Frito-Lay: Operations Management in Manufacturing
Frito-Lay, the massive Dallas-based subsidiary of PepsiCo, has 38 plants and 48,000 employees in North America. Seven of Frito-Lay's 41 brands exceed $1 billion in sales: Fritos, Lay's, Cheetos, Ruffles, Tostitos, Doritos, and Walker's Potato Chips. Operations is the focus of the firm-from designing products for new markets, to meeting changing consumer preferences, to adjusting to rising commodity costs, to subtle issues involving flavors and preservatives-OM is under constant cost, time, quality, and market pressure. Here is a look at how the 10 decisions of OM are applied at this food processor.
In the food industry, product development kitchens experiment with new products, submit them to focus groups, and perform test marketing. Once the product specifications have been set, processes capable of meeting those specifications and the necessary quality standards are created. At Frito-Lay, quality begins at the farm, with onsite inspection of the potatoes used in Ruffles and the corn used in Fritos. Quality continues throughout the manufacturing process, with visual inspections and with statistical process control of product variables such as oil, moisture, seasoning, salt, thickness, and weight. Additional quality evaluations are conducted throughout shipment, receipt, production, packaging, and delivery.
The production process at Frito-Lay is designed for large volumes and small variety, using expensive special-purpose equipment, and with swift movement of material through the facility. Product-focused facilities, such as Frito-Lay's, typically have high capital costs, tight schedules, and rapid processing. FritoLay's facilities are located regionally to aid in the rapid delivery of products because freshness is a critical issue. Sanitary issues and necessarily fast processing of products put a premium on an efficient layout. Production lines are designed for balanced throughput and high utilization. Cross-trained workers, who handle a variety of production lines, have promotion paths identified for their particular skill set.
The company rewards employees with medical, retirement, and education plans. Its turnover is very low. The supply chain is integral to success in the food industry; vendors must be chosen with great care. Moreover, the finished food product is highly dependent on perishable raw materials. Consequently, the supply chain brings raw material (potatoes, corn, etc.) to the plant securely and rapidly to meet tight production schedules. For instance, from the time that potatoes are picked in St. Augustine, Florida, until they are unloaded at the Orlando plant, processed, packaged, and shipped from the plant is under 12 hours.
The requirement for fresh product requires on time, just-in-time deliveries combined with both low raw material and finished goods inventories. The continuous-flow nature of the specialized equipment in the production process permits little work-in-process inventory. The plants usually run 24/7. This means that there are four shifts of employees each week. Tight scheduling to ensure the proper mix of fresh finished goods on automated equipment requires reliable systems and effective maintenance. Frito-Lay's workforce is trained to recognize problems early, and professional maintenance personnel are available on every shift. Downtime is very costly and can lead to late deliveries, making maintenance a high priority.
Discussion Questions
1. From your knowledge of production processes and from the case and the video, identify how each of the 10 decisions of OM is applied at Frito-Lay.
2. How would you determine the productivity of the production process at Frito-Lay?
3. How are the 10 decisions of OM different when applied by the operations manager of a production process such as Frito-Lay versus a service organization such as Hard Rock Cafe (see the Hard Rock Cafe video case below)?