Looking for restaurant supply chain software? Here’s what you need to know.
Managing a restaurant supply chain using spreadsheets, paper invoices, and/or multiple electronic systems can cause staggering monetary losses that may remain almost invisible. How? Supply chain management is a complex process, individual losses are small and can occur at many different points, and without an integrated system the timely tracking of these inefficiencies is almost impossible. It’s like a miles-long oil pipeline which can only be serviced on foot, that’s leaking from many tiny holes. Non-integrated systems also make it hard to be responsive to food quality and safety issues, both critical to ongoing success. An integrated approach that ties the back office system to the supply chain solution has wide ranging benefits, and enforces order and accountability across the enterprise.
It Pays to Integrate
In a company that does $50 million in annual sales, a supply chain automated with the proper software can mean savings of $500k – $2 million or more… every year.
To illustrate the complexity of managing a supply chain without an integrated solution, let’s see how that approach affects a simple hot dog stand. The stand owner has a supply chain process to deal with, and must answer important questions every day:
Process and questions
|Plan for purchases||Buy goods and services||Take Delivery||Troubleshoot problems|
The process is complicated, but the hot dog stand owner has three critical advantages:
- A simple menu.
- One person makes all the business decisions.
- One person has visibility into all aspects of the operation.
But take this approach and apply it to a restaurant chain managing hundreds of products across dozens of markets, and it becomes substantially more difficult to execute efficiently, due to 2 main factors:
- Multiple people are involved in the process, but none have visibility to every part of the system, making truly informed decisions a challenge.
- Tracking inventory from the negotiation stage to procurement, delivery, and on through use, in real time, is almost impossible. Proper cost control is daunting.
Typical Restaurant Supply Chain Problems
Following are typical problems in a restaurant supply chain managed without an integrated software solution:
- Accurate sales forecasts based on historical data and current trends are difficult and time-consuming to generate, which leads to under-ordering (and unhappy customers) or over-ordering (and increased waste).
- Prices paid for goods may be too high, due to:
- Problems “normalizing” prices during vendor price comparison (i.e. one vendor sells by the pound, the next by the case). Spreadsheets offer a poor vehicle for comparing the cost of various items from multiple vendors, creating a time-sink of data entry and manual formatting.
- A lack of centralized control of order guides and approved vendors, allowing restaurants to engage in unauthorized spending at non-negotiated pricing.
- Ordering outside of business rules (e.g. below minimum quantities) may trigger premium pricing.
- Orders may include unapproved vendor substitutions at higher costs.
- Menus may be unprofitable due to inaccurate or non-existent cost-modeling, whether for LTOs or everyday items. Any item with poor margins that’s sold 500 times a day will crush a bottom line; poor margins should never come as a surprise.
- Manual ordering and receiving generates reams of paper and mistakes.
- It makes comparing orders and invoices to their underlying negotiated contracts so difficult that many companies skip the process altogether. Contract non-compliance is a major source of lost cash.
- It wastes an enormous amount of managers’ time, virtually every day.
- Data should never be entered twice, as it dramatically increases errors; for example, orders shouldn’t be placed via a vendor phone, FAX or website, and also entered into a back office system.
- Without an easy, centralized way to give feedback on the quality of food delivered, and the service during the delivery, there’s no way to correct poor vendor performance.
- Manual maintenance of allergen and nutritional information is tedious at best.
Historically the problems above were so pervasive, and so expensive, that ultimately they led to the creation of the integrated supply chain software industry! In our work with some of the world’s great brands, the implementation of integrated supply chain solutions has resulted in savings of 1% to 5% of sales. In a company that does $50 million in annual sales, a supply chain automated with the proper software can mean savings of $500k – $2 million or more… every year.
The restaurant supply chain is inefficient by design
In processing over $3 billion in invoices in 2011, we found that 12% of PO lines had recoverable compliance errors.
10 Requirements of an Integrated Restaurant Supply Chain Solution
The following features and functions can generate substantial savings and solve the problems outlined above; they are requirements on a truly integrated supply chain solution:
- Menu engineering functions for recipe modeling, where the effects of ingredient cost changes, substitutions, and usage amounts can be predicted. A recipe’s profitability must be determined before roll-out, eliminating costly trial and error.
- Powerful forecasting tools should enable the delivery of just enough inventory, just in time, and should make it easy to incorporate adjustments for LTOs, weather, holidays and events. Forecasting should also link to labor scheduling, and the best tools will allow forecasts to be specified by sales dollars, guest counts, dine-in vs. takeout, and more; flexibility means accuracy, and accuracy means profits.
- Vendor bid analysis that enables easy comparison of “normalized” prices (all prices are converted to a single unit, e.g. per pound, or per case) for a given item, across multiple vendors in multiple markets, ensuring a competitive price in every location. For maximum savings, comparisons must be generated easily for every item- virtually impossible for manual systems.
- Ordering should be fully optimized. The system should generate accurate suggested-orders based on sophisticated forecasts, to save time and reduce costs. It should also generate automated alerts when an order quantity outside normal limits is entered, avoiding potentially expensive mistakes. A best practice is to enter the order in only one system, and not in both the back office system and a vendor’s web site; the system must provide for data entry at a single point.
An automated supply chain system contains all contracted prices, orders, and invoices, making it possible to quickly identify and recover overcharges due to non- compliance to negotiated pricing, delivery overs and shorts, and product substitutes.
- Receiving must be possible “by exception” (where only inaccurate quantities must be noted), saving managers substantial amounts of time on every delivery. The ability to do three-way-match between the order, an electronic invoice, and the physical receipt of goods has benefits across the enterprise.
- Built-in and updatable nutrition and allergen databases are needed to safeguard customers and help meet regulatory requirements, a process that is unwieldy at best in a manual system.
- Centralized order guides for vendors must be controllable at the corporate level, and limit what (and from whom) restaurants can order, preventing rogue spending at non-negotiated pricing.
- Manufacturer Lots should be tracked in the system from purchase through use, enabling rapid response to recalls and other food safety issues, and protecting both the customer and the company.
- Vendor score-carding should be possible through a centralized database for recording and sharing information quickly among restaurants and the corporate office. Fill ratios, damaged goods reports, and the service quality of delivery people should be visible to all, helping to eliminate problem vendors, increasing accountability across the enterprise, and reducing wasted time and money.
- The system should generate automated credit alerts when invoice price exceeds contracted price, so loss recovery is automatic. Not only are costs recovered that would otherwise be lost, but inventory costs at the restaurants will be far more accurate, making better food cost control possible.
Aim for Supply Chain Simplicity with Back Office Software
The nature of a multi-unit restaurant supply chain, with its many vendors, purchasing agents, broad assortment of goods, multiple restaurant locations, and processes that must be repeated thousands of times annually by associates of varying expertise, creates many moments where profits can disappear. Integrated supply chain tools reduce the number of “moving parts” or opportunities for inaccuracy (like ordering, or vendor bid comparisons), they make it easier to enforce business rules and accountability, provide outstanding visibility into the supply chain process in real time, and ultimately save time and substantial amounts of money for their operators. The CrunchTime back office solution addresses these issues by allowing restaurant operators to build exacting business rules centrally, which the system will tirelessly enforce throughout the enterprise.
- Restaurant Labor Cost Optimization Explained
- Elements of Selecting a BOH System Platform for Restaurants