What’s In Today’s Supply Chain Technology Toolbox?

Supply chain data—and the right tools to use it—can give chain management both strategic insight and competitive advantage.

How Technology Optimizes Supply Chain Strategy

A long time ago, in a galaxy far, far away … supply chains were managed with handwritten ledger books, by bookkeepers with green eyeshades and buyers who made handshake deals.

The advent of spreadsheet software and electronic data interchange (EDI) standards in the late 1980s began to change that. But even then, many restaurant chains remained heavily dependent on reports supplied by distributors, often in hard copy or non-standard formats. The information they did get was hard to use for strategic purposes. Technology made it far easier to generate data, but also created a new problem: so much data that it often became overwhelming.

“What restaurant chain management needs is business intelligence—distilled information that is actionable and offers strategic insight,” says Jeff Kelly, Director of Business Development at SpenDifference, the Denver-based supply chain management company.

“That means tools and reports to help cope with ongoing business conditions, gain credibility with franchisees and plan for what will likely happen in the future.

“Analyzing endless spreadsheets of past sales and purchases isn’t enough. It’s like trying to drive a car while looking only in a rear-view mirror.”

Looking Beyond a Rear-View Mirror

Over the past decade, the development of tools that provide focused intelligence of this sort has had a major impact on the way successful restaurant chains manage purchasing, menus, promotions and operations. It has also tended to level the playing field between very large national chains and medium-sized, emerging concepts. Chains whose size makes them more nimble can act more quickly on the strategic insight such intelligence provides.

That’s why, when combined with third-party purchasing leverage, customized supply chain dashboards and reports can give corporate chain management the insight it needs to out-perform larger competitors. Consider the advantage such technology offers in these key operational functions:

Data Warehousing and Data Mining.  Invoice Data. Monthly Spend. Category Spend. Unit Purchasing Reports. Contract Expirations. Inventory Outages. Pricing Changes. …. The way to manage the flood of supply chain data from multiple sources is to store it in a common format and a relational database structure. That way, data can be mined as needed, plugged into customized algorithms and reported on management-friendly tracking dashboards. That gives management real-time oversight of the factors critical to a given concept and the ability to flex quickly with market and demand changes.

Price Forecasting. To negotiate the best contract prices with manufacturers, it’s important to understand the commodity trends affecting a supplier’s costs. Technology lets product category specialists evaluate commodity trends and forecast likely future price changes for specific categories and items. That information makes it possible to seek more advantageous contract terms and longer-term pricing before commodity supply and price changes hit the market. It allows tactical menu pricing changes and aids promotional planning.

Distributor Price and Invoice Audits. President Reagan’s famous statement, “Trust—but Verify”—certainly applies to a restaurant’s delivered product costs. Are previously-negotiated supplier prices correctly charged to a chain’s distributors? Are they appropriately reflected in the distributor’s regional order guides? Do a unit’s landed prices match what they are supposed to be? Technology-based audits at critical points in the supply chain can catch, avoid and correct variances before they turn into pricing reconciliation headaches.

Inbound Logistics: As restaurant competition increases and margins shrink, supply chain logistics offer chains another way to cut costs without compromising on product quality or service levels. Supply chain technology plays a key role in managing inbound freight and transportation costs as well as other delivery variables.

Unit Purchasing Compliance. Chains often need to monitor franchise unit procurement to ensure that it complies with purchasing and distribution agreements and that units maintain product consistency standards. Technology-based compliance reports highlight any variations so that franchise policies can be enforced. Reports also can show the relationship between contract and non-contract spend and where increases in non-contract purchases may offer new opportunities for negotiated pricing.

Market Basket IndexingIt is one thing to negotiate competitive pricing with suppliers. It is another thing to show how much relative advantage that provides, or be able to clearly communicate it to franchisees.

Customized market basket indexes offer a way to compare a restaurant’s actual costs for core items against the same purchases made on the open market. They can illustrate how contract pricing minimizes price fluctuations and demonstrate how corporate hedges supply chain uncertainties. Combined with forecasts, they let culinary and marketing do better LTO planning to take advantage of market conditions. They demonstrate the transparency of a chain’s decision-making process and build credibility in the field.

There’s No “Black Box” Solution

Technology has vastly improved supply chain management capabilities, but “there is no technology-based ‘black box’ that automatically solves every supply chain problem” says Matt Heckroth, Senior Director of IT for SpenDifference.

“The human element remains critical,” he adds.

“Technology lets you create tools, but dedicated supply chain expertise lets you leverage those tools to address the specific challenges of a restaurant brand. Applied correctly, they keep you on top of changing trends so you can address potential challenges in advance, not react to them as they happen.”

Supply Chain Sourcing Partnerships: What’s the Value Proposition?

A supply management philosophy emphasizes procurement partnerships with a multi-dimensional value proposition.

When the foodservice industry talks about procurement, terms like “partnership” and “win-win” are so common that they often aren’t taken at face value. That’s especially true if the relationships in question are based strictly on raw purchasing volume and price.

In contrast, the best supply-chain partner relationships also emphasize deeper, information-sharing relationships that offer value and strategic business opportunities in other areas as well. It’s also what distinguishes this approach from that taken by general-purpose group purchasing organizations.

To explore how such value propositions work out in practice, we spoke to DeWayne Dove, Vice President of Supply Chain for SpenDifference, a Denver-based restaurant supply-chain management firm that specializes in emerging and medium-size restaurant chains.

A value proposition based on custom specifications

“When we leverage the volume of nineteen client brands, we source the vast majority of purchases with custom contracts that match each brand’s specifications.” Dove says.

“A restaurant brand’s ability to customize and own those specifications is what makes it unique in the marketplace and allows it to differentiate itself from its competition. This is much different than a typical GPO approach, which is to establish a single specification for all members to buy.

“It’s also a difference that encourages suppliers to develop stronger direct relationships with the brands. It presents important opportunities for them to achieve more efficient raw product utilization and distribution logistics planning.”

Better pricing certainty is another benefit, he says.  “We develop very buttoned-up contracts for key categories. They have volume commitments that drive growth and are tied to escalator and de-escalator formulas so that variances directly affect pricing.”

 “Building out the bird”

Dove uses poultry as one example. “It is obviously a key category for most of our client restaurant brands and represents in excess of $100 million in category spend for us. But one brand may specify a six-ounce boneless breast; another may want a five-ounce breast with a marinade pump; others may use wings or pulled tenders or dark meat strips.”

“With that aggregated mix of demand, a supplier can better define how a bird will be processed and portioned in production and plan where the components will go post-production. ‘Building out the bird’ in that way enhances a supplier’s ability to fully utilize raw materials. It drives tremendous value for every stakeholder in the relationship.”

Dove points to similar opportunities in other categories, from beef to pre-cut produce to disposables and to a potential for optimizing regional shipment logistics as a result of data-sharing with customers about menu changes that may shift demand.

Demand patterns as business intelligence

Monthly and annual food price forecasts drive this kind of supply chain opportunity because of the business intelligence they generate, he says.

“We regularly develop commodity price forecasts to guide brands’ food price planning,” Dove says. “Technology lets us estimate the impact inflationary trends will have on individual menus by category and line item. The brands use this information to compensate for inflationary trends with LTO planning and culinary development strategy.”

The same technology generates data with significant value for suppliers, he says. “We normalize it across 150 distributor branches to identify where specific item volume will be going. That lets supplier partners match it against distribution volume voids they may have at the regional level in order to build more efficient regional delivery truckloads.

“Or, a supplier may have a 30 percent share in a given category and want to know what the other 70 percent looks like in terms of usage by specification and region. Such guidance can suggest growth opportunities and make it possible for them to enhance the value offering made to our brands.”

Efficient market reach

Suppliers put high value on the direct relationships they can develop with end users, and SpenDifference looks to facilitate these with the structure of its Supplier Advisory Council and meetings it has with the brands over the course of a year. There, strategic trading partners in key categories meet top management from multiple client brands to share information and find ways to work together for mutual advantage. This can include menu ideation sessions, market trend insights, cost saving opportunities and support for culinary development programs.

“The meetings give suppliers a deeper reach into the marketplace and a one-stop opportunity to gain insight into the plans of multiple restaurant brands,” says Dove.

The value of a supply chain approach to procurement for an emerging or middle-sized restaurant brand is being able to function like a much larger multi-unit operator in terms of procurement and other functions like logistics management,” he says.

“The value to a supplier partner is very similar—being able to operate in the space of these fast-growing chains much more effectively than the supplier would otherwise be able to do.”

Chicken: Improving Quality, Preparation Time & Costs

co-op

The Situation:

A current SpenDifference client looked for ways to improve their quality, preparation time and costs on their chicken program.

The Result:

  • SpenDifference evaluated the program and identified suppliers within our family of vendors who were a good fit for the wing and breast program.  SpenDifference worked with the client team to review the products and then awarded a contract resulting in $1 million in save over 2 years.
  • The tenders they had on their menu were freshly prepared. The team worked collaboratively with the client to identify a frozen tender that met all quality requirements and made back-of-house preparation easier, safer and more efficient.
  • SpenDifference also identified a precooked chicken for the soup program that reduced preparation time and enhanced food safety.