36494124 KFC Facility Location and Layout Operation Management Project

KFC - FACILITY LOCATION AND LAYOUT

Submitted By: Muhammad Muavia Khan [SP09-MBA-081]

Rehmatullah [SP09-MBA-114]

Danish [SP09-MBA-027]

Asad Ullah Azam [SP09-MBA-021]

Syad Azam Shah [SP09-MBA-135]

Naveed Abass [SP09-MBA-108]

Fazan Ali [SP09-MBA-030]

Submitted To: Mr Tahir Aziz

Subject: Operation Management

Submission Date: 04/05/2010

Department of Management Sciences

COMSATs Institute of Information Technology, Lahore, Pakistan.

http://en.wikipedia.org/wiki/File:KFC_logo.svg



COMSATS Institute of Information Technology.2



FOREWORD

Great works are performed not by strength but by persistence. Facility location and facility

layout analysis is the very initial part of locating new or relocating existing outlets of an

organization. Such as KFC (Kentucky Fried Chicken) is the third largest fast food chain

with over 12,200 outlets in 99 countries. KFC has maintained its title, for the last 60 years

by supreme decision making management. All the facility locations and layouts selected

by the KFC are the state of the art KFC because they used the proper methods for facility

location and layout analysis of new or existing outlets. Lot of other location around the

world is waiting for KFC title.




ACKNOWLEDGEMENT

We are heartily thankful to my supervisor, Mr. Tahir Aziz, whose encouragement,

guidance and support from the initial to the final level enabled us to develop an

understanding of the subject. Lastly, we offer our regards and blessings to all of those who

supported us in any respect during the completion of the project.




TABLE OF CONTENTS

1. Preamble:.......................................................................................................................................6

2. Factors That KFC Management Keep in Mind during Facility Location Analysis:..................7

2.1. Proximity to Customers:.......................................................................................................7

2.2. Business Climate:...................................................................................................................8

2.3. Total Costs:............................................................................................................................8

2.4. Infrastructure:.......................................................................................................................8

2.5. Quality of Labor:...................................................................................................................8

2.8. Host Community:..................................................................................................................8

3. Facility Location Techniques:.......................................................................................................9

3.1. Method of Factor Rating:.....................................................................................................9

3.2. Cost-Profit-Volume Analysis:.............................................................................................11

4. Facility layout:.............................................................................................................................13

4.1. Factors that influence layout:.............................................................................................13

4.2. KFC Facility Layout:..........................................................................................................13

4.3. Advantage of KFC Good Layout:......................................................................................14

4.4. KFC Layout Map:...............................................................................................................15

5. Conclusion And Recommendation:............................................................................................15

6. Reference:....................................................................................................................................16




1. Preamble:

1.1 Facility Location:

Facility location, also known as location analysis, is a branch of operations research

concerning itself with mathematical modeling and solution of problems concerning

optimal placement of facilities in order to minimize transportation costs, avoid placing

hazardous materials near housing, outperform competitors' facilities, etc.

Once a firm has decided to open a new facility OR relocate an existing facility, it

must decide the site where that facility should be located. The selection of location is most

important for organization. The business commenced without proper location analysis may

have the high risk chances and may not longer compete with other competitors.

1.2. KFC & Facility Location:

KFC Corporation, or KFC, founded and also known as Kentucky Fried Chicken is a

chain of fast food restaurants based in Louisville, Kentucky. KFC is the third largest fast

food chain with over 12,200 outlets in 99 countries. KFC has maintained its title, for the

last 60 years, of being the chicken Experts. Opening the first KFC outlet in Gulshan-e-

Iqbal in 1997. KFC wore the title of being the market leader in its industry. Serving

delicious and hygienic food in a relaxing environment made KFC everyone’s favorite.

Since then, KFC has been constantly introducing new products and opening new

restaurants for its customers.

Presently KFC is branched out in eighteen major cities of Pakistan (Karachi, Lahore,

Gujranwala, Sukkur & Muree) with more than 60 outlets nation-wide. The outlets

comprise of franchises, company owned and affiliated. They used the proper method for

facility location and layout analysis of new or existing outlets. Facility location involves

the evaluation of various sites for a new facility.

Apart from fulfilling our commitment of serving delicious, fresh and hygienic food

and at the same time providing our customer with the ultimate entertainment; KFC also

plays in the economics development of our country.


http://en.wikipedia.org/wiki/Louisville,_Kentucky

http://en.wikipedia.org/wiki/Fast_food_restaurant

http://en.wikipedia.org/wiki/Operations_research



Presently KFC has provided to over 1200 Pakistanis, which adds up to 6000 individuals directly dependent in KFC Pakistan.

The Government of Pakistan receives over Rs.10 million per month from KFC Pakistan as direct taxes.

95% of all food and packing material used in KFC Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month.

Each new outlet developed by KFC Pakistan costs approximately Rs.40 million, which is a huge amount for our construction industry.

Existing Locations of KFC In Lahore:

Cavalry Gound

Property No. 77,Commercial Zone, Cavalry Ground, Ext Lahore Cantt.For Delivery:Ph: 111-532-532Chicky Fun Area

Defence

160/2, Block 2,Phase-1 LCCHS,LahoreFor Delivery:Ph: 111-532-532Chicky Fun Area

Barket Market

Plot 27 A&B, Ali Block, New Garden Town,Lahore.For Delivery:Ph: 111-532-532Chicky Fun Area

Shadman

Plot No. 2, Shadman 2, Jail Road,Lahore.For Delivery:Ph: 111-532-532Chicky Fun Area

Thokar Niaz Baig

Opposite Toyota RaviMotors, Near Shah Pur Interchange Multan Road, Lahore.For Delivery:Ph: 111-532-532

Mall Road

70 - Copra Building, The Mall Road,Lahore.For Delivery:Ph: 111-532-532

GT Road

Plot No. 2, Shadman 2, Jail Road,Lahore.For Delivery:Ph: 111-532-532Chicky Fun Area

Y-Block

171/Y, Commercial Area, Phase III, DHA,Lahore.For Delivery:Ph: 111-532-532Chicky Fun Area

M.M. Alam Road

90-B/1 Gulbarg III, Lahore.For Delivery:Ph: 111-532-532Chicky Fun Area

2. Factors That KFC Management Keep in Mind during Facility Location Analysis:

There are several factors that influence the Facility Location Decision

2.1. Proximity to Customers:




KFC Management during facility location analysis keeps in mind the proximity of

target customers and target market, so that the target customer can be approached

easily to outlets.

2.2. Business Climate:

It is another important factors determined by the KFC during the locations

analysis. The location with favorable business environment is selected for the KFC by

the management.

2.3. Total Costs:

The core objective of the KFC is to select a site with the lowest total cost include

land, labor, constructions, taxes and energy cost. By minimizing the total cost they can

be able to reduce the product cost.

2.4. Infrastructure:

The locations enriched with adequate infrastructure i.e. road, rail, air and sea

transportation etc. are ideal for the KFC management.

2.5. Quality of Labor:

The location where the skilled labor is easily available is attractive for the KFC

outlets. KFC Management specially determined this factor in mind at the time of

location selection because the easily availability of skilled labor can deal with

customer effectively and easily. Labor cost decrease due to easily approach to the

labor.

2.8. Host Community:

KFC management also determined the interest of host community during the

facility location analysis. If the host community is in the favors of KFC new project

then the project started.

3. Facility Location Techniques:

There are many analytical techniques that can be used in facility location decision.




Some of these are:

1) Factor Rating

2) Cost-Profit-Volume analysis

3) Center of Gravity Method, and

4) Transportation and Simulation Models.

But first two methods “Factor Rating” & “Cost Profit Volume Analysis” are more

simple & suitable for KFC Because of easily understandable than “Center of Gravity”

& “Simulation Method”.

3.1. Method of Factor Rating:

In factor rating method, first we must identify the Most Important Factors in

evaluating alternative sites for the new facility. Then we should assign a weight

between 0 and 100 to each of these factors. Each alternative location will then be rated

based on these factor weights. The most weighted alternative is selected as the best

alternative.

Example:

Suppose KFC is considering three alternative sites for its new facility locations.

Site A. Moon Market

Site B. Shadra

Site C. Chock Chu Burgi

After evaluating the firm’s Needs, the Managers have narrowed the list of Important

Selection Criteria down into three major Factors.

- Availability of skilled labor

- Availability of suitable Infrastructure, and

- Proximity of target customers.




Weights reflecting the relative importance of each factor have been assigned as

follows:

Based on these criteria, the three Alternative sites were scored between 0 and 100

points:

Now we will multiply each score by its corresponding factor weight:

Weighted scores are calculated as: (Site Score)x(Factor Weight)




From these results, the largest total weight is for Site A. It appears to be the best

location.

What happens if we change the factor weights. Lets use the following factor weights:

Skilled labor: 0.45; Raw Materials: 0.40; and Market: 0.15

Then the following results are obtained:

In this case, Site “C” appears to be the best choice with largest weight score.

Therefore, factor rating method is very sensitive to the weights assigned to each factor.

Since factor weights, selected factors, and assigned scores are all determined

subjectively, the managers should be very careful in selecting these items and

numbers.

3.2. Cost-Profit-Volume Analysis:

When the fixed and variable costs for each site differ, Cost-profit-volume analysis

can be used to identify the location with the lowest cost.

Example

Suppose KFC is considering three alternative sites for its new production facility.

Site A. Moon Market

Site B. Shadra

Site C. Chock Chu Burgi




The Annual Production Cost associated with each alternative is a linear function of the

production volume. That is:

Total Production Cost = (Fixed Cost) + (variable unit cost) x (annual production

volume)

Assume that The expected annual production volume is 250.000 units.

And further assume that:

(x: production volume = 250.000)

For Site A: Prod. Cost = 10.000.000 + 250 x

For Site B: Prod. Cost = 25.000.000 + 150 x

For Site C: Prod. Cost = 60.000.000 + 50 x

Based on these information, Which site has the lowest cost?

At a production volume of 250.000 units, site B has the lowest cost, because

For Site A: Prod. Cost = 10.000.000 + 250 (250.000) = 72.500.000

For Site B: Prod. Cost = 25.000.000 + 150 (250.000) = 62.500.000

For Site C: Prod. Cost = 60.000.000 + 50 (250.000) = 72.500.000

This graphic shows that annual production cost changes with different production

volumes.




-If the expected annual production volume is below 150.000 units, then choose site A.

-If the expected annual production volume is between 150.000 and 350.000 units, then

choose site B.

-If the expected annual production volume is over 350.000 units, then choose site C.

4. Facility layout:

Means planning And Arrangement of all machines, utilities, employee workstations,

customer service areas, material storage areas, aisles, restrooms, lunchrooms, internal

walls, offices, and computer rooms, for the flow patterns of materials and people

around, into, and within buildings Infrastructure services such as the delivery of line

communications, energy, and water and the removal of waste water all make up basic

utilities.

4.1. Factors that influence layout:

Volume, weight of items to be produced.

Nature of the service to be provided.

Cost of the building to house the operation.

The fragility of the product or component

4.2. KFC Facility Layout:

Internal & External layout of KFC outlet is attractive and charming all over the

world. Ideal color schemes, pleasant lighting outlets, comfortable sitting arrangement,

fully trained employees and their proper work division, State of the art interior

beautification, speedy & appropriate cooking process, special club/block for kids, etc. are

the chief characteristic of the KFC layout.




4.3. Advantage of KFC Good Layout:

Reduces bottlenecks in moving people or material.

Minimizes materials-handling costs.

Reduces hazards to personnel.

Utilizes labor efficiently.

Increases morale.

Utilizes available space effectively and efficiently.

Provides flexibility.

Provides ease of supervision.

Facilitates coordination and face-to-face communication where appropriate.




4.4. KFC Facility Layout Map:

KFC fallow about the following facility layout for their outlets round the world.

6. KFC Process Layout Map:

KFC use process layouts because of variability in customer processing requirements. The KFC’s old and new process schematic diagram are presented blow.

KFC Old Process Layout:




KFC Modern (New) Process Layout:

7. Conclusion And Recommendation:

KFC can progress rapidly by identifying new facility locations and increasing existing

target market and facility locations by launching new competitive product chain at

minimum cost. KFC’s Unity Drive had a simple but essential message and objective.

To bring together the people of Pakistan by promoting in the words of KFC founder,

“Unity, Faith & Discipline”. In a time of uncertainty and fear, KFC rose to the

occasion and built a platform of solidarity and togetherness for the people of Pakistan.

The campaign proved to be a successful initiative in not just providing hope for our

patrons, but also allowed KFC Pakistan to take an effective step forward during tough

times and entrust other responsive companies to act in a similar manner.


Raw Materia

l

Raw Materia

lCook Assemble

Finished Goods

Finished Goods

Customer Place Order

Deliver

Raw Materia

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Raw Materia

lCook AssembleW. I. P.W. I. P.

Customer Place Order

Deliver



6. Reference:

1. Official web sites.

www.kfc.com

www.kfc.pk



36494124 KFC Facility Location and Layout Operation Management Project

Documents

chock chu burgi

kentucky fried chicken

customer place order

annual production cost

facility location techniques

moon market site

facility location analysis

factor rating method