Supply Chain Management

Dunkin Donuts works diligently at managing their supply chain. Doing so has contributed greatly to its overall success as being one of the best coffee chains in the world. Every item, from coffee beans to sugar to styrofoam cups, goes through the chain. The process begins with the suppliers of raw materials. The coffee, for example, which is originated in Brazil, is grown, picked, sorted, processed, packaged, delivered to one of the company’s main hubs, and finally delivered to a restaurant. Each process requires movement of the product from one place to the next. The company does not own the coffee until it reaches a hub. Even then, because it is not in the hands of a franchise owner, it is still moving though the supply chain and must be monitored, managed, and improved if need be.

Below is a link to a tour of the upstream movement of coffee from tree to cup.

Coffee from tree to cup

It is important to note that every single product is placed in one of the many hubs throughout the country before it is brought to a restaurant. The Mid-Atlantic Distribution Center, which is located in New Jersey, houses all perishable and non-perishable items in New Jersey and seven other neighboring states. The main office has a team working around the clock with managers in each distribution center in ensuring that inventory stays under control. The team also contracted with the company Voxware, which supplies each center with voice logistics. This system enables the company to more efficiently and effectively control, monitor and coordinate everything that comes in and out of the center. This improves the supply chain management of the overall company, reduces costs and ultimately puts the final product in the hands of the customer.

Below is an article describing the use of Voxware’s voice logistics.

Voxware Voice Logistics

Voice logistics is not the only technology utilized by Dunkin Donuts. The company also uses software that helps supply chain managers ensure the flow of goods is functioning properly. The article below explains Dunkin Donuts’ use of software.

VAI Supply Chain Software

All non-perishable items, such as cups and paper bags, are outsourced from several different paper and plastic manufacturers. In these situations, the items are made by suppliers and warehoused in their private buildings. They are then shipped to one of the Dunkin Donuts distribution centers and sit until Dunkin Donuts drivers ship them to individual restaurants. Perishable items, such as donuts and bagels, go through a slightly different supply chain. The reason being is that these items are not outsourced, for culinary experts who work for the company make them. First, ingredients such as sugar and flour are made by suppliers in their own factories and sit in their warehouses until they are ordered by Dunkin Donuts. These items are sent to distribution centers and when needed, sent to factories in each state. The culinary experts in each factory make the bagels and donuts and ship them daily to each restaurant in the immediate area. Other items, such as muffins and flatbreads, are made in one of the main factories at the distribution centers, where they are kept frozen until they are shipped to each restaurant in their weekly delivery.

Dunkin Donuts’ on-time delivery rate is extremely high. Very rarely does a customer encounter the inability to order a customized cup of coffee. Donuts, bagels, and muffins come in many different varieties. No one kind is expected to be available at any specific time. This allows for each restaurant the ability to adjust and modify the menu based on the inventory on hand. Therefore, fill rate can be much higher in these circumstances. Dunkin Donut’s decision to make their donuts and bagels in factories throughout the country, instead of having outside companies makes them or having them made by employees of each restaurant, is one of the reasons their products are of such high quality. Relying on someone else to make such important items may seem less complicated, but does not provide the company with the ability to control the quality of the products. In addition to the actual making of the products as being an important factor in quality, the decision to use suppliers who hold extremely high standards themselves has greatly affected the quality of both the food and coffee for the company. The total supply chain throughput time is actually quite long in comparison to other restaurant chains, but much less than in other industries. The reason is that the coffee beans take time to produce. If not for the coffee, the throughput time would be much less, perhaps as little as a few weeks. Because Dunkin Donuts sells perishables, it is imperative that the throughput times are low. Items such as eggs and milk must be consumed very shortly after they are produced. The urgency of time in these circumstances improves the overall issue of time in supply chain performance. Cost is something that never remains consistent for Dunkin Donuts. Fluctuations in price of coffee, milk, sugar, and other items that change drastically many times a year have deemed very challenging for the company. However, Dunkin Donuts has great relationships with their suppliers, so even with increase in prices, quality of the products have never been compromised. Holding time in the distribution centers is very low. This decreases costs while at the same time increases quality. Labor stays low because the company invested in technology that can do the work of many employees. Overall, unit cost is low because the company does everything possible to reduce costs throughout the entire supply chain.

Dunkin Donuts has a very well run supply chain management system in place. But there is always room for improvement. It might make sense for the company to hire a third party logistic provider to simply evaluate their system and recommend any changes to its infrastructure. The company might also want to look into the possibility of having each store have their own dairy providers that are in the immediate area. This would reduce the throughput time, cost and possible waste of these highly perishable products. Other than the modification of their dairy suppliers, the rest of the chain seems to be quite efficient. Outsourcing its signature items, such as donuts, would not be wise. Vertically integrating other products would become too complicated and costly. Dunkin Donuts might want to partnership themselves with their coffee suppliers. Doing so would bring awareness and marketing power to the coffee makers and at the same time reduce costs for Dunkin Donuts. Cross-ducking the perishable items from the distribution center to the factories may also be a wise decision for the company.

Project Management

Dunkin Donuts is famous for its coffee and donuts. In recent years however, their menu has become much more diverse, adding items such as flatbreads and sandwiches. Most customers see these new items and think very little about how they got to be there. In reality, the project of developing a new item requires much work. For example, the flatbread items were launched in 2008. Approximately one year prior to the items being placed on the menu, the planning began. First, the executives of the franchise came up with the idea. With the help of Stan Frankenthaler and his culinary team at its headquarters, a recipe was developed. All branches of the company, including the marketing, financial, culinary and operational teams discussed any and all potential or probable issues involved in the execution of the new item rollout. The major objectives of the meeting were to first decide how feasible of an idea selling flatbread sandwiches could be. The team then had to set a budget, finalize a recipe that would keep food costs low, develop a marketing campaign, assign a project team and manager, and brainstorm any other aspects of the planning of the project.

The second step was to develop a schedule. The rollout date was set based on the projected time needed to do all tasks involved. Some questions asked by the project manager were..…How long will it take us to find inexpensive food suppliers who will provide us with the necessary ingredients? How long will it take to train the workers in the factories to correctly and efficiently make the new flatbreads? When should we send communication to each franchise and start training them on proper prepping and preparing procedures? When should we launch our advertising campaign? These and many other questions had to be answered before a rollout date could be set.

Prioritizing each task was just as important as deciding on the start and stop time of each task. This is when Gantt charts came into play. Without the use of this chart, staying on schedule would be quite difficult. To supplement this chart, a network method was utilized. Identifying slack was vital to the project manager in the event the team became behind schedule and needed it to be tweaked. Control is another vital aspect of the activities and decisions. The project manager is responsible for monitoring the actual time, cost and performance of each task. Comparing the planned to actual figures not only aids in recognizing and fixing mistakes, but it provides necessary information in designing more effective projects in the future. For example, after the initial flatbreads were introduced, the franchise realized that using egg whites instead of regular eggs would be a more profitable recipe. Doing so would segment not only to the traditional purchaser, but also to the more health conscious consumer. Transitioning to this new sandwich required the installation of a new, but less complex project.

Below is an article describing the introduction of one of its flatbreads.

Dunkin' Donuts Flatbread Sandwiches

Due to its complexity, the use of software to facilitate project planning and scheduling is utilized by Dunkin Donuts. Hyperion planning, an Oracle software system, is one of the tools used by the franchise to plan and budget its activities. Microsoft Project is also utilized in the main office, while Microsoft Word and Excel are widely used in each franchise restaurant to plan and schedule smaller projects.

Below is a link to an article describing Dunkin’ Donut’s use of Hyperion.

Dunkin' Donuts Software

Launching a product for Dunkin Donuts requires much planning and advertising. Training employees on how to prep, hold, serve and suggest new items is one of the most important tasks involved in project planning and scheduling. As soon as Dunkin Donuts contracts a food supplier for a product they should provide training material in each location and immediately begin training the employees. Therefore, early start time for this task must be earlier in the project and continue throughout its control. Dunkin Donuts usually provides samples of each new item before its launching. Handing out free samples to its customers will not only increase repeat business, but will provide more hands on training for the employees. In addition, customer feedback on quality of the food will allow for the company to modify the recipe, if need be, before it goes live. Because no slack is allowed when it comes to the rollout date, prioritizing training and food quality will allow for slack in other areas. In today’s world people are becoming more and more health conscious. In the beginning stages of a large project like a modification of a menu, it is important that ample time be allowed to research healthy options for these this growing customer segment.

Even small, everyday projects, such as opening and closing duties go through the phases planning, scheduling and control. Many tasks must be started and completed at specific times in order to open and close the restaurant on schedule. Often times, employees have difficulties adhering to the guidelines set by the franchisees. Managers would be wise to use Gantt charts for these tasks. It would greatly help employees in knowing when to begin each task and how long it should take to do each one. Managers should audit the employees by making charts that compare projected to actual projects and use these to improve the employees’ productivity and counsel those who continuously fall behind schedule. It is also important for the project manager to see first hand the results of his or her work. Visiting restaurants after a project is finished will allow the manager to see what worked and what didn’t, and will provide vital information for the success of future projects.

Managing Quality

The types of quality Dunkin Donuts follows to ensure for customer satisfaction are described below….

- Quality of design, which is determined before the product is produced. It is determined by market research, design concept and specifications. The specification in our company would be the recipe with the list of ingredients needed to make the new muffin or bagel. From the researches ordinarily aimed at assessing customer need, we know that the expectations of customers have changed, so the recipes have to be modified. People are more into healthy life styles and are very careful with what they eat, so Dunkin Donuts has adjusted the ingredients to fit the new trends in society.

- Quality of conformance, which means producing a product to meet the specifications. When the product conforms to specifications, a company considers it a quality product regardless of the quality of the design specification. If the muffin or bagel is made according to recipe, it means that it met the quality of conformance.

- Availability, which is the continuity of service to the customer. One example is the phone line, which customers can call with any complaints and suggestions. In addition, all products are stocked according to projected sales, and the managers ensure that everything is available for the customers before they arrive at the register.

- Maintainability - which refers to the restoration of a product or service once it has failed. If the customer is not happy with the service or product provided, managers can compensate him or her by giving a discount or a gift card. It is easier, cheaper and smarter for the company to keep the repeat customers happy than it is to focus solely on the new ones. Also, Dunkin Donuts contracts with businesses that fix appliances and machines in each restaurant, such as coffee makers and ovens. Doing so provides for a decreased mean time to repair, a lessened mean time before failure, and ultimately an increase in availability.

- Reliability, which refers to the length of time that a product can be used before it fails, is associated with the mean time before failure. Both employees and customers rely on technology in providing them with their product and service. Even the cup used to fill the coffee must be reliable, for customers do not want the hot coffee to get cold too quickly.

- Field service, which is the last dimension of quality, represents warranty and repairs or replacement of the product after it has been sold. Use of surveys along with the time it takes to reply to the surveys and give unhappy customers gift cards are examples of this.

Almost all measures of quality are subjective, for each customer has his or her own needs and desires. SERVQUAL is a very important measure of quality, for customer surveys and secret shopper reports provide essential feedback necessary to satisfy customers. Appearance of the interior and exterior of the restaurant must be at the highest level possible. Responsiveness of each employee is important, for he or she must always be behind the counter to greet each customer. The employee must also have the proper training, motivation and care to provide the customer with friendly service and the correct order in a timely fashion.

The quality of cycle requires the sequence of steps:

1) Define quality attributes on the basic of customer needs,

2) Define how to measure each attribute

3) Set quality standards

4) Establish appropriate tests for each standards

5) Find and correct causes of poor quality

6) Continue to make improvement.

Ad 1) The research is conducted to find out and analyze the customers’ orientation. Employees must hand receipts to every customer. Every receipt asks the customer to fill out a survey online in return for a free donut. The main office has a marketing team, which interprets customers’ needs. An example of a need is a new, reduced carb bagel for the more health-conscious customer. An attribute for the new low carb bagel is that it is healthier than most other bagels but still has the same great taste as the other products.

Ad 2) The engineering, or culinary team then comes up with a recipe. The product is made and each franchisee owner orders the product and utilizes its quality control methods to ensure freshness and consistency.

Ad 3) The quality standards in this case would be the weight of the product or the picture, showing the color and shape it can be compared to.

Ad 4) Inspection of each ingredient used to make the bagels and the size and shape of each bagel are ways of measuring quality. An example of a standard would be that the bagels are compared with pictures of bagels.

Ad 5) If the finished product is significantly different than the picture, in either size or color, it is tossed. Because every single bagel cannot be fully inspected in a timely manner, only a few bagels from each batch are tested. This is an example of their testing program. A quality assurance team at the main office works to find the underlying causes to defects and managers of each franchise must also do the same.

Upon discovering defects, quality personnel and workers should find the underlying causes and correct them. Causes of poor quality could include improper raw materials, lack of training, unclear procedures, a faulty machine, and so on.

The idea of the quality trilogy: planning, control, and improvement of quality. In the planning area company should identify the major business goals, customers, and product required.

In Dunkin Donuts case the goal would be proving tasty food in convenient location. Recently, the new requirement fitting the customer needs – are more healthy products. Due to low prices, our target market would be almost every member of our society.

The training and involvement of all employees is necessary to ensure continuous quality improvement.

Even with all the Dunkin Donuts does to ensue quality is up tar, there are additional processes they should consider following. One example is for franchise owners to sit down together and go over Deming's 14 Management Principles to ensure they stay leaders in the industry. Another would be for the company to come up with their own type of "Baldrige Award" which could be given to the top restaurants for upholding high quality standards.

Quality Control

Dunkin Donuts uses a continuous improvement method of quality control. Using quality control charts in this industry would not be practical because sampling takes up too much time. For example, how many people who stop in for a quick cup of coffee will willingly wait for the employee to test the temperature? Not many. In this type of fast paced business, the idea is to create efficiency in "reducing the variability in the process." If the workers follow exact instructions, there will be a decreased variety and variation in the process. The interaction with the customers is uniform and the preparation methods have been perfected. Each menu item has step by step directions to follow to prepare the food precisely. However, this system only works if accuracy is enforced. The corporate office and franchise owner monitors and evaluates the results from the "secret shoppers", who are inspectors posing as regular customers. These shoppers examine the food and beverages that were prepared for them, and compare it with the guidelines that were laid out for the employees.

Dunkin Donuts uses the attribute control when it comes to their product. Every item is fully inspected prior to being placed on display for the customers to see. For instance, the muffins, which are heated in the morning, are temped to ensure they are not frozen in the center. Also, any donuts that do not look to be in uniform shape are tossed in the garbage. Each product must be evaluated and approved by the staff member who prepares it. The extraordinary quality of Dunkin Donuts does not end at one routine inspection. The employees must always be aware of the freshness of the merchandise. All perishables on the front end have a specific shelf life. For example, coffee must be tossed after being on the burner for 18 minutes. This ensures every customer receives the highest quality beverage. Also, donuts, bagels, and muffins must be tossed at the end of the night, for their quality is not up to par the following day. A record is kept to ensure procedures are followed and all tossed items must be accounted for. Monitoring this aspect allows managers to find ways to reduce the amount of food being tossed and increases profits for the restaurant. For example, if at the end of almost every day the manager finds that there is an average of twelve extra strawberry frosted donuts, he checks the records and finds that Sunday morning he sells almost all of them. He could make a profitable choice of reducing the amount of strawberry donuts that are made on the week days. These records allow managers to reduce the shrink. Using Six Sigma is another means of providing quality control to the restaurants. The corporate offices use this means to improve specific issues that are seen across the franchises and works to find ways to improve and control them.

The corporate office uses a Cause and Effect diagram to improve business as a whole. They are constantly seeing what links in the chain can be improved. For example, if the office thinks that the weak link may be the customer service, they will send out a change in the initial process, which will improve customer service uniformly. For example, they may feel that customer service will improve if all employees are required to say the phrase, "thank you and keep running on Dunkin." This improvement is expected to bring a smile to the customers' face and in turn will make them happy with their experience and want to return. However, the individual owner may notice an increase in complaints about the coffee. These customers all insist, "at the other Dunkin Donuts they never have this problem." This proves that the problem is specific to that branch. The manager will then use the diagram to check for possible reasons and conclude that employees are not following the proper procedure of tossing old coffee.

One suggestion that could be made is for the corporate office to survey the store clerks. If they get a perspective on potential problems seen by those who actually deal with the processes that are designed, they may be able to locate issues that cannot be explained directly from the statistics that are on paper. For example, if all Dunkin Donuts actually wanted each employee to say "thank you and keep on running on Dunkin", the front end employees would be the first to recognize the overall customer opinion on the changes made. In turn, the internal staff has the best perspective on what the customers actually prefer as a group. Another suggestion is for each franchise to give incentives for customers to fill out surveys regarding the quality of the food and beverages. Hearing their feedback will aid in pinpointing quality control issues and in finding ways to get past them.

Service Process Design

We distinguish three elements of service-product bundle in Dunkin Donuts’ service:

1) The tangible service (explicit service) - fast and accurate service. This includes the interactions with the employees, the fact that most locations are open 24 hours per day and the overall visual experience.

2) The psychological benefits of the service (implicit service) – customers’ feeling about the interaction and the pleasantness of the surrounding. Bottom line, the customers’ wants and needs must be met and done so quickly.

3) The physical goods (facilitating goods) - building, tables, convenient parking lot and the food itself. While operations management can fairly tightly control both the explicit service and facilitating goods, the implicit services, or the feeling customers get from a service, are obviously harder to control. In addition, they may vary greatly from one customer to another.

Dunkin Donuts is categorized mostly as a provider routed service. Although customers are given options from a menu, very little of their order can be modified. Muffins, for instance, come as is and ingredients in them cannot be changed. Coffee is the area of the menu that can be the most customized. Even so, machines pour the correct amount of milk or cream and sugar is measured prior to being poured into the coffee. So, under the customer wants and needs part of the matrix, service is standardized and customers have low decisions-making power. Under the operations service system part of the matrix, there are a limited number of pathways, where a line flow is used. Customers can many times find several Dunkin Donuts locations within driving distance, and many are open 24 hours a day. However, every location uses the same menu and systems to deliver the service. Customers can also purchase items for delivery to a home or business, but these items are limited to mostly coffee beans. In all, Dunkin Donuts can be compared to McDonalds when it comes to the service matrix.

The type of customer contact that Dunkin’ Donuts has is a Permeable System with face-to-face tight specs. The degree of contact can be compared with McDonalds, where a large portion of the order can be processed away from the customer. Examples include the pre-making of muffins and donuts. Allowing for the employee to simply place the product in a bag and hand it to the customer ultimately increases efficiency, reduces costs customers must incur, and allows for excellent customer satisfaction. The fast food industry requires the employees to sell more than just the menu; they must sell a positive experience. The company enforces this idea by providing a tentative script outlined for the cashier to follow. For example, all customers are greeted with a pleasant smile the moment they approach the counter. After the customer’s order is placed, the employee will politely suggest additional menu items or simply ask, “Is there anything else I can get for you?” This stimulates sales and provides customers with the excellent face-to-face service they expect.

Customization is limited and skills are procedural. Despite the mass customization Dunkin Donuts provides, there is an option of self-service. When customers order beverages, they may have the employee add sugar, creamer, milk or anything else, or, there is a station where customers can finalize a self-made product.

Uncertainty related to customers does exist, but because contact is limited, a flow control is used, and production efficiency is high, managers need not worry so much about these challenges. Arrival and request variability are perhaps the most important aspects to oversee, for managers cannot always predict when customers will enter their restaurant and what exactly they would like to order. Running out of or making too many products, such as bagels and muffins, can negatively impact sales, costs and service.

Dunkin’ Donuts uses many different types of technology in order to maximize customer care and optimize its business. One of the technologies that Dunkin Donuts uses is E-pay. This is a gift card that is reloadable so the guest can have a better experience, the restaurant can increase sales, and the speed of service can be improved. The card can even be given as a gift. Each restaurant also uses Local Store marketing, which allows franchisees to promote their business by providing coupon offers, promotions and other items desirable to the customers. Touch screen registers are also used, which provides employees with easy to find buttons along with pictures and descriptions of all products. This reduces mistakes and enhances the customer experience.

Dunkin Donuts is also using technology to step up their training by offering Dunkin Donuts online courses. These courses are offered 24/7 and allow the Dunkin Donuts crew unlimited access to all of the training programs. Dunkin Donuts is also experimenting with voice recognition, which can configure the customers’ age and gender and then display ads targeted toward them. Even the simple things, like pouring of the coffee is technology oriented. Pressing of a button disperses the exact measure of cream, milk, or flavor needed to make the perfect cup of coffee.

This link below outlines Dunkin Donuts’ use of technology to enhance the overall customer experience and increase value to the franchisee.

Dunkin Donuts and Technology

Although technology plays a huge role in the daily tasks of the restaurant, Dunkin Donuts franchisers and franchisees work hard to balance this with the utilization of front-line employees.

All employees are considered the greatest assets to the restaurant, for without them, Dunkin Donuts would not exist. Providing a safe, welcoming, and comfortable environment is necessary to run the business successfully. Enforcing of policies and procedures, properly training the staff, giving discounts to its employees, and providing health benefits are ways of ensuring that employees maintain their loyalty to the franchise. In addition, managers always intervene when customers show aggression or inappropriate behavior towards its crew.

Service Recovery and Guarantees are very important factors for the success of Dunkin Donuts, as they have been maintaining their status as number one in customer loyalty for a long time. In this tough economy, only businesses that maintain high ethics and standards while providing the best possible experience to their customers can survive. A recent independent survey finds Dunkin Donuts number one in customer loyalty for four strait years in its coffee category, proving their amazing ability to bring consistently valuable food and service with great recovery and guarantee procedures.

The service recovery consists of the action necessary to compensate for failures made by the company and restore, if possible, the service requested by it customers. It is imperative for the operation manager to ensure that solutions for all demands that arise are provided, and done so in a timely manner. This allows the business to be competitive, reliable, and market oriented. Some examples of how Dunkin Donuts provides customers with service recovery are coupons, gift cards, apology letters, and the simple but important words of “I am very sorry” and “thank you very much.”

Service guarantee is another important factor for Dunkin Donuts, for it is a way to define their service and ensure satisfactory results are brought to the customer in a positive way. Following specific standards to ensure the highest quality of food and beverages is the primary way of ensuring their guarantees are met. To maintain the standards, managers and their staff do regular inspection in their restaurants to ensure customers are purchasing fresh products. All franchisees must follow the same time frame required to keep the food and beverages fresh. For example, freshly brewed coffee can only be kept on a burner for 18 minutes before it is discarded and a fresh pot is made.

The company also has a national hotline for customers to complain or make suggestions. This aids in ensuring that every store is performing their duties in the best possible way. Ultimately, this ensures not only that the service recovery and guarantee process is running well, but also the amount of time spent recovering customer dissatisfaction is decreased.

Below is a Dunkin Donuts web site for customers to email feedback of a recent visit to a restaurant. The hotline number is also listed here.

Contacting Dunkin Donuts

Below is an article describing Dunkin Donuts’ loyalty reward.

Dunkin Donuts rated #1

www.dunkinbrands.com