Centered on excellent service and a simple menu, Chick-fil-A was founded in the Atlanta area during the 1940s and has expanded into the most profitable fast food business despite being open only six days a week. With over 2,300 restaurants nationwide, this private business makes over $10 billion in annual revenue and continues to see increasing volume. As a result, Chick-fil-A formed the Supply Chain Innovation group in 2016. This team is based at Chick-fil-A’s Corporate Headquarters in College Park, GA and focuses on long term solutions around the complex supply chain, including 400 SKUs and a 2-day lead time, that affects Chick-fil-A restaurants nationwide. In working with the Supply Chain Innovation group and four Atlanta-area Chick-fil-A restaurants, Team 11 identified an opportunity to improve the current inventory management method at restaurants and decrease supply chain strain on teammates.
Team 11 was first tasked with improving the relations between Chick-fil-A and local distribution centers. However, upon holistic analysis of Chick-fil-A’s back of restaurant operations and distributor operations, the primary objective of the project shifted to provide Chick-fil-A with an improved inventory management method. Within this objective, Team 11 focused on the opportunities to (1) improve the demand forecast accuracy, (2) decrease the frequency and costs associated with inventory and (3) decrease general process variability.
The inventory management improvement involves process improvement as well as improvements to Chick-fil-A's current ordering method (Suggested Ordering). The former consists of restaurant observations, and the latter requires improving two main pieces: (1) the demand forecast and (2) the Suggested Order algorithm’s decision-making process for ordering inventory. The demand forecast feeds into the inventory management model which performs a numerical simulation, minimizing costs and respecting capacity constraints in Chick-fil-A stockrooms.
The primary deliverable is a Python script that Chick-fil-A can connect with relevant databases and APIs to use with the current InFORM system and Suggested Ordering tool. This script includes the demand forecast, the inventory model logic, and an analysis which assists teammates with ordering each day. Additionally, the team provided revised standard operating procedures which aim to decrease process variability.
Value and Impact
In testing the Improved Suggested Ordering Method on 21 of Chick-fil-A’s 400 SKUs, we can estimate the value associated with implementing the improved inventory management method on these SKUs at all 1,600 restaurants that currently use Suggested Ordering at $68,630. Additionally, this Improved Suggested Ordering Method has the flexibility to be expanded to more restaurants, storage spaces and SKUs. For example, as Chick-fil-A expands Suggested Ordering to 2,100 restaurants, this value increases to $90,077, and this number will continue to grow with expansion to the other 380 SKUs. Additionally, this project decreases variability from order to delivery and reduces the probability of a stockout from 27% to 0.57%.