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A look under the hood at KFC's finance policy

By Edited Nov 13, 2013 0 0


KFC is part of Yum! Brands Inc., which is the world's largest fast food franchisor. KFC represents, without a doubt, a global leader in quick service of chicken. Why is this franchise so successful? We will now see how effectively the finance and operations management works inside this company, could these aspects be the source of the success?

  1. A synergy that keeps KFC in a risk free position

In fact this company’s system combines the achievement of different brands – the four different brands that are part of Yum: Taco Bell, Pizza Hut, Long John Silver’s and KFC- and creates a synergy. Which means that whenever KFC is not doing well it can always rely on Yum’s profit: that is actually the addition of the profit of four different brands. This is a very intelligent system because KFC is not very likely to face bankruptcy or other financial issues in this way. This also makes Yum a market leader, which has an influence on KFC’s image and reputation.

  1. KFC as a Franchise

Each KFC restaurant functions as a franchise of Yum and follows the standard franchise agreements in which Yum supplies each KFC with capital, premises, building, equipment, signs, seating, and inventories. In return, each KFC franchisee contributes to Yum revenues through the payment of royalties based on a percentage of sales. Considering the amount of time and money that Yum invests in each franchise regardless of the restaurant’s location the success of KFC differs greatly from one country to another. While in China KFC achieves great success, in other countries such as The Netherlands it is not as successful. Even if the same franchise conditions are applied throughout the world there are differences in the level of success. Thus, it is safe to say that it is not the franchise system that is ineffective, but that success depends on the customers’ taste which differs from country to country, as we will see in more detail a bit further in this text.

  1. Quality control and supply system

KFC has an extremely efficient supply chain and supplier system. The Consumer Package Goods (CPG) supply chain has to ensure a good procurement of raw materials and inventory control. KFC’s raw materials include chicken and mashed potatoes that come from reputable suppliers such as Nestle and UBF. Supplier management is taken very seriously. KFC has a STAR system of evaluation and it is said that after a factory has been through this evaluation process of KFC it could also get an ISO9002 quality verification quite easily, which is very good, since it is a high standard. KFC also conducts the STAR audit which is a proprietary program of Yum to test its suppliers based on two aspects: food safety and quality systems audits.

Furthermore, a supplier system was developed in China and became one of the reasons for KFC’s success. The localization of suppliers is strategically chosen; almost all of the suppliers and factories are domestic. KFC helps them produce on a large scale, making them one of the most important suppliers in their industry (in this case, of providing chicken). Then KFC attracts foreign companies and encourages them to build factories in China with the positive effect that it has a better position to negotiate on prices. This strategy turned out to be very successful. KFC also has to deal with differences in operations management all over the world due to varying legal norms on food quality.

It is clear to us that KFC’s success relies a lot on its finance department, not only because there is a synergy within Yum that keeps it away from actual risk, but also because the franchise system works in a very good way. The operations management department also has a lot of influence in this success. It has a very reliable quality control system that makes us feel comfortable about eating this food because it comes from suppliers in whom we can trust and the company always makes sure the quality is a primary concern. After knowing this we do not have any reasons to doubt KFC’s ability to do business. Moreover, we can see that products and services have also been very well promoted, as we can in the company’s marketing strategy.



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