HEADLINE

A Value Chain in KFC

B Challenges

VALUE CHAIN 2021

ANALYSIS IN
KFC INDONESIA
 TABLE OF CONTENTS

Contents
Company Profile....................................................................................................................................3

Company’s Vision..................................................................................................................................3

Company’s Mission................................................................................................................................3

Value Chain............................................................................................................................................4

Primary Activities...............................................................................................................................5

Support Activities..............................................................................................................................5

Value Chain in KFC Indonesia................................................................................................................7

Primary Activities...............................................................................................................................7

Support Activities..............................................................................................................................9

Challenges...........................................................................................................................................10

Business Performance Measurement..................................................................................................11

Bibliography.........................................................................................................................................12
Company Profile
KFC is the largest fast-food restaurant for the fast-food chicken category in the world. The
brand is a brand owned by Yum! Restaurants International (YRI). YRI is also the owner of
other well-known brands such as: Taco Bell, Pizza Hut, A&W, and Long John Silvers. Most
of the business undertaken is the fast-food restaurant business model. However, in 2011
A&W and Long John Silvers split from YRI. This, however, did not make a significant
change from YRI's position as one of the fast-food service providers in the world.

KFC Indonesia is one of the most prominent fast-food restaurants in Indonesia. The sole right
holder for the KFC franchise is PT Fast Food Indonesia Tbk. KFC has officially entered
Indonesia since 1979. Its existence as one of the largest fast-food restaurants in Indonesia is
evidenced by the spread of 743 outlets throughout the province of Indonesia in approximately
170 cities. During the pandemic, KFC Indonesia took a bold step in 2020 by opening 9 new
outlets in its distribution.

On the menu, KFC has a variety of menus tailored to the Indonesian people's tastes. Still
focusing on chicken products, the menus at KFC Indonesia add an element of rice to their
menu. In addition, KFC Indonesia also provides a burger menu in choices. However, the
burger menu is not too strong for KFC because McDonald's is still a favorite for Indonesian
people. KFC Indonesia also provides affordable prices for connoisseurs of their products.
Although many competitors offer lower prices, KFC remains the people's favorite choice in
terms of fried chicken products.

Company’s Vision
To establish KFC Indonesia as the premiere Quick Service Restaurant of the finest quality
with uncompromising core value. [CITATION PTF20 \l 1033 ]

Company’s Mission
All about convenience. Easy from Dining, drive thru, and parties. A sense to belonging
without any alienation feeling. Where its products are corresponding for all time and feeling
the sense of working. Asset are well taken care and in good condition. Be who you are
[ CITATION PTF20 \l 1033 ]

Value Chain
Value Chain Analysis is the process by which a company identifies key and auxiliary
activities that add value to a product, then analyzes them to reduce costs or increase
differentiation. Value Chain Analysis is a strategy used to analyze the company's internal
activities. According to David [ CITATION FDa11 \l 1033 ], the notion of the value chain or
value chain is "Value chain analysis refers to the process whereby a firm determines the costs
associated with organizational activities from purchasing raw materials to manufacturing
product(s) and in the end is to marketing those products to the markets." In other words, by
looking into internal activities, the analysis reveals where a company's competitive
advantages or disadvantages are. Companies that compete through differentiation advantage
will try to perform activities better than competitors will. If it competes through cost
advantage, it will try to perform internal activities at a lower cost than competitors. When a
company is able to produce goods at a cost that is lower than the market price or to deliver
superior products, it gains an advantage.

Value Chain Analysis is the process by which a company identifies the main and auxiliary
activities that add value to the product, then analyzes them to reduce costs or increase
differentiation. Value Chain Analysis is a strategy used to analyze the company's internal
activities. In other words, by looking into internal activities, the analysis reveals where a
company's competitive advantages or disadvantages are. Companies that compete through
differentiation advantage will try to perform activities better than competitors will. If it
competes through cost advantage, it will try to perform internal activities at a lower cost than
competitors. When a company can produce goods at a cost that is lower than the market price
or to deliver superior products, it earns a profit. [ CITATION VAL17 \l 1033 ]

In the journal Walters and Lancaster, Brown also mentions the definition of the value
chain[CITATION DWa00 \l 1033 ], “The value chain is a tool to disaggregate a business into
strategically relevant activities. This enables identification of the source of competitive
advantage by performing these activities more cheaply or better than its competitors. Its value
chain is part of a larger stream of activities carried out by other members of the channel-
suppliers, distributors, and customers”.

Primary Activities
The main activities in the value chain are all business activities that can create value
or benefits for customers by presenting something that shows the company's
uniqueness in the market[ CITATION Ibn21 \l 1033 ]. This primary activity is considered
an essential activity in running a business. The following are activities that are in the
company's value chain according to Porter[CITATION Mic851 \l 1033 ]
a. Inbound logistics is a company activity related to storing, receiving, and
distributing products.
b. The operation is an activity that converts raw material products into final
products.
c. Outbound logistics is a company activity related to distributing products or
services to customers.
d. Marketing and sales is an activity related to marketing and sales, such as
promotions, etc.
e. Service is an activity related to providing services to improve further the
maintenance of a product, such as maintenance, repair, and training.

Support Activities
Supporting activities which are supporting activities of primary activities consist of
[ CITATION Mic851 \l 1033 ]:
a) Procurement
Refers to the purchasing function of the inputs used in the company's value chain,
not to the purchased inputs themselves, but to inputs that include raw materials,
suppliers, other supporting materials, and assets such as machinery, office
equipment, buildings, etc. Although purchased inputs are usually associated with
primary activities, purchased inputs exist within each activity
value includes support activities. Good purchases made by the company can affect
the cost and quality of purchased inputs, other activities associated with receiving
and using inputs, and interactions with suppliers.
 b) Technology Development
It consists of several activities broadly grouped from the technology used in
preparing documents and distributing finished goods to the technology inherent in
the resulting product.
c) Human Resource Management
It consists of activities that include recruitment, hiring, training, workforce
development, and compensation for all types of personnel. Resource management
influences competitive advantage through its role in determining employee skills
and motivation and hiring costs and training.
d) Firm Infrastructure
It consists of a number of activities, including general management, planning,
finance, accounting, law, government affairs, and quality management.
Infrastructure differs from other supporting activities in that it supports the entire
value chain rather than individual activities. Depending on whether the company
is diversified or not, the company's infrastructure may be stand-alone or shared
between business units and the enterprise level.

Figure 1

Porter’s Value Chain

Note: Porter's Value Chain focuses on systems and how inputs are converted into outputs that
are purchased by consumers. Using this point of view, Porter describes a chain of activities
common to all businesses, and he divides them into primary and support activities. (Michel E.
Porter, 1985)
Value Chain in KFC Indonesia
Primary Activities
1. Inbound Logistics
In this case, the incoming logistics are food raw materials and available food
processing machines.
For raw materials:
a) Chicken: everything is supplied by the supplier. The supplier is Wonokoyo
Group. The supplied chicken is in the form of pieces according to what was
ordered, specifically for the breast, thigh, or wing. in terms of supply period,
for retailers within the city of Surabaya, it is done every day, while for retailers
outside the city of Surabaya, it is done every month.
b) General vegetables: Vegetables are supplied by suppliers whose domicile is
close to the retailer (local). Especially in the city of Surabaya, there is only one
supplier for vegetables, while retailers outside the city purchase vegetables at
the market.
c) Special vegetables: Special vegetables are imported from Jakarta (Head
Office). After that, they are put into KFC Logistics regional and then
distributed to retailers in East Java.
d) Potato: This material is imported directly from abroad and then put into
warehouses in Jakarta. After that, it is distributed to regional logistics, then
distributed to retailers - retailers.
e) Seasonings: Seasonings available at KFC are better known as 11 kinds of
spices. The spices are directly imported from the KFC Center located in
Kentucky, USA.
f) Rice: there are two types of rice, non-organic and organic. Non-organic is
supplied by local suppliers, while organic is imported directly from the head
office (Jakarta).

2. Operations
For operations at each outlet (food processing), it is based on the company's
SOP (Work Operational Standards). For example, in cooking chicken: First,
the chicken is massaged, then sprinkled with flour and massaged again. After
that, it is put into a cooking place with a quota of 40 pieces of chicken, the
 temperature in cooking is at a temperature of 120 degrees Celsius for 20
minutes, and everything is computerized. Then it is put into a food storage
area that has been adjusted to heat so that the chicken remains warm. If the
chicken does not sell for 2 hours, then the chicken is recycled to make other
types of food, such as yakiniku and others. [CITATION Pra21 \l 1033 ]
In terms of making pudding, the manufacturing is done in the warehouse, not
at the outlet, so the warehouse sends the pudding to the existing outlets.
3. Outbound Logistics
Outbound logistics is the result of sales activities which its report is based on
existing outlets. Reporting from outlets is done every day (close transactions).
The data is stored on the outlet server. After that, it is sent to the head office in
Jakarta.
4. Marketing and Sales
In marketing and sales, the company determines that the target buyer segment
is the wider community. Furthermore, in marketing its products by doing
promotions and creating a good image to customers, it is hoped that a good
impression can spread to prospective customers who come.
5. Services
The services provided by the company to customers are:
a) Delivery Service
KFC provides delivery service. Just call the nearest KFC, KFC will
immediately deliver the order to the address of the customer who
ordered it. However, with the following conditions:
 The maximum inter-regional boundary is 5 Km. from the KFC
restaurant to the intended address.
 The distance between ordering and delivery is ± 30 minutes
from when the restaurant receives the order.
 Order delivery under Rp. 30.000,- (before tax) an additional fee
of Rp. 4,000,-
 The maximum delivery order for this type of package is 50
boxes.
b) Catering Service
 KFC Catering & Home Delivery is a form of KFC service to customers
in meeting the consumption needs of a various family or office events
(reunions, social gatherings, parties, bazaars, etc.) anytime and
anywhere. Customers can make delivery orders through KFC
restaurants in a certain amount of 50 boxes and can be delivered to the
requested place while large orders (> 100 boxes). KFC Catering
Facilities:
 Food and beverage utensils
 Chaki Birthday (Kids Birthday Party)
 MC

*With practical and planned additional costs, choose a complete

and varied menu, and a friendly and agile crew.

c) Info online Service

An infoline is a form of communication media provided by KFC to
facilitate the delivery of customer complaints and other information
related to KFC, anytime and anywhere via telephone via the infoline; it
is hoped that complaints and other information from customers will be
better inputted and processed more effectively.
d) KFC Franchise Information Service
For now, KFC does not cooperate in the form of sub-franchising for
the KFC brand, except for cooperation in other forms, namely:
 Cooperation Rent a location.
 Investment cooperation (excluding buildings/buildings)
 Investment cooperation (including buildings/buildings)

Support Activities
1. Infrastructure of PT. Indonesian Fast Food
a) The layout of raw materials and finished goods to optimize the use of
space (warehouse) adjusted to the scattered outlets.
b) The use of IS/IT has been implemented properly
c) Employment rules such as working hours, holidays, leave, and other
rules.
 2. HR Management of PT. Indonesian Fast Food
In terms of HR management, this company conducts recruitment based on head
office and RSC reports. The one who has the right to determine whether there is
recruitment is only at the head office. The RSC only makes submissions.
3. Technology Development of PT. Indonesian Fast Food
The technology development carried out by this company is good. All clients,
including the cash register, are already connected to the network. Each outlet
has a server, RSC also has a server, and the head office also has a server. All
applications are licensed. For network technology using Citrix with a
concentration on sharing applications. In terms of software development using
the magic programming language.
4. Procurement of PT. Indonesian Fast Food
This company collaborates with local suppliers (specifically for certain raw
materials, such as vegetables and rice). While other raw materials are sent from
the central warehouse, procurement of raw materials is carried out when the
inventory of goods reaches the minimum limit condition. The manager chooses
to procure raw materials based on safety stock because the demand by
customers is unstable but can still be estimated.

Challenges
The COVID-19 pandemic is a challenge for all industries. These challenges also have an
impact on the fast-food restaurant industry, such as KFC. Nevertheless, the challenges existed
even before the pandemic existed. In a case study conducted by Chen[ CITATION Mun20 \l 1033
] it was found that the stagnation of a country's production will affect the entire industrial
chain, so the stagnant globalization process is one of the great challenges facing KFC.
Whether it is food, transportation, rent, or wages, KFC will lose its advantage in the
globalization process before the outbreak.

The impact of the COVID-19 outbreak is the reduced desire to spend from customers. Chen
[ CITATION Mun20 \l 1033 ] stated that people are afraid of losing their jobs, afraid of being
infected or robbed by mobs, all these worries and worries will reduce people's consumption
behavior because they start to save money. Based on the data taken from Tribunnews, PT
Fast Food Indonesia Tbk during January to September 2020 suffered a loss of IDR 298.34
billion. In fact, in the same period the previous year, the KFC Indonesia restaurant
management company still recorded a profit of Rp 175.7 billion. [ CITATION Yov20 \l 1033 ] In
Kompas, it is stated that to increase their sales in the pandemic KFC opened a small shop on
the side of the road. [ CITATION Syi20 \l 1033 ]

Business Performance Measurement

Increasing sales is the hope of every company. Increased sales, in general, will have a good impact
on the company. So, they need a strategy where the company must be versatile in conditions that
can have a negative impact.

An increase in the speed of serving is essential in a fast-food restaurant. The faster the food is
available; the more satisfied customers are with the service they receive. If fast-food restaurants
generally give the longest 30 minutes in serving, then fast-food restaurants must dare to guarantee
faster service. For example, a 5-minute guarantee of food is available. This can increase the number
of sales per outlet.

In the process in the kitchen, if the thing becomes an obstacle in the machine's performance, then
the latest technology updates must be carried out in each section of the fast-food restaurant. If the
obstacle is human resources, it is better to replace human resources with more agile ones.

The drive-thru service should also be improved. The process currently being implemented is for
buyers to come to the store through a drive-thru, then if the products offered must go through a
processing process in the kitchen first, this results in customers having to wait. This can be reduced if
there is a take order option in the KFC application. Customers are given an estimated time the food
will be ready to be picked up in the application. So, when the buyer arrives at the outlet, the food is
ready to be picked up and in freshly cooked condition.
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