and how operations are carried out on a daily and weekly basis

These questions also attempted to surface any inefficiencies and weaknesses that exist in the current setup

Interviews were necessary to collect direct and relevant information from the involved people

Data Analysis

Input details pertaining to the Tariq Road branch

Raw material listing

Chicken

Beef

Mutton

Flour

Vegetables

Ketchup/mustard

Seasonings

Equipment used

Oven

Fryer

Coal

Freezers

Stove

Tables and chairs

Utilities used

Electricity

Gas

Telephone

Water

Labour employed

Head Chef

Kitchen staff

Head Waiter

Waiters

Cleaners

Watchman

For simplicity, the supply chain of chicken as a key and widely used ingredient will be studied throughout this report.

Supply Chain system of Silver Spoon Snacks explained with the help of a flow chart.

Supply Chain Defined – Chicken

Butcher

Thursday morning or earlier depending on needs, the Chicken supplier receives an order of Boneless Chicken and Tikka pieces for the week. This order is placed via telephone by the branch manager. The quantity for chicken in Tikka and Boneless variation is verbally specified via telephone. The supplier confirms the order and a delivery time is specified. The butcher cuts the chicken according to pieces specified – either Tikka pieces or Boneless for Chicken rolls.

Delivery vehicle

As per initial agreement between Silver Spoon and the supplier, the chicken supply will be delivered to the warehouse in the supplier’s vehicle. This is part of the negotiation. The supplier will have the chicken delivered to the warehouse and settle the payment at the end of the month.

Warehouse

The warehouse is owned and operated by Silver Spoon owners. It has been part of the business model since 40 years and is situated off Tariq road near the Tariq road branch. The warehouse serves as a sorting point most of the raw materials. Individual branch demand is catered to and planned here. The warehouse has a large kitchen and a storage bay.

Warehouse kitchen

The warehouse kitchen department is responsible for all the cleaning and preparation of the raw food. This entails cleaning the chicken, removing the fat and making it hygienic and fit for cooking. Staff is employed in this department to manage the cleaning.

Warehouse storage

After the chicken has been cleaned, it goes into cold storage. The amount which has to be distributed to the branches on a daily basis is dispatched and the rest goes into freezers. The amount is determined in advance by branch managers. Keep in mind that a week’s supply is available for both branches at the warehouse.

Official vehicle

A Suzuki Pickup is on standby at the warehouse and the workers load a day’s worth of chicken and transport it to the both branches. 60% of the chicken goes to the Tariq Road Branch as its chicken utilization is the highest.

Tariq road branch

At the Tariq Road branch, the official vehicle arrives shortly with the chicken for the day. This chicken thawed, cleaned and semi marinated at the individual branches before it is ready to be finally added with the secret spices and recipes. It is immediately transported by the workers to the freezer.

Kitchen + freezer

As noon approaches a portion of the boneless chicken is removed from the freezer and brought to the preparation room. Here the chicken is added with seasoning, sauce and the secret spices which are made early during the day. This preparation is done by the head chef. The boneless chicken goes to the Roll preparation area and the Tikka pieces go to the BBQ area where they are cooked.

Customer

Once cooked, the Rolls and Tikkas are served to customers

Planning system

For the sake of simplicity we will go through a typical week of ordering chicken to get a grasp of the current supply system at the Tariq Road branch. This boneless chicken is used for Chicken Rolls and Chicken Boti. Whereas full chickens are used to create 4 Tikka pieces per chicken.

Demand for the week is established by looking at previous trends. Basically a base demand for consumption has been established for boneless chicken of 210 kg per week. The base demand of 210kg worth of boneless chicken is always used for Rolls and Chicken Boti. On an average, 220-250kgs of boneless chicken is purchased as demand from consumers never dips below 210kg per week. For Tikkas, the base demand is 80 Tikkas per day, which makes it 560 Tikkas on an average per week. A full chicken is able to provide 4 Tikka pieces.

The key considerations that determine and influence demand for chicken are:

Stage of the week – Friday, Saturday and Sunday are days where demand for boneless chicken is at its highest. During these days the public goes out to eat with family.

Public holidays – the restaurant operates during public holidays. During these days of the calendar, families choose to visit eateries and therefore the consumption of boneless chicken is high.

City turmoil – during expected city turmoil and expected strikes, the public operates at an accelerated pace and attempts to get things out of the way. This may entail visiting Tariq Road for work 1-2 days before the expected turmoil or unrest. Furthermore, consumption of boneless chicken falls during the days of turmoil, hence purchasing is planned accordingly.

Level of commercial activity – Tariq Road is heavily populated with shops and vendors. If the activity in malls and shopping strips is high, then demand for food, especially Chicken Rolls is also high as it serves the fast food concept and is economical.

The factors above have the capacity to influence demand for chicken and hence the purchasing patterns vary. Chicken that is not used is then stored in freezers for next day’s use.

This chicken is bought on Thursdays of the week from a vendor that has been partnered with the business. An order is placed via telephone on Thursday morning by the Branch Manager and it arrives by noon.

If for some reason demand is abnormally high, the regular chicken supplier is contacted and is urged to make an emergency drop to the warehouse. If he is unable to do so from his own inventory, then he is responsible for making other arrangements.

Supplier selection

A chicken supplier is selected on the basis of:

Total cost

Cleaning and cutting

Cost is the most important factor that ultimately determines which supplier/butcher to choose from. Silver Spoon negotiates on the basis of – the foremost is cost (low or discounted price), quality, and delivery service.

Secondly, it is favourable if the supplier can clean and cut the chicken into pieces at his outlet before delivering it to the Silver Spoon warehouse. Although Silver Spoon has a chicken slaughtering and cleaning/cutting facility, but is used for only further cleaning of the chicken and cutting for marinating purposes.

Financial costs pertaining to Tariq Road Branch

Cost for chicken: this rate is Rs. 4 per kilo less than the prevailing marketing rate. The chicken suppliers set the price every Thursday of the week. Price of chicken per kilo varies on a weekly basis and is determined by the laws of demand and supply. For example, if chicken is in excess supply then the price falls. Conversely if there is high demand then the price rises – such as on weekends. Due to this the chicken suppliers set their prices on Thursday. The Tariq Road branch bears 60% of the total cost of the chicken whereas the Gulshan branch, only 40%. Consumption and sale of chicken items is the highest at the Tariq Road branch.

The basis for making profits for Tikkas is to earn Rs. 20-25 profit per Tikka.

Utilities

Electricity Bill: varies between Rs. 50,000 to 60,000 per month.

Gas Bill: varies between Rs. 10,000 to 12,000 per month

Telephone Bill: Rs. 1,000 per month on an average

Coal Usage: worth Rs. 1,500 on a daily basis.

 

Labour Employed

Waiter: The starting salary per waiter is Rs. 6000 per month. Senior waiters (determined by length of employment) are paid Rs. 8000 per month.

There are a total of 8 senior waiters (8 x 8000 = Rs. 64,000 per month) and 6 junior waiters (6 x 6000 = Rs. 36,000 per month).

Kitchen Staff: these employees include assistants to the chef (3 assistants), and additional workers who produce other items on the menu (5 kitchen workers). They are assigned various tasks in the kitchen to add value to the system. On an average, the total labour costs assigned to the kitchen staff are Rs. 75,000

Head chef: There is 1 head Chef who is paid Rs. 12,000 per month.

Total labour costs per month = Rs 64,000 + Rs 36,000 + Rs. 65,000 + 12,000 = Rs 187,000

Discussion

Inefficiencies or weaknesses in the supply chain

Supplier/butcher:

Silver Spoon has had the same supplier for chicken for nearly 20 years. They should search the market for other suppliers that can offer competitive rates for bulk purchases of chicken.

The order is placed on the phone and a Silver Spoon official does not personally monitor the chicken selection, which means an old chicken or unhealthy chicken can be part of the mix

Warehouse:

At the warehouse, the supplier delivery vehicle drops off the chicken and drives away after collecting the payment. There is no check here, no one counts the chicken or weighs it upon arrival so there is no way of making sure if they received the amount they paid for.

There is no record system or inventory management. The chicken is not ‘logged in’, just immediately shifted to the kitchen where it is cleaned for use. Therefore there is no actual account or record for the amount of chicken that entered the facility nor is there any receiving slip or receipt.

Warehouse Storage:

Once the chicken is cleaned and processed fit for use, it goes into storage freezers and only the days worth is kept outside for delivery. However, there is no one who counts the number of chicken breasts or legs, or kilograms of chicken that goes into the freezer. So there is no check or monitor system.

Silver Spoon Snacks Vehicle

The days worth of chicken is transported to the Tariq Road Branch, but there is no formal record of the amount that leaves the warehouse, nor is there any receiving document from the branches end.

Branch

Again, there is no counter checking or counting system of the chicken that arrives in the branch. It is blindly kept in the freezer.

Customer

The customer does not receive an electronic receipt. Which means that there is no formal record at Silver Spoon’s counter of the items sold and the cash received. There is an informal scribble in a worn out register.

Other deficiencies with the current setup

Marketing: There are limited marketing efforts carried out by the restaurant. At most, marketing involves re-doing the company banner or releasing a dozen flyers in the area. No website exists.

Recording: It is a complete paper based system with not a computer or digital device in sight. Records are loosely maintained at the warehouse and branch in registers and journals. There is no formal record keeping system. Customers are not given receipts therefore there is no cross checking.

Tracking: there is no way for Silver Spoon Snacks to forecast demand judging by trends, as figures and statistics for trends do not exist.

Paper based: it is a paper based system with information regarding transactions loosely recorded in registers.

Checks and balances: checks and balances do not exist, there is no tangible record keeping when it comes to inventory and purchases. It is not possible to confirm orders with suppliers and inter branch as orders are verbally given. There is no proof.

Proposed system

The proposed system involves the purchase of computer hardware and the use of an internet connection. The idea is to create a basic centralized system at the warehouse as the server with 2 additional linked systems at the branches.

The purpose is to track and record inventory that moves into the warehouse and out to the branches. A real time system is proposed where inventory levels are monitored by the hour. The systems will need to be linked by an internet connection to provide a real time feed of information between the branches and warehouse.

With an inventory management and tracking software, the loopholes and loose-ends in the current system will be neutralized.

How it works

Once the systems have been installed and made operational, the current stock, inventory and work in progress are uploaded to the servers. The software will be used be the warehouse, and both the branches. Each user will update the records from their end so it can be seen at the warehouse server. The software will have section for the warehouse, branch A and branch B.

Depending on the fresh demand levels, the warehouse determines the quantity of chicken needed and sends an order via telephone to the butcher. Had the butcher/supplier been using a computer system (example Makro), then an email would have been dispatched instead. The quantity ordered is punched into the system and falls under the status of pending. The rate per kilo is noted. Order time is also noted.

Once the stock of chicken arrives at the warehouse, its exact quantity is manually counted and weighed by an employee and then the numbers are punched into the warehouse server. This will cross check the amount ordered with the amount received.

Once the figures tally, a receiving slip is generated electronically and printed after the order has been confirmed and accounted for. A slip is generated and given to the supplier and a formal record now exists in the system.

A notification is sent in a matter of seconds to both branches informing them of the added inventory levels. The levels now appear on the screens of both branch A and B (Tariq road and Gulshan). Preparations are made.

Depending on the opening inventory and the base level demand of 210kg of chicken and 80 Tikka pieces, each branch sends its required amount of chicken (bonless and Tikka pieces) through the software’s built in messaging system. Each transaction and order is then recorded.

After the warehouse server acknowledges receipt of the order from the branch, it then forwards it verbally to the warehouse freezer where the employee loads the Silver Spoon vehicle (Suzuki pickup). The vehicle then travels to the relevant branch. A printed slip is dispatched.

From the warehouse, the inventory levels are then reduced and this is also reflected in each branches terminal. Once the vehicle is unloaded at the branch, a branch employee manually supervises the unloading and stocking of the chicken in the freezer.

Once confirmed and signed, the branch manager then updates his terminal with the added inventory of chicken. Back at the warehouse, the reduction in inventory is equal to the gain in inventory at both branches.

As the day goes by and the orders accumulate and dispatch, the inventory levels are monitored not only at the branch, but at the warehouse as well. Each chicken Tikka order placed or each chicken roll uses a certain portion of the inventory. And once the orders are fed and updated in the Silver Spoon register, the chicken based inventory is automatically deducted.

Towards the end of the day, the ending inventory is tallied and counted. The warehouse manager reads these inventories on an hourly basis and incase of a shortage dispatches a vehicle to make up for the shortfall.

The cycle is then repeated every day depending on the closing inventory levels.

Notes on the proposed system

The recommended software for Silver Spoon Snacks is inFlow Inventory management software (http://www.inflowinventory.com/). The software is easy to use and does not require extensive training. A simple understanding of images, inputting data and confirming orders is all it takes.

Free software exists, but does not provide security, reliability and expansion as inFlow’s suite.

Each terminal is given a unique pin code which only the operator is aware of. This means only the relevant person in charge can use the terminal which is a security check as well as a confirmation.

Each transaction is logged and stored in a log file sent to the warehouse computer.

Backups are made on a daily basis

Financial Costs involved with this system

Software: although many free software packages exist, inFlow Inventory Management provides the best balance between features and cost. To create a multi user network (ideal in this case), the license cost $299 per computer for lifetime use. 3 licenses will be needed.

$299 x 3 = $897 = ~ Rs. 75000 (@ Rs. 84 per U.S Dollar)

Hardware needed: processor, motherboard, RAM, hard drive, casing, power supply, monitor. Based on the software requirements, the hardware cost is as follows:

Tariq Road Branch cost: Rs 23,000

Gulshan Branch cost : Rs 23,000

Warehouse cost: Rs. 27,000

Total : Rs. 73,000

Internet connection: 3 connections

Initial setup cost : Rs. 800 x 3

Monthly cost: Rs. 1000 x 3

Total initial investment: Rs. 75,000 (3 licenses) + (73,000 (hardware) + 2,400 (internet setup) + 3000 (first month internet payment) = Rs. 153,400

Benefits of the proposed system

Accountability: first and foremost, the new system will hold each branch accountable for what it has received in its inventory. Once its handed over the inventory, it is held accountable for its storage, sales and payment. The sales of the branch should match the inventory received.

Inventory control: from the moment the chicken supply reaches the warehouse, it will be tracked and accounted for. The system will make sure that there is adequate supply at all branches at all times so as to not lose out on potential sales

Economic order quantity: the ideal quantity of chicken to order each week and the ideal quantity to store in the freezers can be calculated based on demand and supply conditions. Inventory planning is thereby improved.

Accuracy: with figures, statistics and numbers well accounted for and cross references, the books of Silver Spoon will present and accurate picture of state of affairs. A reduction in human error in terms of calculations, counting and so on will also be witnessed.

Record keeping: instead of scribbling in registers and writing journals, an electronic system with constant updates is hence created with the use of e-commerce technologies. Past transactions, exchanges, buying and selling are stored electronically thereby staying safe. The option to print out the records exists, thereby creating tangible records.

Electronic Data Interchange: Information sharing between branches and the warehouse will be more convenient as real time updates and inventory levels can be monitored. Offers and promotional schemes by suppliers can also be entertained.

Expansion: This inventory monitoring and management system is not just limited to chicken; it can be used for the entire product line, mutton, beef, vegetables, cold drinks, seasoning, flour and so on. The scope is limitless with unlimited suppliers and customers.

Improved Customer Service and loyalty: when a customer always gets his or her desired order in desired quantity, it creates customer satisfaction and creates repeat customers. It improves loyalty as well. A computerized receipt also creates a positive impression on the customers.

Reduce stock-outs and overstocks: with supply synchronized with demand, the chances of ending up with ‘expired’ inventory or facing shortages are greatly reduced. Shortages are prevented as inventory as planned well in advance, and in the same way excess inventory is also reducing thereby curbing inventory carrying costs.

Ready alerts: if the inventory dips below a certain level at a branch, an automatically generated alert is sent to the warehouse or Gulshan branch and inventory can be moved around. Furthermore this will act as an early warning sign to the warehouse to acquire more inventory.

Meeting demand: demand is almost always met unless outside forces have some play. With inventory always available due to a tracking and trend analysis system, sales will always be met.

Forecasting: due to its ability to track charts and record daily transactions, the stored information can be used to conduct trend analysis for certain times of the calendar year. This will allow better planning for inventory and sales.

Website: Silver Spoon Snacks Pvt. Ltd. can go on-line and have a web presence. This on its own is a marketing tool

Networking: since Silver Spoon is now on-line and has a presence on the world wide web, it will be able to reach out to suppliers and customers on a larger scale. It is a ready marketing tool. It can partner with other restaurants, sponsors, FMCGs and causes.

Marketing: with the use of e-commerce technologies, Silver Spoon Snacks can expand its marketing operations by sending out e-mails and creating ad banners and partnering with other websites.

Costs of proposed system

Change: it is possible that managers and top management may resist the change/transition from a paper based system to a technical system. The current system, though not ideal sets comfortably with current management. A management paradigm shift is required.

Training: the system users will require some short initial training to understand the use of the software and technology in general. Although the Operations Manager – Mr. Talha Awan is well versed with computer software and hardware, there will still be a slight lag due to training.

Initial investment: although a small amount, roughly Rs. 150,000 will need to be diverted for a project that has no immediate monetary returns.

Software support: although a helpline for customer support exists, it can become cumbersome to ask for guidance incase of software failure or confusion.

Hardware failure: at the mercy of KESC and the elements, the computer hardware may fail thereby causing confusion and a stop in information flow. Although an uninterrupted power supply may be purchased, as well as a warranty plan, it will only add up in costs and delays.

Internet failure: from time to time, the internet service provider may fail to provide a 100% uptime. This can cause delays and lags in the system.

Industry Standard

Bar B Q Tonight – Inventory Management System

To further add value to this report, I studied Bar B Q Tonight’s current inventory management setup which is computerized. Information was gathered through telephonic interviews and e-mail exchange with the Operations Managers, Sardar Ishaq and Mr. Abur Rehman. The findings are compiled below.

Bar B Q Tonight is one of Karachi’s most famous restaurants that came into being in 1988. It prepares all kinds of cuisine that caters to thousands of customers on a daily basis. In-fact the multi storeyed establishment can house upto a thousand customers at a time. The restaurant has enjoyed high growth levels consistent with every year. Recently a branch has been erected in Lahore.

Chicken, Beef, Fish, vegetables, pastas, fruit, ice cream, mushrooms, sausages, cheese, beverages and tissue rolls are just a small list of the inventory that are in storage and continuous use at the restaurant. These are key inputs needed to give customers a full service and experience backed by quality that the restaurant promises. To ensure proper delivery of storage, roughly 500 employees and 2 dozen management level officers are part of the work force.

The availability of sufficient inventory and especially at the right time is perhaps the single most crucial factor at the restaurant. Insufficient inventory levels can result in a loss of potential sales. Furthermore due to the sheer quantity of inventory that enters and exits the building, checks and balances, control and proper monitoring of stock are required. This serves a number of functions such as quality control, waste management and theft protection.

The current supply chain is as follows:

SUPPLIER  DRY/COLD STORAGE  CUTTING/PROCESSING  RELEVANT FOOD DEPARTMENT  CUSTOMER

The suppliers supply meat, chicken, tinned items, cold drinks, eggs, vegetables and basically all the inputs needed.

Once the orders are received, they go into processing/cleaning/cutting/batching dependin