Frito-Lay Case Study
Group 4
MGM 351
Frito-Lay Case Study
1. Frito-Lay is a subsidiary of PepsiCo and has over forty brands of potato chips and other
snack foods; seven of which exceed $1 billion in sales each. Operations Management is at
the forefront of focus for the firm, as efficiency of production and meeting the needs of
consumers are primary considerations. The following is a breakdown of the ten strategic
Operations Management decisions as applied to Frito-Lay.

Product Design: Frito-Lay is regularly innovating by adding new product lines and
changing existing ones to meet current market needs based on consumer tastes and
ingredient preferences; doing so allows them to keep ahead of the competition.
Companies that do not innovate cannot become market share leaders in their industry.

Quality: Frito-Lay requires inspections of all raw materials like corn, corn meal,
potatoes, oil, and seasonings and ensure quality by testing those ingredients before they
are used in production processes. Washing and peeling, sizing of grain, frying, seasoning,
bag weighing, carton counting, bag sealing, and random sampling all guarantee
standardized products rolling off the line.

Process Strategy: Frito-Lay follows is a product-focused strategy, which means the
company puts emphasis on major capital investments, namely large specialized
manufacturing equipment that will more quickly and efficiently allow the product to be
manufactured and shipped out. These organizations tend to invest capital into technology
to make this process go smoothly as possible.

Location: Plant locations are crucial to product freshness and limiting the effect of
commodity prices on overall costs. Frito-Lay develops plants in regions close to
consumer demand and source ingredients from local sources.
1
Frito-Lay Case Study

Group 4
MGM 351
Layout Strategy: Frito-Lay has developed a product-oriented layout. Raw potatoes get
washed and peeled, sliced, cooked, seasoned, and bagged in a single assembly line in just
a few hours. Even more interesting is that only two and a half days’ worth of inventory is
kept in storage.

Human Resources: Frito-Lay has one of the lowest personnel turnover rates in the
industry. The company emphasizes paying good wages and benefits and puts concern for
safety and treating all employees equally as priorities. Additionally, employees are put on
clear job trajectories which encourage greater job satisfaction.

Supply Chain Management: Frito-Lay takes their products from farm-fresh raw
materials to in-store finished goods in a very short time span. This required them to
establish some of their own farms and control transportation, including trucks, for raw
materials, warehousing, distribution, and delivery.

Inventory: Frito-Lay can incur a significant and unnecessary cost by holding inventory.
Major ingredients at the plant are corn, potatoes, oil, and season. And because the
inventory can turn easily, holding cost can be huge. This is a just in time inventory
system. As raw materials, potatoes are delivered ten times a day and are even tracked by
GPS to know where they are in transit.

Scheduling: Frito-Lay makes an effort to schedule supply-chain employees based on
total demand. Using historical product sales, new product introductions, production
innovations and promotions, and dynamic local demand forecasts, final schedules are
adjusted as needed.

Maintenance: Frito-Lay ensures staff are available on every shift that are trained and
equipped to minimize production delays if part of the system goes down for any reason.
2
Frito-Lay Case Study
Group 4
MGM 351
If a machine breaks down in the Florida plant, every one percent of downtime is a loss of
$200,000 - a crucial hit to the company.
2. The productivity of the production process can be determined by output over input. For
example, input could be labor hours and output could be something in pound. However, if
multifactor productivity comes into play, capital, labor, material, and energy are taken into
consideration.
3. Where Frito-Lay’s focus is on the production of tangible goods in the form of snack foods,
the Hard Rock Café’s focus is on the provision of exceptional customer service and a unique
experience for guests at their restaurants and hotels.

Design of goods and services: Hard Rock Café’s primary tangible product is food,
however the company prides itself on the experiences it can provide guests by offering
live music and music memorabilia, and the café itself serves as a tourist attraction. This
is very different from the straightforward production that Frito-Lay deals with.

Managing quality: Hard Rock Café modifies their menu based on regional fare as well
as what foods are in season and available in the market the restaurant is serving, ensuring
high-quality product. The evaluation of quality is conducted through surveys given
directly to customers and high standards need to be reflected in those responses. FritoLay is able to choose locations based on consistency of product quality and availability.

Process and capacity design: Hard Rock Café prides itself on its service – restaurants
are designed in ways to ensure efficiency in the kitchen and dining rooms so guests are
served their food quickly and correctly. Frito-Lay focuses more on efficiency of
production and does not necessarily need to worry about how the facilities look to guests
of the location.
3
Frito-Lay Case Study

Group 4
MGM 351
Location: Hard Rock Cafes are located in tourist locations, and an emphasis is placed on
finding locations of historic value to the brand’s image. Frito-Lay is able to place
production facilities in areas that are cost-effective to their operations regardless of the
significance of those locations.

Layout: A kitchen layout is critical to efficient food preparation and that a bar is critical
in many food establishments for profitability. The retail shop in the restaurant and its
layout is also a critical ingredient for profit at Hard Rock. Frito-Lay needs only to
concern itself with how the line can operate efficiently; it has a more limited scope in this
regard.

Human resources: Hard Rock Café looks for people who are passionate about music,
love to serve, and can tell a story, but in the food service industry turnover can be very
high and large fluctuations in customer bases can be seen seasonally. This prevents a
similar approach to human resources like what is seen with Frito-Lay, which is able to
emphasize good employee relations and low turnover.

Supply-chain management: Hard Rock Café is able to determine how to alter its supply
chain on a per-facility basis based on the needs of the facility and its employees. FritoLay can ultimately manage more of their supply chain because they manage more of the
chain and do not depend on third parties to supply a significant amount of product or
support.

Inventory Management: Hard Rock Café applies inventory management decisions
through the use of inventory management software and uses demand fluctuations and
historical records to predict changes needed in the inventory. The inventory is then
4
Frito-Lay Case Study
Group 4
MGM 351
adjusted accordingly. Frito-Lay focuses rapid turnaround for its inventory to guarantee
freshness of their product.

Scheduling. Hard Rock Café makes decisions in scheduling by evaluating current
operations effectiveness. The schedules must satisfy capacity requirements. Also,
operations managers disseminate planned schedules to staff and use their feedback to
make adjustments. The adjusted schedules are then applied to ensure flexibility and
resilience of the business. Frito-Lay is focused on schedule consistency and clarity to
maintain steady 24-hour operations.

Maintenance: Maintenance decisions at Hard Rock Café are made and applied based on
a comparative evaluation of assets and the firm’s standards. The company has standards
on how much equipment wear and tear is allowed before the equipment needs repair or
replacement, they catalog every piece of memorabilia that is in the locations. Frito-Lay
has a much higher price to pay in terms of downtime should a piece of their operation fail
to operate correctly, so they keep maintenance personnel on all shifts to respond as
needed.
5