Rising Costs of a Pizza Chain

C : Where does our client lie in the value chain and are there any other revenue streams apart from selling pizza?

I : You can assume it is somewhat like Pizza Hut or Dominos. Follows a similar value chain & the major revenue stream remains pizza (70%) so let’s focus on the same.

C : What is the geographical split of customers we serve?

I :  Most of our sales revenue almost 60% comes from metro cities & 40% comes from Tier-1 & Tier-2. We do not have any presence in rural areas.

C : Are we offering dine-in/takeaway/drive through, any combination of these or all of it ?

I : We are using all three modes.

C : What is the workforce composition like at any outlet?

I :  An outlet typically has 20 people among which there is 1 store head, 2 store managers & 17 service personnel handling all types of activities in the store.

C : Has there been any changes in salaries offered to our employees?

I : No changes during this period.

C : Fair enough. Have we changed the number of work-force within this period & if so was it a triggered by rising demand?

I :  Good observation, our sales have been rising but so has our manpower cost, can you analyse why this is happening?

C : Are we facing issue in any specific area of the value chain w.r.t. to manpower?

I : Yes, there is manpower cost increase in the in-store activities part. Can you further analyse this?

C : Yes, sure I will now build a customer journey in the store to analyse if some specific activity is taking more time as it earlier did?

I :  Sure, go ahead.

C : Are we facing an issue in any of these delivery segments, like dine-in, home delivery, drive-throughs etc. with respect to manpower?

I : We are facing issue in all of three modes mentioned by you, in short, it's an issue of productivity being faced in order preparation (in dine-in), delivery partner management (in home-delivery) & managing the delivery window (in drive-through). Can you analyse how productivity is declining along with the reasons behind it?

C : We can look at the Manpower productivity = # or value of total pizzas sold per day/ # of man-hours per day. As our sales are increasing and so is our manpower cost so both the numerator & denominator are increasing, for a decline in productivity the quantum of increase in both has to be monitored. Here, as we are facing a declining productivity, we can establish that the marginal growth in pizzas sold is lesser than the increase in man-hours consumed. Essentially, we are now producing lesser pizzas per man-hour consumed.

I : Very well explained. Can you now think of reasons for the same?

C : So as the quantum of work delivered per man-hour is decreasing, we can analyse the same using capability of staff, work-load per order and efficiency.

I : Work-load per order has gone up for home-delivery and drive-through.

C : As we have identified that the work-load per order has increased for home-delivery & drive-through, it could have been triggered due to a shift in consumer preference to order at home through the app delivery system thereby blocking a lot of manpower resources as captive delivery agents. Another factor could be the delivery time that we promise our customer which can be challenging to meet, this goes for home-delivery & drive-through.

I : Yes, that is correct we have seen a surge in online orders & drive-throughs within these three years and we have also reduced our delivery time promised to 30 mins from 45 mins earlier. So, a lot of our manpower is getting blocked there & thus we must hire additional hands for in-store operations. Can you think about any other possible reasons?

C : Additionally, I think the new manpower hired might not be well trained to deal with the demanding nature of work & hence might lead to a decrease in efficiency thus a drop in productivity as well.

I : Fair point, but can you tell me if we are an established organisation why are we unable to train our employees well?

C : We can analyse this from the workers & company’s perspective.

I : Sure, go ahead.

C : So as per my understanding, as the workload is more & salaries have not changed in the period, I think these are reasons for attrition.

I : Yes, attrition has increased. How can this lead to increased manpower costs?

C : As the attrition has increased the client is incurring more and more costs for employee on-boarding & training, as the training are mostly on the job, the employees are increasingly quitting looking at the demanding nature of the job. But once these employees quit this cost becomes a sunk cost & the client has to shell out more money to ensure customer demands are met. Also, the newly recruited employees might not be that efficient as they are fresh in the system thereby reducing productivity per man-hour of work.

I : That will be all, thank you. See you in the later rounds.