Centralized supply chain – Food Lord

Abdul Rehman Shaikh and Asad Ali Qazi

n a very hot evening in May 2017, after a day-long journey from Hyderabad, Asim Abdul Rehman Shaikh is

O Rizvi, the Senior Supply Chain Manager at Food Lord had just reached his office in
Sukkur[1]. Since joining, Rizvi had faced many operational challenges. One of the
based at Directorate of IBA
CC & S, Sukkur IBA,
Sukkur, Pakistan.
major challenges for him was to decide on the centralization of the company’s two
Asad Ali Qazi is based at
warehouses. These two warehouses were currently being operated separately at the
the Department of Business
Hyderabad[2] and Nawabshah[3] branches. It had been just two months since his joining, Administration, Sukkur
and he was under pressure from the CEO of the organization to prepare a report and share Institute of Business
a final action plan concerning the centralization of both of the warehouses. Administration, Sukkur,
Pakistan.
Background
Established in September 2010, Food Lord was one of the finest dine-in and take away
restaurants. It started its operations with a small restaurant providing a three-star
environment on the Sukkur Bypass. It was a definite choice for special occasions and formal
dinners. With the core mission of providing quality food in an environment not available
anywhere else in the region, it was targeting middle- and upper-class customers. Since its
inception, it had established seven branches in the major cities of Lower Sindh and Punjab
(Exhibit 1). They offered over 200 different dishes including Pakistani cuisine, continental
and barbecue, fast foods, salads and all types of beverages such as tea, coffee, iced
coffee, fresh juices and so on.
Rizvi, who held an MBA from one of the leading business institutes in Pakistan, was hired as
the senior supply chain manager during March 2017. He had 12 years’ experience in
managing complex supply chains for various multinational companies (MNCs). At his
previous organizations, he performed exceptionally well in his core expertise of logistics
and warehousing. During his interview at Food Lord, the CEO had explicitly asked him
about the centralization of the supply chain, its benefits, and its implications on the overall
profitability of the organization. At Food Lord, he was based at the head office in Sukkur and
was responsible for the end-to-end supply chain operations of all seven restaurants. His
domain covered procurement, logistics, warehousing and planning for inventories.
With a network of seven restaurants, each having its own warehouse facility, Food Lord had
a fully functional supply chain department. Its supply chain department had experienced
warehousing and procurement staff employed at all the restaurants and at its head office to
ensure the procurement of quality products at the right time. It was the responsibility of the
branch’s supply chain staff to maintain the optimal inventory levels at all times. Their branch
staff included operations managers, store officers, purchasing officers, and a helper, and Disclaimer. This case is written
they were responsible for issuing the items when demanded as per the needs of the kitchen solely for educational purposes
and is not intended to represent
staff. successful or unsuccessful
managerial decision-making.
Behind the scenes, Food Lord had a very well established kitchen at every restaurant, The authors may have
disguised names; financial and
equipped with all the latest culinary equipment, freezers, large-sized commercial ovens, other recognizable information
and other appliances required to serve their customers in the best possible way. They had to protect confidentiality.

DOI 10.1108/EEMCS-02-2019-0038 VOL. 9 NO. 2 2019, pp. 1-19, © Emerald Publishing Limited, ISSN 2045-0621 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 1
 the capability to serve larger groups on special occasions for marriage functions, birthday
parties, business conferences and so on. The front of house at their restaurants was
normally divided into a family section, a gents’ section, and separate rooms to cater for any
special occasions. Most of their furniture, crockery, and cutlery were imported and were the
best of their kind, giving an elite impression at the dine-in restaurants.
The supply chain staff classified the inventory into two types based on buying trends: fresh
inventory and stock inventory. The fresh inventory included all types of meat (mutton, beef,
chicken and fish), vegetables and dairy products (milk, yogurt, fresh cream). The stock
items included all types of groceries including rice, flour, eggs, beverages/cold drinks,
sauces/ketchups, spices, and so on. The fresh inventory items were purchased daily in the
morning and could also be purchased during the day if additional demand was raised from
the kitchen side. There was no fixed policy for buying fresh items, whereas the stock items
were purchased on a monthly basis, and were stored in a warehouse for further issuance to
the restaurants’ kitchens.
Food Lord was working with a very limited number of suppliers, keeping in view their
quality concerns. Some of the suppliers provided stock to the doorsteps of the stores/
warehouses, as per the requirements, for which the transportation charges were borne
by the suppliers themselves. As there was no software (demand-forecasting system)
available at that time, stock orders were normally based on the average consumption for
the previous three days. This caused the stocks to be delivered twice or three times a day
when there were increased consumer sales orders, or any sudden orders for special
occasions or parties.
The normal operating hours for the restaurant were 12:00 p.m. to 00:00, while the
warehouse operations opened from 10:00 a.m. until the closure of the restaurant. The fresh
inventory suppliers had to ensure the complete supply of orders before 11:00 a.m. so that
these could be used for lunch. That was the main reason why all orders were placed via
telephone, before the closure of the restaurant on the night before. This helped to avoid any
stock shortages of fresh inventory items.

Industry overview
The food industry in Pakistan was continuously expanding, as people’s eating habits
were changing. There was a significant increase in competition among local and
international chains of restaurants. While food prices were not being controlled by the
government, and there were no effective regulations for food quality, people believed
that restaurants were enjoying very high profit margins. The young generation enjoyed
fast food and families enjoyed spending their time in local restaurants offering
Pakistani cuisine. The core values for any family were the overall environment and
ambience of the restaurant and the quality of the food being provided. Research
showed that 43 per cent of people preferred to dine in and 26 per cent preferred
takeaways and home delivery. The major reason for eating out was just a family outing
at 38 per cent, while 12 per cent of people wanted to have a get-together with family
and friends[4].
Most of these restaurants were located in the cities, while a few were established on the
national highways. The local restaurants generally did not possess any skilled supply chain
staff and had not established any supply chain policies or quality policies. As far as the
general structure of the warehouse was concerned, they did not even own any standard
warehousing facilities or temperature-controlled warehouses. They relied on a single
storeroom for storage of all the items they used. These local restaurants normally had only
one staff member who would work as the buyer as well as the storekeeper. They would
purchase on a daily basis from the nearby shops as per their needs. In these local
restaurants, there was no concept of central warehousing or central buying as there was

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with international chains such as Pizza Hut, KFC, and so on. They did not really monitor the
quality of their raw materials. All local restaurants preferred to buy on a daily basis and store
whatever was left for utilization on the next day. However, the international chains, such as
Pizza Hut and KFC, followed their own systems of centralized buying and centralized
warehousing. They not only possessed the cold storage facilities but also the temperature-
controlled vehicles for safe transportation of their raw materials. They were the market
leaders, and they were creating a path for other local competitors to follow them.

Centralization of supply chain

The CEO of the organization, who held an MBA from the USA, had no experience of
warehouse consolidation unlike other members of the existing staff who did. If done
successfully, it could be the first innovation of its kind for this organization. It was one of the
dreams of the CEO to have one central warehouse like other MNCs, which could work as a
feeder for both the restaurants at Hyderabad and Nawabshah. It would be a single point for
the administrative control of inventory management and procurement.
We are not far behind any MNC. We have all the resources and skilled persons. We can easily
establish the central warehouse for Hyderabad and Nawabshah, said the CEO.

However, the responsibility and the authority for centralization was still with Rizvi, who had
to share his action plan keeping in view the organizational challenges and market overview.
Having been surrounded by different local and international competitors, in a market where
KFC and McDonald’s were already working on centralized supply chain management
systems, Food Lord had built a strong foothold by providing “fresh food” with product
customization at a level that no other brand could match. With its major target markets of
university students, youths, and families, Food Lord had no plans to open any new outlets or
branches in the regions near its Sindh base for up to five years.
The only challenge that might adversely affect the performance of [a] central warehouse is the
availability of fresh food, and we cannot compromise on this policy, whatsoever the case may
be, said Rizvi.

The Hyderabad branch was the highest selling branch with average sales of PkR[5]
400,000/- per day, and customer footfall of around 600 per day, while the Nawabshah
restaurant had average sales of PkR 150,000/- per day with a customer footfall of around
300 per day. Both the restaurants had a store officer, a procurement officer, and there
was one helper at Hyderabad only – there was no helper at Nawabshah. The operations
manager was already working at Nawabshah, while the same position had been vacant
at the Hyderabad restaurant for more than two years. The Hyderabad restaurant also
possessed one Suzuki Bolan, which was out of order, and there was no driver for this
Bolan.
After the closure of the Nawabshah warehouse, all the procurement was to start from
Hyderabad including the purchasing of fresh items, and the same would be dispatched
to Nawabshah on a daily basis, using the available Suzuki Bolan. The supply chain staff
at Nawabshah was to be relieved on an immediate basis to save their HR cost. The
budgeted position of operations manager at Hyderabad would be filled by a warehouse
manager. After hiring, he would be responsible for the overall operations of the supply
chain (buying and warehousing) at both restaurants. The warehouse manager at
Hyderabad had to ensure purchases of fresh items were made from the local market in
Hyderabad and these had to be dispatched daily by 10:00 a.m. Only then could
supplies reach the Nawabshah restaurant by 12:00 p.m. and be used for the
preparation of food for the lunch orders. The contract for beverages was already in
place with an MNC, and so, there was no need to dispatch the beverages (cold drinks)
from Hyderabad. There had to be one lower staff level resource available at

VOL. 9 NO. 2 2019 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 3

 Nawabshah to ensure the proper receipt of stocks from Hyderabad. The same helper
would be used to buy dairy products, such as milk and yogurt, from the local market
since the distribution of such items from Hyderabad could lead to quality issues and
stock deterioration. This helper would also be responsible for catering to any
emergency demands from the local market if instructed by the warehouse manager.
The kitchen staff at Nawabshah, however, had to generate their demands very carefully
without any errors or omissions and communicate the same to the warehouse manager
on time to ensure timely dispatch. In case of any omissions, it would not be possible for
the warehouse manager to arrange for the replenishment of such stocks on the same
day.
Rizvi had already projected the challenges en route for fresh products, and other political
and economic factors which may have affected the transportation of material on a daily
basis. Due to very hot days in summer, the products could deteriorate, and quality may
have been affected during transportation. The temperatures in summer were observed with
an average high of 44˚C, which was not feasible for meat transportation (Exhibit 2). Other
challenging factors, such as road blockades, vehicle breakdowns, or absenteeism by the
driver could also lead to stock shortages at the Nawabshah warehouse. The internal policy
of using very fresh items and buying meat daily could not be amended, as the stored meat
may lead to customer dissatisfaction. So, a daily supply of meat was mandatory and could
not be avoided. The challenge of sales spikes or sudden exclusive orders for party
arrangements was a norm at the Nawabshah restaurant and those circumstances always
needed to be entertained.
The staff working at Nawabshah had to be relieved once both warehouses were
consolidated (the details and salaries of each staff member are given in Exhibit 3). It was
assumed that the available Suzuki Bolan could be utilized for the transportation of material
from Hyderabad to Nawabshah on a daily basis. Nawabshah being located at a distance of
125 km from Hyderabad (Exhibit 4) was around a 2-h drive away in a Suzuki Bolan. This
vehicle would incur some additional costs (Exhibit 5). The average mileage of this vehicle
was estimated to be 13 kilometers per liter, and the fuel prices were projected to remain at
PkR5 95/- per liter. After the repair and maintenance of the existing Suzuki Bolan, it could be
used effectively without causing any problems in transit. The estimated remaining life of this
vehicle was two years.
It was also proposed by the HR section that a new warehouse manager could be hired at a
monthly salary of PkR 60,000/-, who would be based in Hyderabad, and could visit
Nawabshah on a needed basis. After the closure of the Nawabshah warehouse, an
additional space was to be rented at Hyderabad, which would cost around PkR 80,000/-
per month including the utilities. The estimated savings from the Nawabshah warehouse
utilities were projected to be around PkR 10,000/- per month. The savings because of bulk
buying from Hyderabad were projected at 2 per cent of the total cost of goods sold, which
was PkR 2,000,000/- per month.

Keywords:
Supply chain management,
Procurement/purchasing,
Storage/warehousing,
Centralized or
decentralized supply chain,
Service operations
management,
Cost minimization,
Supply chain velocity,
Responsive supply chain,
Food (restaurant) business
Moving forward
When Rizvi was returning from the Hyderabad Branch after conducting the meeting
concerning the centralization project, he faced the breakdown of his brand new
company-assigned car. There was no help for him and he was standing on the national
highway for more than 3 h. He was unable to figure out how he could ensure smooth
dispatch of stocks from Hyderabad to Nawabshah, in conditions where there was no
technical support on the highways. While it is common for older vehicles to face such
breakdowns, a vehicle carrying fresh stocks in such conditions would create a serious
problem for the business. Should Rizvi go for centralization of both the warehouses just to
realize the dream of the CEO? Should Rizvi continue operating both warehouses
separately?

PAGE 4 j EMERALD EMERGING MARKETS CASE STUDIES j VOL. 9 NO. 2 2019

Notes
1. Sukkur is a city in the Sindh province of Pakistan. It is the third largest city in Sindh and the 14th
most populous city in Pakistan.
2. Hyderabad is a city in the Sindh province of Pakistan. It is the second largest city in Sindh and the
eighth most populous city in Pakistan.
3. Nawabshah is the fifth largest city in Sindh province by population and it is the hometown of the
former President Zardari of Pakistan.
4. Reference: www.icmap.com.pk/News_Pdf/outcomes_food_survey.pdf
5. US $1.00 = Pakistani Rupees (PkR) 104 during May 2017.

VOL. 9 NO. 2 2019 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 5

 Exhibit 1. Location of seven branches of Food Lord

Figure E1 Location of seven branches of Food Lord

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Exhibit 2. Average temperatures of Nawabshah region

Table EI
Month Average low (˚C) Average high (˚C)

January 7 24
February 10 28
March 15 34
April 20 40
May 25 44
June 28 43
July 28 40
August 27 39
September 25 38
October 20 37
November 14 32
December 9 26
Source: Adapted from National Oceanic & Atmospheric Administration

Exhibit 3. Salary of staff working at Nawabshah

Table EII
Staff designation Monthly salary Annual salary

Operations Manager PkRa 45,000 PkR 540,000

Store Officer PkR 30,000 PkR 360,000
Procurement Officer PkR 30,000 PkR 360,000
Helper PkR 18,000 PkR 216,000
Total PkR 123,000 PkR 1,476,000
Note: aUS $1.00 = Pakistani Rupees (PkR) 104 during May 2017
Source: Created from the information collected by the authors

VOL. 9 NO. 2 2019 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 7

 Exhibit 4. Distance of Nawabshah from Hyderabad

Figure E2

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Exhibit 5. Detailed costs associated with Suzuki Bolan

Table EIII
Cost head Estimated amount per month

Initial repair and maintenancea PkRb 30,000

Fixed costs per month
Driver’s salary PkR 14,000
Driver’s allowance for food and communication PkR 6,000
Toll taxes of vehicle PkR 1,800
Average wear and tear PkR 3,000
Total per month (excluding initial repair and maintenance) PkR 24,800
Notes: aInitial cost to make vehicle operational; bUS $ 1.00 = Pakistani Rupees (PkR) 104 during May
2017
Source: Created from the information collected by the authors

Corresponding author
Abdul Rehman Shaikh can be contacted at: arshaikh83@gmail.com

VOL. 9 NO. 2 2019 j EMERALD EMERGING MARKETS CASE STUDIES j PAGE 9