EXECUTIVE SUMMARY
OBJECTIVES:
1. Expand ABC Foods from 40 to 300 outlets in 2 years by leveraging Industry 4.0 digital
transformation tools to streamline operations, improve scalability, and reduce
inefficiencies, in the three most important business processes i.e. Sourcing,
Manufacturing/ Producing, and Distribution.
2. Diversify the Food Offerings in Terms of the Cuisines:
3. Increase the overall profitability, minimize errors and focus on improving the operating
margins, by focusing on reducing COGS and other expenses that can be optimized to
achieve the goal.
Operational Challenges and Impact on Growth:
1. Sourcing Issues:
o Manual GRN errors and lack of vendor benchmarking result in inconsistent quality
and supply disruptions.
o Manual POs lead to inventory inaccuracies, impacting production and sales.
2. Production Inefficiencies:
o Manual production and quality control techniques create hurdles and hinder
scalability.
o Workflow inefficiencies and labor-dependent processes raise costs hence Increase
Operating Margins
3. Distribution Constraints:
o Inadequate logistics coordination and FIFO mismanagement lead to waste and
higher costs.
o Lack of real-time inventory tracking results in stockouts and overstocking.
Impact on Financial Performance:
These operational issues increase costs, reduce customer satisfaction, and threaten
profitability, underscoring the need for digital transformation.
COMPARING THE ACTUAL VS THE BUDGETED SALES FORECAST:
For most of the companies, the ideal COGS ranges between 20-30% of the total revenue,
and for the larger stable organizations it is about 60-70%. But in case of ABC Foods Ltd. it
went up to 91.5% of the total actual revenue although they estimated it to be around
75%.
Because of which, both profitability and operating margins suffered a toll.
Also, expenses like packaging costs, quality control costs, direct labor costs, utilities costs
and maintenance & repairing costs went up too high, because of the lack of proper
technology and major inefficiencies since most of their processes were being done
manually.
At last, their Net operating income became a loss of around Rs. 13.6 Crore, although they
forecasted a Net Income of Rs. 3.5 Crore.
Financial and Operational Benefits of Digital Transformation of the
business with the help of Industry 4.0 Technology offered by
UdyogYantra:
UdyogYantra’s Offerings
Our Products:
• UY AI-Powered RESOEE
• UY’s FMS Software
• UY’s Mobile App
Quality Checks made easier:
• AI quality checks from RM - SFG – FG, Intelligent temprature checks, AI
guided recipes, product trainings for staff, AI quality check automation.
Inventory and Vendor Management:
• Shift management, work order generation, real time inventory, automated
FIFO Control, asset mapping, inventory audits, End to End traceability.
Purchase order and billing Digitalisation:
• AI GRN- raw material receiving with traceability, outlet audits, real time food
cost dashboard.
Complete Solution for all the problems we are facing have been offered by
these products and services.
UY AI-Powered RESOEE
FMS Software and UY Application
Digital Transformation Plan using McKinsey’s 7S Framework
1. Strategy
• Adopt industry 4.0 technologies: UY AI-Powered RESOEE, UY’s FMS
Software, UY’s Mobile App
• Digital first approach: Implement digital systems to streamline manual
processes like UY products for sourcing & manufacturing, and online
food delivery apps like swiggy and zomato for distribution services.
• Customer centric innovation: Use digital analytics to understand
customer preferences enabling adaptive menu offerings and
personalized experiences.
2. Structure
• Decentralized operations with centralized control: Establish central
kitchens applying hub and spokes model, using UY’s FMS Software to
manage production and distribution to regional outlets.
• Digital command center: Set up a central digital operations center to
monitor real time metrics (inventory, quality, workflow status) across all
outlets.
• Defined roles for digital operations: Appoint digital transformation
executives in the three main departments (Sourcing, Production,
Distribution) to oversee implementation and training on new digital
systems.
3. Systems
• Production systems with UY AI Powered RESOEE: Automate work
orders, quality checks, and inventory control within central kitchens,
reducing manual dependency and ensuring consistency.
• Supply chain systems with UY’s FMS Software: Use automated POs, real
time inventory tracking, and vendor management to optimize the
supply chain and minimize errors and delays.
• Outlet systems with UY’s mobile app: Enable efficient inventory
management, FIFO control and digital transfer orders to support
smooth operations at each outlet.
4. Shared values
• Digital transformation as a core value: Invoke the importance of
technology in operational efficiency and quality assurance throughout
the organization.
• Quality consistency across outlets: Embed the commitment to high
quality, consistent food preparation as a guiding principle, supported by
AI guided recipes and quality checks.
• Sustainability and waste reduction: Promote sustainability by using
technology to reduce food waste and improve resource efficiency.
5. Skills
• Automated training modules (with RESOEE): Provide real time
automated training to kitchen staff guiding them on new recipes and
processes.
• Skill development in digital tools: Conduct hands on training sessions
for staff at all levels for using digital systems like UY’s FMS Software and
Mobile App.
• Specialized digital operations training: Train a core team in advanced
digital skills for managing inventory, analyzing data and using digital
tools to keep operations running smoothly.
6. Staff
• Define new digital roles: Assign roles such as digital transformation
managers and data analysts in production and logistics departments to
support the digital ecosystem.
• Cross functional collaboration: Facilitate communication between IT
and operations teams to ensure that digital tools align with operational
goals.
• Incentivize adaptability and learning: Offer incentives for staff members
who quickly adapt to new systems and contribute to process
improvements promoting a culture of continuous improvement.
7. Style
• Digital first leadership mindset: Encourage leaders to prioritize digital
tools and data driven decisions for operational efficiency.
• Agility in management decisions: Empower middle management to
make quick decisions using real time data insights enabling
responsiveness to changing customer demands and operational
challenges.
• Employee engagement in transformation: Create an open inclusive
management style where employees are encouraged to contribute
ideas for leveraging digital tools fostering a sense of ownership in the
transformation process.
Implementation Timeline:
• Phase 1 (0-6 Months):
• Integrating UY solutions (UY AI-Powered RESOEE and FMS Software) in
central kitchens and 10-15 outlets, for which we can start with a
selected few outlets that are performing the worst out of the 40 that
we currently have.
• Conduct foundational training on digital tools for key personnel.
• Evaluate effectiveness, gather feedback and refine processes as needed.
• Phase 2 (6-12 Months) Further Expansion to 100 outlets:
• Implement digital solutions in all central kitchens and all the 40 outlets
focusing on maintaining quality and operational consistency.
• Here we need to learn from our previous mistakes and further improve
our operations using these AI tools.
• At this stage we should be trying to expand to further 60 more outlets
and carry our operations there with consistency.
• Phase 3 (12-24 Months) Full Digital Integration and Scale-Up:
• Complete digital transformation across all 300 outlets with automated
and standardized processes.
• Monitor and refine digital systems continuously to support a scalable
and adaptive business model.
• Focus on KPI tracking for efficiency, customer satisfaction and cost
control.
Profit & Loss (P&L) statement of a VENKEY’s India Ltd.:
Cost of Goods Sold Includes: (in Lakhs)
• Cost of materials consumed: 3,34,698
• Purchases of stock-in-trade: 17,781
• Changes in inventories (finished goods, work-in-progress, stock-in-trade,
biological assets): 1,782
• Depreciation and amortization related to production: 3,657
• TOTAL COGS = 357918
COGS Percentage of Revenue = Cost of goods sold / Total Revenue
= (357918 / 443658) * 100
= 80.67%
If we consider Ideal COGS to be 25% for Food Service Industry, then we can
say that Venkey’s India Ltd. is performing terribly in the market.
COGS Composition:
1. Raw Materials
• Livestock Costs
• Feed and Supplements
• Veterinary Expenses
2. Labor Costs
• Farm Labor
• Processing Labor
3. Processing and Production Costs
• Processing Facility Expenses
• Packaging Materials
• Processing Supplies
4. Transportation and Logistics
• Transport to Processing Plants
• Distribution Costs
5. Quality Control and Compliance
• Quality Control Measures
• Compliance Costs
• 6. Depreciation of Equipment and Facilities
• Poultry Farm Equipment
• Processing Plant Machinery
7. Miscellaneous Direct Expenses
• Waste Management
• Water and Utilities
Hidden Factors and Variability:
1. Feed Cost Fluctuations
• Market Price Volatility
• Feed Quality and Nutrient Requirements
2. Livestock Mortality Rates
• Disease Outbreaks
• Environmental Factors
3. Labor Cost Variability
• Overtime and Seasonal Labor
• Turnover and Training Costs
4. Processing and Production Inefficiencies
• Equipment Downtime
• Yield Variability
5. Waste Management and Disposal Costs
• Increased Waste Generation
• Regulatory Compliance
6. Quality Control and Compliance Costs
• Regulatory Changes
• Higher Rejection Rates
7. Supply Chain and Logistics Variability
• Fuel Price Fluctuations
• Freight and Distribution Costs
8. Foreign Exchange Rate Fluctuations
• Imported Materials
9. Utility Costs Variability
• Energy and Water Usage
• Variable Tariffs
10. Veterinary and Health Related Costs
• Epidemics and Preventive Measures
• Special Diets and Supplements
