Cost Reduction

Sweating Supply Chain

Today’s restaurant chains are confronted by countless strategic and structural challenges, but few more critical than the impact of sourcing and managing ingredients and supplies. Ensuring you have the right supply chain solutions in place can be crucial. With 25-35% of revenue spent on food, beverages, packaging, and supplies, operators are increasingly focused on finding more effective ways of managing their variable cost inputs. This trend is a predictable and necessary outgrowth of oversupply (too many restaurants), consumer demand for value, and the margin pressure brought on by intense competition over patronage frequency and loyalty.

A poorly understood and often sub-optimized element of the supply chain is the “last-mile” stage, better known as “distribution.” Roughly three to six cents of a restaurant’s sales dollar supports that restaurant’s foodservice distributor’s cost of acquiring, warehousing, invoicing, and delivering ingredients to their “end user” destination; the operator’s storeroom, cooler, or freezer. To clarify, that’s three to six cents of every one dollar that comes into the restaurant is spent on food and supplies. Some part of that is the distributor’s net profit. So when one considers only five cents of a sales dollar makes it to a typical restaurant’s bottom line, fractions of pennies begin to look really important.

Good supply chain management contributes to a chain’s success, so a restaurant’s distributor relationships can greatly affect overall performance. Operationally and strategically, short and long-term, no organization can be successful without the support of its supply base, making chains highly dependent on distributors, and placing them at a disadvantage with distributors if/when they don’t understand the nuances of their “partner’s” P&L. A transparent, trust-based relationship is best, but just as Ronald Reagan preferred counting Soviet missiles aimed at western targets (“trust, but verify”), chain operators need to know where to find threats to their cost structure; basis points that add up to full percentages.

For more information, check out our white paper from Consolidated Concepts – Sweating Supply Chain or Take Control of your Supply Chain

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