Frito Lay Case Study

Names: Angelina Gomes, Jinal Sheth and Nnamdi Derek

ABSTRACT OF FRITO LAY

This paper is a case study on Frito Lay’s operations management in manufacturing. A brief introduction of the company Frito-Lay is given with their current position in the market and what they stand to gain by employing sound operations management strategy. The history of the company and key current financial facts are discussed. We will be analyzing how each of the 10 decisions of Operations Management is applied in Frito-Lay with information from the video case and other sources such as the internet. The analysis will be itemized as we will briefly discuss how the Frito-Lay currently, from a key success factor perspective and how the product design, quality, process, location, process, layout, human resources, supply chain, inventory, scheduling and maintenance practices are important in maintaining their competitive advantage. The case study also determines the productivity of the production process by comparing the input such as capital and recurring expenditure involved in the production process and sales of finished goods. At the end of our paper we will compare the 10 decisions of operations management as they apply to the service and manufacturing industries respectively by finding the similarities and contrasting between both.

IMPORTANT FACTS

 Frito-Lay is a subsidiary of PepsiCo; it is fact the largest and most important subsidiary of PepsiCo. Elmer Doolin founded the Frito Company in San Antonio Texas that made Frito corn chips in 1932. In 1938 Herman Lay purchased the Atlanta potato chips maker and had the name changed to H.W. Lay and Company in 1940. H.W. Lay and Company began making potato chips in 1944. Between the late 40’s and 50’s, Frito Company introduced new products- Cheetos and Ruffles potato chips to their product line. In 1961, both companies, H.W. Lay and Frito Company merged, forming a company called Frito-Lay, Inc. 1965, another merger between Frito-Lay, Inc. and Pepsi-Cola Company, resulted in forming PepsiCo, Inc. Frito-Lay became a subsidiary of PepsiCo.

Frito-Lay produces over 40 brands of products, which include Fritos, Lay’s Cheetos, Ruffles, Tostitos, Doritos, and Walker’s Potato Chips generating over $1billion revenue in sales individually. The company has 38 plants and about 50,000 employees in North America. It is PepsiCo’s most profitable division, generating about 23 percent of their net sales in 2015. It is the most profitable subsidiary, with an operating profit of $4.3billion and a growth rate of 3% in 2015. Frito-Lay had net revenue of S14.7billion in 2015. Frito-Lay is the dominant player in the domestic snack food market which is worth about $35 billion. The savory snacks market is dominated by PepsiCo which holds 36.6% market share, with no little thanks to Frito-Lay. The salty snack market worth over $28 billion presently has two products from Frito Lay with a combined 33% market share while they hold a 60% market share in the potato chips market. As the domestic snack market continues to grow, Frito-Lay must be well-positioned to remaining the market leaders which is only possible through their operations management strategy from designing products to meet the changing market demands to their production processes as more customers begin to consider the health implications of consuming these salty snacks. The sound operations management practices in the company will ensure that they maintain their competitive advantage for a long time.

ABSTRACT OF HARD ROCK CAFÉ

This paper is a case study of Hard Rock Café, a leader in the service industry, to understand operation management principles and how they apply in the service industry. We will understand how operation management strategies which the company applies in designing new products (meals) keep customers returning and the business growing; how the operations managers deliver custom products to their customers that are designed, tested and priced to satisfy customers. When the menu is approved for rollout in the restaurant, it is ensured that quality ingredients that meet the company’s high standards are available to consistently be able to deliver these meals to customers.  Hard Rock Café are famed to having one of the best trained chefs and servers who are knowledgeable and passionate about music as this is a themed restaurant which attracts rock music lovers. To deliver to customers within reasonable wait times, the layout of the restaurant is important. Also we will look at how the human resources are managed to ensure the process of production is effective by preparing work schedules for employees to match projected fluctuations in demand. The location of restaurants, which must be close to areas where potential customers reside, is discussed.  Inventory concepts, such as just-in-time (JIT) are used to keep ingredients needed readily available. To keep freshness of food, low inventory of produce are kept. In summary, the 10 operation management decisions operations management and how they are applied at Hard Rock Café is discussed. Measuring productivity of kitchen and wait staff at Hard Rock Café is an issue that will be discussed. Finally, we will compare the 10 decisions of operations management in the service industry (intangible goods production) against the automobile manufacturing industry (tangible goods production) taking Ford Motor Company as a case study.

IMPORTANT FACTS

Hard Rock Café was founded by two Americans, Isaac Tigrett and Peter Morton, in London in 1971. They opened an American Style diner. By 1973, they started hosting live performances at the Hard Rock Café which has grown now to be an integral part of the Company’s unique offering. They started selling shirts carrying their logo to customers in 1974. This became a huge hit as until today retail is an integral part of the business making up about 40%. The company displays rock memorabilia in their cafés and currently have over 80,000 pieces of memorabilia valued at over $40million. The display of memorabilia was one of the many “accidents” which have made Hard Rock Café on of the most recognizable brands today-Eric Clapton, one of rock’s greats asked to have his guitar hung over his favorite bar stool and that was how keeping memorabilia began.

In 1982 Hard Rock Café’s global expansion began with the opening up its first café in Los Angeles, United States. There are currently more than 40 locations throughout the United States. In 1982, a Tokyo restaurant was opened. Currently there are over 40 outlets in Asia and a couple of hotels in China. There are now over 200 cafés in 68 countries worldwide serving thousands of meals daily with the corporate headquarters in Orlando, Florida. A legal battle between the two owners ensued in 1979 for the rights to the Hard Rock name and the dispute was settled in 1982 with Morton and Tigrett gaining ownership in the West and East of the United States respectively except for Chicago awarded to Morton and Tigrett awarded Dallas. The ownership of the Hard Rock brand now belonged to Hard Rock America, Inc. (Morton) and Hard Rock Café International Inc. (Morton).  Hard Rock Holdings belonging to Tigrett was sold to Earl and Pleasurama in 1988 for $100Million. Over the next several years there were various acquisitions and ownership changes until finally in 1996; Rank Group PLC acquired full ownership of the Hard Rock Café chain in 1996. In the 1998, the first Hard Rock hotel in Asia was opened in Bali; currently the number is 23 in Asia. Hard Rock Café was sold to Seminole Tribe of Florida resulting in the opening of the Seminole Hard Rock Hotel and Casino in Hollywood, Florida and Tampa, Florida in 2004. As at December 2015, there were about 191 locations in 59 countries worldwide. Although the business continues to grow, the restaurants continue to be a major part of the business with 157 cafes and the running of these cafés requires the concepts of operations management to ensure they meet and exceed customers’ expectations by providing quality services. The demands of each location are unique and proper operations management strategies are required to maintain the position of the company in the themed restaurant industry.

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