Supply Chain Optimization: What It Is and Why It’s Important

A restaurant’s supply chain is never static.
Optimization strategies keep it forward-looking and efficient.

Supply chain optimization is a matter of human oversight and intervention, always focused on achieving best case results. It is the constant adjustment for always-changing supply and demand, product costs, distribution and operating factors. Unfortunately, there is no automatic solution to this complicated system. Supply chain managers use specialized tools, customized contracts, strategic cost forecasts and procurement hedges to balance the various tradeoffs needed to compensate for those changing factors in a restaurant chain’s business model. Optimization requires supply chain managers to be forward-looking and prepared to make adjustments for likely future conditions, not just reacting to what is happening in the here and now.

Every restaurant brand has its own distinct priorities and issues that require specific supply chain optimizations. For some, rapid product development times and speed to market are key strategic goals. For others, competitive pressures make product cost management the top priority. And for still others, custom sourcing and logistics support for ongoing marketing initiatives top the list. Other factors like proprietary ingredient needs and regional unit density variations require their own, custom supply chain arrangements.

That’s why supply chain optimization inevitably means balancing tradeoffs rather than implementing fixed or cookie-cutter solutions. “You can’t do this with an all-purpose market basket analysis,” says Liz Longstreet Darr, our Vice President of Client Solutions. “A brand needs to look at its purchases on a line-item basis, understanding both the category trends and the specific item variables.” For instance, food price forecasting always entails some uncertainties, and efforts to optimize a supply chain require that those uncertainties be hedged to the best degree possible.

She adds that “tradeoff decisions can’t be made in a vacuum”. Ultimately, they must be made by brand management that is informed with the real-time data and forecasts needed to evaluate tradeoff implications. “Our customers must manage the present, plan for the future and protect their margins in an environment where food and logistics costs and other risks are in constant flux,” she adds.

An optimized supply chain supports marketing initiatives and top-line revenue by ensuring that new products required for promotions are tested, in stock throughout market regions, and ready for timely promotion roll outs. “Optimization provides critical input for strategic business planning.” “It helps brand management focus on the big picture to achieve results.”

A forward-looking supply chain can help a restaurant brand evaluate and develop contingency plans, secondary sources and business plans able to cope with potential risks, like the African swine fever outbreaks that are now spreading through Asia and affecting global pork supplies.

It also helps restaurant organizations cope with the changing nature of distribution networks. As distribution centers look to manage their own financials by reducing inventory levels, supply chain management monitors their performance and keeps them apprised of ongoing changes in regional demand so that out of stocks, especially of critical items, are minimized or eliminated.

But optimization is not only about mitigating risk—it’s also about finding opportunities. When restaurant management can more accurately evaluate the factors affecting the product mix specific to a brand, Darr says,“then they can actively work to mitigate headwind issues and take advantage of the tailwinds” with marketing, menu and promotional strategies. That may mean working with suppliers to take advantage of under-utilized capacity or to augment specific product demand of other companies to lower production costs.

While supply chain optimization is not an automatic process, entrusting it to a strategic partner can keep restaurant chain decision-makers apprised of all of the necessary input without having to spend valuable time mining for this information themselves. “Managing the supply chain for our clients means customizing an approach based on the strategic priorities each brand sets for its business… Our role is to keep the brand team informed with the intelligence it can use to evaluate where it may need to make changes in future menu pricing and where it won’t,” Darr says. “It requires the kind of forecasting that can help protect menu margins in future promotions”.

Could new opportunities help improve the results of your restaurant brand? Contact us to learn how SpenDifference can assist in optimizing your supply chain systems.