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 Indexing. It 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.”