Wendys

An Operations Management Analysis

Prepared for
Mr. Matt Ford

Prepared by
Zach Williams

December 4, 2002

Background
1969-Dave Thomas opened the first restaurant in Columbus, Ohio on November 15,1969.
1976-There were 500 restaurants operating in the United States and Canada.
Wendys became a publicly traded company.
1979-Wendys had 1,767 stores and began the differentiation strategy with the introduction of the
salad bar.
1988-1990-Wendys expanded operations to Mexico, New Zealand, Indonesia, Greece, Turkey,
Guatemala, and Italy.
1994-There were 4,400 restaurants operating in 34 countries.
1998-The service excellence program was started to improve customer service.

Business Strategy
The differentiation strategy is shown with two main items: products and service. As far
as products, Wendys has items that others do not. One of the differences is the chicken product.
Wendys brags all white meat which can be a major advantage. The chicken sandwiches are a
full chicken breast opposed to the processed sandwiches of competitors. This may not seem like
much when the sandwiches can cost as much as $2 more than competitors but it helps to show
that when customers come to Wendys they receive the best products and service as described
later. Another difference is shown by the salads. Wendys has two salads on their value menu
and also four larger, more expensive salads. Customers have grown to love the salads. It is a
great addition for the health conscious who need a quick meal. The salads became a major sale
item. McDonalds tried to compete with the salad cups but it did not work. Many people were
coming to Wendys merely for their salads. These are just a few examples of how Wendys
differentiates based on products.
As far as service, Wendys is unique. Sandwiches are not made until they are ordered.
Customers are guaranteed to get a fresh sandwich made to their specifications. It may not
always be the quickest place to eat, but customers get the freshest food. For picky eaters
Wendys is quick. Wendys can make a special sandwich much quicker than a restaurant that is
not used to making sandwiches as they are ordered. Another issue arises with dine-in customers.
Many of the Wendys restaurants have adopted a leave the cleaning to us, after all you are our
guest policy. Most restaurants ask customers to clean up after themselves but many Wendys
have a person designated just to clean up after customers. Customers get a full service
experience. Wendys has built a name around customer service that many other restaurant chains
can not match.

Productivity
Productivity is defined as the amount of outputs (sales) divided by inputs (total operating
costs). Since the machinery represents a fixed cost, Wendys must focus on labor to affect the
level of productivity. The goal is to meet customer demand in a timely fashion while avoiding
employee idle time. It is a very difficult process that gets evaluated every operating hour. The
manager receives a printout stating the dollar sales for the hour. This is then compared to the
suggested number of employees for the sales volume. If there are two many people working

employees may need to be sent home. However, managers need to consider the flow of business.
If they think it is going to get busy soon, they probably will not send employees home. It can be
difficult to manage labor but it is a goal.
Managers usually interpret productivity with a partial factor measurement. As stated
above, they compare the number of employees working with the number of employees working.
For example, if there were ten people working during a $1,000 hour then each employee, in
effect, brought in $100. The higher the number is the better off.
Shareholders use either a multi-factor or total factor measure of productivity. Multifactor productivity looks at the operating cost where as the total factor looks at all of the
expenses. The 2001 measures of productivity are provided below.
2001 Productivity Measures
Sales
Operating Costs
Total Expenses

$
$
$

Wendy's
2,391,197,000
1,727,163,000
2,083,817,000

Partial Factor
Total Factor

$
$
$

McDonald's
14,870,000,000
9,453,700,000
12,173,000,000

1.384
1.148

1.573
1.222

ex. Total
factor=2391197000/2083817000=

The information shows that McDonalds has a high output to input ratio. This has a
major effect on income. If Wendys wants to become more profitable, labor and other inputs are
a good place to start. If they can reduce the amount of input or increase the amount of output
while maintaining the inputs, then they will make some progress.

Process Choice
There are two main levels to look at this but both result in something more closely related
to a job process. The first deals with orders. Each customer has the opportunity to order
whatever they want. To prepare the order, the employee needs to go to different workstations.
For example, one customer may want a sandwich and a drink. Another customer may want a
frosty and fries. Both ordered food but the employee needs to go different places to fulfill the
order. This aspect does not set Wendys apart from competitors but the next topic does.
Wendys is known for the flexibility in orders. Customers can order whatever they want
on the sandwiches and it will be made freshly. This is made capable by the setup of the
sandwich stations:
Buns
Lettuce
Tomato
Mayonnaise Ketchup

Onions
Pickles

Mustard
Lettuce
Honey Mustard
Tomato
Cheese
Mayonnaise Ketchup

Onions
Pickles

Counter

As a sandwich is ordered, the employee on the station adds all of the necessary condiments. This
is part of the reason that customers get fresh food and also how they differentiate. Some fast
food restaurants do not like special orders but it is the norm at Wendys. It sets them apart.

Product Choice
Sandwiches
1/4 lb. Classic Single Hamburger
1/2 lb. Classic Double Hamburger
3/4 lb. Classic Triple Hamburger
Big Bacon Classic Hamburger
Jr. Bacon Cheeseburger
Jr. Cheeseburger Deluxe
Jr. Hamburger
Jr. Cheeseburger
Hamburger Kids' Meal
Cheeseburger Kids' Meal
Chicken Breast Fillet
Spicy Chicken Fillet
Grilled Chicken Fillet
Chicken Club
Salads
Chicken BLT Salad
Mandarin Chicken Salad
Taco Supreme Salad
Spring Mix Salad
Side Salad
Caesar Side Salad
Potatoes, Chili, and Nuggets
Crispy Chicken Nuggets
Chili
Hot Stuffed Baked Potatoes
Plain
Bacon & Cheese
Broccoli & Cheese
Sour Cream & Chives
French Fries
Deserts and Drinks
Desserts
Cola Soft Drink

Diet Cola Soft Drink

Lemon-Lime Soft Drink
And other assorted soft drinks
Iced Tea
Lemonade
Fruit Punch
Milk, 2%
Coffee
Decaffeinated Coffee
Hot Tea
All of the products shown do help explain the differentiation strategy. Wendys has a
wide variety of products at a wide variety of prices. These factors along with the made-to-order
sandwiches help set Wendys apart.

Capacity
Capacity is the maximum output possible from a process. Design capacity does not take
any constraints into consideration. Under this measure, it is assumed that each component can
operate at its maximum output. For example, if a fryer can cook 50 chicken breasts an hour, the
grill can cook 200 single hamburgers, 400 Biggie Fries can be cooked, and 600 drinks can be
served then it would be assumed that each item would be sold. The design capacity would be the
sales volume represented by the sale of each item. The chances of this occurring are not very
likely and that is why effective capacity is used more often.
It would be very hard to determine the effective capacity of the whole restaurant because
there are several things to consider. To figure this out, each machine would have to be
considered in relation to one another. The problem with this is that it assumes that customers
will all order the same thing at the same time. For example, if only 50 chicken sandwiches could
be cooked in an hour it does not mean that only 50 customers could be served. Customers have
different tastes and the restrictions on one item (chicken) does not mean that people can not order
another item (for example, hamburgers). Instead of focusing on the machines, it is necessary to
look at the employees.
Effective capacity focuses more on employees. It is assumed that the machines can
handle as much output as necessary. Wendys has used historical sales and labor information to
determine the effective capacity based on the number of employees working. This is addressed
more under the scheduling section but for example, they have found that 10 employees can
produce between $675 and $730 in sales.
The design capacity is larger but less representative of reality. The effective capacity
takes a lot into consideration to reach the figures. It is a key component of scheduling and labor
management.

Location

Wendys probably focuses on the factor rating and center of gravity approaches. The
factor rating approach looks at key components of the restaurant including visibility, availability
of employees, and location of competitors. In the following example, location 1 would be
chosen because its weighted value (94) is higher than location 2 (86.25).
Factor Rating Location Method
Factor
Visibility
Availability of employees
Location of competitors
Total

Weight Location 1 Location 2 Location 1 Weight Location 2 Weight

0.45
100
75
45
33.75
0.30
80
100
24
30
0.25
100
90
25
22.5
1.00
94
86.25

ex. Weight=.45*100=45

The center of gravity approach looks at the transportation cost, volume to be transported,
and distance of transportation that customers would encounter. The goal is to be in a location
that attracts the most customers. For example, often it seems like every time you turn there is a
McDonalds. What they have done is place restaurants nearly everywhere that a customer would
find convenient. Almost everyone has a McDonalds that is close enough for them to run to
quickly. Wendys uses the same technique but they are not as large as McDonalds. They are a
little less conservative in determining how far customers will travel. They assume that customers
will travel farther then McDonalds does. This partly accounts for the reason that there are fewer
Wendys.

Layout
The following is an example of one layout type:
Drive Through Window
Oven

Grill

Grill

Fryers

Sandwich Station

Sandwich Station

Ice Machine

Frosty Machine
Fountain Drinks
Drive Through Window
Frosty Machine

Register

Register

Drive Through Register

This layout helps maintain the job process choice. As mentioned, there are two types of
job flow processes. The first deals with the sandwiches as discussed above. It was also
mentioned how different people order different things. The layout above tries to centralize all
order-fulfilling items. The person on the front register can turn around and grab the
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sandwiches, fill a drink or frosty, or walk to get fries. The person bagging for the drive through
can grab the fries and sandwiches while the person taking orders makes the drinks and frosties.
That shows the service line but there are also things going on behind the scenes. The grill is
right by the sandwich maker because the food comes straight from the grill. It was an obvious
connection. It is hard to imagine a better way to centralize the necessary item to satisfy
customers needs.

HR & OM
For Wendys to successfully compete with the differentiation strategy everyone needs to
work together. All employees need to do their part to provide the customer with their order. As
an employee, it is necessary to depend on coworkers to help deliver the final product. The
person taking the orders can not deliver the goods if the person making sandwiches or working
the fryers is not doing their job. Wendys makes sure that the operation is seen as a team.
Everyone is encouraged to work together. If one person is behind someone else needs to come
over and help them. Overall the team orientation helps to minimize the amount of lost capacity
due to idle production time. If the unit is looked at as a team then there is always something
productive that can be done. That is probably the most appealing advantage along with being
able to use everyones strong points to benefit the operating team. There are not many
disadvantages. One possible one is that some employees may push their work off on others
opposed to doing it themselves. For example, if someone taking orders notices that others are
getting all of the food together, they may just stand and talk to the customer. There are more
advantages than disadvantages.
Another key area is empowerment. Empowerment is defined as a feeling of control and
self-efficacy that emerges when people are given power in a previously powerless situation.
Employees are encouraged to make the customer happy as long as the request is reasonable. A
common example arises with complaints. If a customer does not like the way their food was
prepared then an employee can decide to get them new food. Another example is if a customer
thinks they ordered an item and they did not receive it, an employee can decide if it is worth
looking on the computer to see if they did or just give them food. These examples may not be
what management teaches but it is the reality of how things work. It would be time consuming
to grab a manager every time a problem arose. If employees are willing to make their own
decisions then the differentiation strategy works even better. It allows customers to receive
expedient and quality service.
A final issue is the learning curve. This suggests that some industries learn a lot in the
beginning of operations which helps to reduce the unit cost. Steeper curves (cost for Nth unit /
cost for Nth/2 unit) usually accompany complex processes. Wendys is not complex and there is
not a major correlation between the experience employees have and the increased output. This
helps to explain why the turnover rate at fast food restaurants does not have a major impact on
sales. The tasks are pretty simple and employees can be replaced relatively easily.

Inventory Management

The inventory is held as raw materials such as the frozen chicken, vegetables, or cups
until the items will be used. Some items are converted to finished products during the opening
hours. At this time items such as the salads are made. Other items are converted to WIP. During
the opening shift tomatoes are cut, lettuce is prepared, and the hamburgers are panned. Inventory
is never held as finished goods for more than one day of operations. This is a big reason that
customers are guaranteed fresh products.
Holding everything as raw materials makes it very important to keep enough supplies on
hand. If the customer cannot get what they want then Wendys will lose business. For that
reason they have established a very detailed method of ordering inventory. To start the
description it is necessary to understand that inventory shipments come in on Tuesday, Thursday,
and Saturday. With that knowledge, this example shows how they order inventory.
Inventory Needed as a Percent of Sales
Projected Sales
Hamburgers (pounds)
French Fries (pounds)

% of Sales Monday Tuesday Wednesday Thursday

$ 5,650 $ 5,400 $
5,350 $ 5,400
13%
8%

735
452

702
432

696
428

702
432

Friday Saturday Sunday

$6,250 $ 6,100 $6,000
813
500

793
488

ex. 13% * $5,650 = 735 pounds

Assume that it is Tuesday morning and the order is being made for Thursday. The order
will need to last until Saturday morning.
Order Calculation
Needed
On Hand Amount to Order
Tuesday Wednesday Thursday Friday Total
Hamburgers (pounds)
702
696
702
813 2,912
813
2,099
French Fries (pounds)
432
428
432
500 1,792
570
1,222
Ex. 2,912 - 813 = 2,099 pounds

This example is simplified but it shows how Wendys uses estimated sales to determine
the amount of each product that will be needed. This is done by using a percent of sales. The
percentages used to determine what percent of sales are hamburgers or fries are based on years of
data and are adjusted for the day of the week, time of the year, and many other things. Once they
have this number, it is necessary to determine the amount of product that will be used until the
next shipment will arrive (ex. 2,912 pounds of hamburgers). They subtract the amount of product
that they have on hand (813 pounds of hamburgers) and this tells them what amount they need to
order (2,099 pounds of hamburgers). This system has worked for them. In some cases where a
particular store runs out a certain item, it can be borrowed from another store until it can be
repaid.
As discussed in class, this most closely relates to the periodic review system. Orders are
placed on particular days opposed to when inventory is needed. This is a more convenient way
of ordering things. It would be very time consuming to check on inventory several times
throughout the day. This also helps to guarantee that all inventory items are looked at. The
person ordering the shipment walks around and fills out a form stating the amount for each item.
7

780
480

Nothing gets skipped. Furthermore, it helps to reduce the cost of shipments. If items were
ordered once they reached a certain point (reorder point method) then several orders would have
to be made at different times resulting in smaller more often shipments. This would result in
higher costs. An alternative would be the economic order quantity (EOQ). This would probably
not work that well. Demand changes throughout the year and most of the food is perishable.
With this being said, a lot of the inventory items might go bad. This could result in a lot of the
items going bad and therefore offset the savings resulting from using this method.

Planning & Scheduling

Scheduling has a strong connection with productivity and capacity. Projected sales are
used to determine how many employees need to be scheduled at each hour of the day. This chart
was developed through years of experience and looks something like this:
Scheduling Guidelines
Number of Employees Needed
3
4
5
6
7
8
9
10
11
12
13
14
15

Minimum Sales Volume

Maximum Sales Volume
$
$
100
100
200
200
300
300
400
400
500
500
600
600
675
675
730
730
800
800
850
850
910
910
1,000
$
1,000
$
1,100

This technique is used to schedule the number of employees working at any given time.
Managers also use this chart to plan breaks and control some costs. At slow times employees are
either asked to go on break or to go home if sales volume is not expected to increase. This
attempts to minimize costs associated with labor.
There is also planning associated with customers. The method is based on a chase
demand which is closely related to Wendys differentiation policy. Everything is scheduled to try
to match demand. There generally is no finished goods inventory. This results in orders being
filled when they are received.
The customer scheduling uses the job shop approach. The heuristic used is generally
first come, first serve. Once again, this matches the differentiation policy. In an attempt to get
customers an order made to their specification nothing is made until it is ordered. This tries to
reduce the average amount of time that a customer waits. The only deviation from this plan
comes when one of the items is not ready (for example, chicken or a hamburger). The goal of
this is to avoid others having to wait while the first order is prepared. As soon as the item
becomes available, the order is completed.

Just-in-time
Inventory maintenance does not use JIT but the process of fulfilling customer demand
does follow this method.
One of Wendys differentiating features is the way they make the sandwiches. Nothing is
made until it is ordered. For example, if a customer orders a Jr. Bacon Cheeseburger, the
sandwich maker is informed of how it needs to be made. Once the sandwich maker knows the
specifications they inform the person working the grill of what items they need. The consumer
dictates the movement of the inputs through production process. This is the best example of how
JIT is used and it fits well with the differentiation strategy.
In some senses just about everything operates under JIT. The customer determines the
production in the sense that nothing is prepared before it is ordered (except for fries). The
products are pulled as they are requested by the customer. Once again, the JIT strategy is one
of the key components of Wendys differentiation. Orders are made to the customers
specifications right after they place an order.
JIT uses the seven zeros to analyze different components of JIT. The first is zero lead
time. Wendys minimizes lead-time by fulfilling orders and making sandwiches as they are
received. One of their goals is to minimize this to the smallest amount of time as possible. For
example, the drive through is supposed to complete the whole transaction (order to fulfillment)
in 30 seconds.
Zero excess lot is accomplished by completing orders one at a time. Items are prepared
in the exact amount ordered. If someone orders a Single Hamburger then that is all that is made
at that time. This helps to reduce waste.
An example of the zero setup times / costs component is found on the sandwich station.
It does require setup time in the morning but that is the only other time other than restocking
times. Wendys is prepared for all of the different orders they may receive. All possible
condiments are in front of the sandwich maker at all times. They are prepared for anything.
Zero defects is best accomplished by comparing to other fast food restaurants. Some
places prepare food before it is ordered. This poses one main problem. Some food may be
wasted because it has been sitting out too long. On the other hand, Wendys prepares food when
it is ordered. No food is wasted due to the fact that it has been sitting around. All restaurants
have times when an order is prepared incorrectly but Wendys technique helps to minimize
wasted product.
Wendys has not mastered the zero breakdowns aspect. Some Wendys have
maintenance men that only come when there is a problem. Operations can generally continue if
there is a problem but the whole process gets slowed down. They are able to continue because
there are more than one of most items. For example, there are two grills, two sandwich stations,

four fryers, and many other things. Operations can continue with a breakdown but they can have
a major effect on productivity.
Zero handling is accomplished in many fast food restaurants. The food usually goes a
few feet from the preparation point to the customer.
Finally, zero surging is not addressed very well. The demand curve is not flat. There
are peak times, days, and seasons. The quantity demanded is always changing. It would be very
difficult to establish a zero surging policy when Wendys is trying to meet demand as it comes.
The demand is time sensitive by nature. People usually want food at particular times of the day.

Quality Management
Total quality management (TQM) has three key elements. First is a focus on employees.
Wendys does this very well. They have a strong focus on providing quality service. This is
demonstrated by the leave the cleaning to us policy that was discussed earlier. In addition, the
employee gets to order sandwiches exactly the way they want them. The focus is to satisfy the
customer which will in turn provide repeat business. Employees are trained to make the
customer happy.
A second element is a focus on employees and teams. Earlier it was shown how Wendys
operates with teams. The benefit of this is that if employees can count on others for assistance,
they may be less stressed at times. This in turn will make them happier. When the employees
are happy, the customers are generally happy. A smile can go a long way. Emotions are
powerful and affect a lot of people. Customers do not want to go to a place where they get poor
service due to the way that an employee is feeling at any given time.
A final component is continuous improvement. This is not as strong as it should be.
Many of the employees working at Wendys are younger, minimum wage employees. They do
not necessarily take a lot of pride in their job because they do not plan on making a career out of
it. Often it is their first job and they do not care that much. It is very hard to motivate them to
continuously improve.

Materials and Supply Chain Management

The following flow chart shows how inputs move from growth to the customer.
Movement of Inputs into Outputs
Vegetables > Processor >

>

>

>

>

Potatoes

> Processor >

>

>

>

>

Cows

> Butcher

>

>

>

>

>

Chickens

> Butcher

>

>

>

>

>

Packaged

Central Company

10

Wendy's

Prepared

Customer

This is a simplified concept but consider the flow of vegetables such as tomatoes and
lettuce. They start with the farmer that grows the plants. Once they are ripe they are cleaned and
packaged. Once they are boxed they get sent to central storage facility. Locally everything gets
sent to Sygma based in Columbus. Sygma receives supplies from several providers but Wendys
does not choose who they are. All of the supplies gets shipped to a particular Wendys. On the
day the item will be used it gets prepared. Lettuce gets washed and then some it is peeled for
sandwiches and the rest is chopped for salads. Tomatoes get washed and then either cut for
sandwiches or for salads. The peeled lettuce and sliced tomatoes get panned to be put on the
sandwich station. Once a sandwich is ordered the items get added and given to the customer.
The lettuce and tomatoes that were prepared for salads are put together with everything else.
Once the customer orders a salad the process is done.
This process works well for Wendys because it allows them to avoid choosing their
suppliers. They use Sygma for everything. Sygma is the one that has to search for the different
suppliers.

Asset Management
The following chart shows some of the financial information acquired from the web sites
of Wendys and McDonalds. Burger Kings information was not available.
2001 Financial Analysis
Sales
Cost of Sales
Net Income
Inventory
Total Assets
Asset Turnover
Inventory Turnover
Return on Assets

Wendy's
$ 1,925,319,000
$ 1,229,277,000
$
193,649,000
$
45,334,000
$ 2,076,043,000

McDonalds
$11,040,700,000
$ 9,453,700,000
$ 1,636,600,000
$ 105,500,000
$22,534,500,000

0.927
27.12
0.09

0.490
89.61
0.07

Return on Assets=net
income/assets=193,649,000/2,076,043,000=.

The asset turnover ratio is a little hard to interpret. It really depends on the industry
average but Wendys probably has an advantage in this area. There is a huge difference in the
inventory turnover ratio. McDonalds most likely does not have the storage costs that Wendys
does. It may be interpreted that McDonalds is better at managing their inventory and assets.
Finally, Wendys has a higher return on assets. This is important information for investors.
Using McDonalds as a comparison, Wendys needs to manage their inventory better. If
they can do this then their asset turnover ratio will be even higher which is most likely desirable.
It helps to show how something like asset turnover can affect other things such as inventory

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turnover and return on assets. If inventory is kept lower then the total assets will be lower. This
shows that the asset turnover and return on assets will be higher.

Summary
Wendys popularity stems mainly from their business strategy of differentiation. They
give customers quality food, quick service, and then clean up after them. This is made possible
due to the layout of the sandwich stations and front line. There is not much improvement to be
made in these areas.
The areas that have room for improvement are productivity, inventory management, JIT,
and TQM. Most companies strive to increase productivity by increasing either the output or
reducing the input. Wendys is not necessarily doing badly in this area but McDonalds is doing
better. If they are able to improve, they may be able to provide better service to customers. This
could possibly be done by training employees better. If employees know the ideal way of doing
things it could take them last time (reduce inputs) to accomplish the task.
Inventory management is closely related to productivity because it is one of the inputs
considered when using total factor method of productivity. Inventory management is difficult
because you need to balance the cost or ordering, cost of storage, and freshness of the food.
Wendys needs to find a way to reduce overall costs of storage and increase the freshness even
more. It is not to say that the inventory costs are too high or the products are not fresh but these
are areas where improvements can be made. A possible way of doing this is ordering every night
for the next day. It may be difficult to come up with this policy but it could have benefits. If a
truck came every morning there would, in effect, be no lead-time because the order would be
processed during the hours that Wendys is closed. This would definitely increase the freshness
of the product but it may be more expensive. It is difficult to come up with a policy that reduces
cost and increase freshness. Wendys would need to choose the method that provides the best
balance.
Considering the seven zeros, Wendys does relatively well in all of the areas except
zero breakdowns. A breakdown can have a major affect on output and sales. Wendys needs
to establish tune-ups to prevent problems opposed to fixing things that are already broken.
Those could be done by having a maintenance man come once a week and check on all of the
equipment.
A final area for improvement is TQM. One of the major components is continuous
improvement. It was suggested that many of the employees are young and not easily motivated.
They need to be given motivation to improve. It would be difficult to establish a program where
employees could make a connection between what they do and the affect on the company but it
could be beneficial. A possibility is a weekly profit sharing program. Many companies use an
annual approach to this but then employees do not see the benefit of their actions until the end of
the year. A weekly bonus will let employees see exactly what they get out of improvement.
This may be too expensive to implement but the benefit may outweigh the cost.

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