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REV: MARCH 19, 2012
"One time permission to reproduce granted by Harvard Business Publishing, 10/9/2012"
DAVID E. BELL PHILLIP ANDR EWS MARY SHE LMAN
Before 2007, wheat prices didn’t have a pulse. We’d buy for the next six months and the price would be plus or minus 10 cents a bushel over the last six months. Then one day in 2008 wheat shot up $24 a bushel! Now, as a norm, we strategically consider corn, dairy, and wheat to better leverage our supply chain expertise and improve store economics. — John Macksood, executive vice president, Domino’s Pizza On the morning of August 22, 2011, John Macksood, executive vice president for supply chain services at Domino’s Pizza, Inc. (Domino’s), was reading the daily headlines while sitting in his office at the Domino’s World Resource Center, the company’s global headquarters in Ann Arbor, Michigan. Domino’s was the world’s second-largest pizza company and the largest pizza delivery quick-serve restaurant (QSR) chain. One item in particular jumped out at Macksood. An article, titled “Quiznos chain faces tough finance issues,” indicated that Denver-based Quiznos, a privately owned QSR sandwich company with 4,000 U.S. stores, was nearing bankruptcy due to “sharpening competition, waning sales, and debt woes.”1 One of the problems cited was Quiznos’ “protracted battle” with its franchisees over operating costs and profitability, with some franchisees blaming low or nonexistent store profit margins on Quiznos’ requirement that they buy food at “allegedly above-market prices from a Quiznos-mandated supplier network.”2 Analysts also blamed Quiznos’ problems on rising commodity prices, which had dramatically increased the cost of raw ingredients. As Macksood finished reading the article, he felt proud to have been part of a team at Domino’s that had proactively responded when the prices of wheat, corn, and dairy soared in 2007 and 2008. Since then, Domino’s senior leadership met on the last Thursday of every month to discuss the commodity market outlook and decide how purchasing decisions and supplier relationships should be managed in an increasingly volatile market. The goal of this strategic effort was to maintain an efficient supply chain, competitive prices, and quality menu items. “Now in 2011, we have become a well-informed group that is more comfortable with how we manage risk,” Macksood remarked. Domino’s approach to managing risk and costs both within the company-owned domestic supply chain system and at the store level was critical to its approximately 1,150 U.S. franchisees that collectively owned and operated 4,475 domestic stores in 2010. As a company built around a franchise model, Domino’s—which itself only owned 454 stores, all in the U.S.—was at the heart a supply chain and brand management business focused on supporting the franchised stores. “We call our headquarters the World Resource Center because Domino’s truly operates as a support system and resource for all of our franchisees,” said J. Patrick Doyle, CEO and president of Domino’s. “There is a reason we drilled through four floors of concrete to construct a pizza store as the centerpiece of a Professor David E. Bell, Research Associate Phillip Andrews, Global Research Group, and Agribusiness Program Director Mary Sh elman prepared this case. HBS cases are developed solely as the basis for class discussion. Cases are not intended to serve as endorsements, sources of primary data, or illustrations of effective or ineffective management. Copyright © 2011, 2012 President and Fellows of Harvard College. To order copies or request permission to reproduce materials, call 1800-545-
7685, write Harvard Business School Publishing, Boston, MA 02163, or go to www.hbsp.harvard.edu/educators. This publication m ay not be digitized, photocopied, or otherwise reproduced, posted, or transmitted, without the permission of Harvard Business School.
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