food supply chain | 13 mins read

How to Optimize Your Restaurant Food Supply Chain for Higher Profits

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Debdutta Bhattacharjee

By Debdutta Bhattacharjee

The Restaurant Food Supply Chain Deconstructed

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While digging into the juicy goodness of a Big Mac burger, or a Subway Supreme Meats sandwich, or munching on a Jack in the Box Chicken Club Salad, have you ever wondered how that food reached you? It's to consider the relation between your food and agriculture. Each ingredient travels several miles from the farm to the fork and is handled by several specialized agents along the way. Products and information flow constantly along the supply chain.

Let's take the example of the lettuce in your burger, sandwich, and club salad. Most of the leafy greens in the U.S. are grown in the Salinas Valley in California in the summer months. After the lettuce is harvested, it is cut, the outer leaves are trimmed, the core is removed, and the harvest is washed and packed.

Once the lettuce is received from the field, processors cool it before sending it to the cold storage or refrigerated trucks/containers. At the processing plant, the lettuce heads are trimmed again, and the lettuce is packed and sent for storage.

Since lettuce is highly perishable, it has to be transported to the retailers or restaurants at the earliest. The storage phase cannot therefore last too long. Quicker the transportation, longer the lettuce shelf life.

A restaurant supply chain, therefore, refers to an end-to-end connection between the primary producer and the consumer, and that's the connection between food and agriculture. There are other entities along the wayfrom wholesalers and stockists to distributors, logistics providers, retailers, right down to the cooks and servers who bring the finished product to your table.

A supply chain involves networks of relationships in which orders and supplies flow in the opposite direction in each relationship set. This network includes resources, companies, activities, technologies, and information flow. A capable supply chain management ensures that they all move around smoothly and a business's objectives are fulfilled.

Present-day Challenges to Food Supply Chains

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1. Unforeseen disruptions- As the specter of lockdown loomed large after the Covid pandemic broke out, customers engaged in panic buying. The actual lockdown led to businesses shutting shop. Many saw their employees being hit by the coronavirus, which also stalled operations. Suppliers were suddenly faced with massive stocks that could not be distributed. This led to huge losses and wastage across all the food supply chain.

War is another unforeseen disruption. For instance, the ongoing Russia-Ukraine conflict has the potential to destabilize the entire global food supply chain, push up Food Prices and worsen the global hunger situation, according to a Vox report.

Both the countries are major food exporters and feed dozens of countries in North Africa, the Middle East, and South Asia that already suffer from food insecurity.

2. Demand for traceability- Consumers have increasingly started to demand full visibility into the entire supply chain process. The food buying public today is highly aware that foodborne illnesses often start and proliferate with the food supply chain.

As pointed out by the Centers for Disease Control and Prevention, one in every six Americans contracts foodborne illnesses annually. Lack of transparency and traceability creates blind spots in the supply chain that exposes consumers to food safety hazards.

From the suppliers' angle, it would weaken brand integrity, erode customer loyalty, diminish sales, and make businesses susceptible to litigation.

3. Lack of communication- A supply chain, especially if it is spread across different parts of the world, involves a massive network of people and companies. However, often networking itself becomes a challenge.

Different actors may have different communication and transportation methods. Moreover, language may be a barrier, and indeed work cultures may be different. As a result, there are times when the partners in a supply chain don't interact, or worse, information is wrongly interpreted. These issues can lead to supply delays and cause the quality of the supplies to go down. Food safety may be compromised too.

4. More and more regulations- The stated purpose of government regulations is to protect food freshness and safety, but they often become the source of the problem. A case in point is the ELD mandate that requires carriers to install an electronic logging device to document drivers' service hours everyday. This has caused many companies to cut back on their driver hours, and several smaller carriers are being pushed out of business. The ELD mandate has led to a rise in shipping rates, has hit driver availability, and caused supply delays.

5. Food fraud- Organizations have been known to transport counterfeit products and use food shipping as a cover to move illegal goods. The United States Food and Drugs Administration (USFDA) has recently expanded its food defense division that investigates food fraud within the US. The threat of food fraud also results in stricter regulation, and stricter regulation mean more supply chain bottlenecks.

6. Dishonesty- Concealing facts or mistakes can cause food poisoning and even death. This is can be prevented by having continual communication logs that document critical food safety components like cargo container locations, temperature and humidity of the shipment, and food inspection checkpoints.

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What is Food Supply Chain Management?

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Food Supply chain management involves the active monitoring and managing of supply chains for maximizing value and efficiency, with the ultimate aim of boosting sales and profits.

For a restaurant, this starts with identifying food suppliers and negotiating contracts with them with the aim of securing the best deals. These suppliers can be farmers, wholesale distributors, and vendors who sell takeout containers.

The next job of the restaurant owner is to find partners who will deliver the raw materials to the restaurant. The raw materials are turned into sellable finished products or meals.

The cooked meals will now have to be distributed to customers. This may simply be done by the server, who brings the food from the restaurant kitchen to the customer's table. Alternatively, the meals may be carried by third-party delivery service providers like UberEats, GrubHub, DoorDash, and Postmates to customers' homes.

Efficient restaurant supply chain management also necessitates a sound demand-forecasting to know what to order and what to skip. It also involves keeping a tab on the number of supplies received and utilized, so that the restaurant can reorder before supplies run out, and can always stay well-stocked to serve consumer demand. It has to be mindful of the expected and actual volumes of the utilization of supplies and calibrate its strategies accordingly.

The restaurant has to keep a close eye on the quality of its supplies as well and a transparent supply chain would help immensely. Shipping procedures have to be monitored to ensure that costly shortages and oversupply can be avoided.

A skillful supply chain manager is able to pre-empt crises and help in solving them as and when they emerge. He/she is able to search out cost-effective solutions, like organizing transportation routes by combining shipments wherever possible, and ensures that the threats of food recall and lawsuits can be minimized.

Why is Food Supply Chain Management Crucial to the Bottomline?

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A well-managed food supply chain is crucial for the bottom line of a restaurant business. Supply chain management is, therefore, one of the most important parts of operating a business, even though it may not be the most interesting part of it. A smoothly-running food supply chain gives rise to efficiencies that, in turn, give businesses a sustainable competitive edge. These efficiencies help in cutting costs and boosting profits.

A skillful supply chain management brings together the best practices in the areas of demand planning, sourcing, procurement, logistics management, risk management, inventory management, vendor management, information flow management, and planning for contingencies.

On average, up to 35% of the revenue of a restaurant business is spent on food resources. An Apicbase study points out that as many as 75% of U.S. restaurants find it hard to rake in profits because their food costs spiral out of control.

A restaurant that is not sure about how much stock it is left with, invariably ends up buying more than what is needs. Or it is forced to deny customers what they want when stocks have depleted.

Poor inventory management can also see restaurants continuing to push out slow-moving menu items, and losing money this way. An automated inventory and order management system, on the other hand, can solve the problem of over-stocking and under-stocking. It does this by linking supplies to consumer demand, allowing the restaurant to save money in the bargain.

Furthermore, proper inventory management provides sales data to better understand the demand-supply dynamics, and, in turn, make stronger decisions for the operation. In this regard, a muscular point of sale (POS) system, like the Plum POS, offers a massive leg up to restaurants.

Stock levels should also be monitored and the ordered and supplied amounts should be matched to detect and prevent loss from pilferage, pest attacks, and spoilage, both on the road and in-store. According to an Apicbase study, 75% of restaurant inventory shrinkage in the U.S. occurs on account of employee theft, leading to overall annual losses of $20 billion.

A supply chain manager has to search out the best deals for his or her company, and recommend changing vendors if better alternatives are available. He/she also has to make sure that a backup plan is in place to cope with large-scale supply chain disruptions, as happened in the wake of the pandemic, or as may happen in the case of big natural calamity that destroys agricultural produce.

The restaurant also has to decide which activities it wants to retain in-house and which can be outsourced to third-party organizations.

Disadvantages of Traditional Food Supply Chain Management Systems

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1. Manual tracking of stocks and supplies can introduce errors, especially with demand and supply fluctuating throughout the year and inventory levels constantly changing. Erroneous tracking can derail an entire business operation. It makes monitoring difficult and can cause either wastage or undersupply. Moreover, it impairs decision-making, exposes the business to cheating by vendors, increases costs, and leads to customer dissatisfaction.

2. Traditional supply chain management involves simple steps and a single pathway. It doesn't provide visibility across the supply chain, which prevents the detection of food loss and food contamination along the way.

3. A traditional food supply chain may not prepare a restaurant for quick response to emergencies. For instance, the regular supplier may fail to fulfill the order on time or may bungle the order entirely. Negotiations with a regular supplier may break down over cost hikes, or the vendor may be faced with a natural calamity that renders its operation difficult. Arranging alternative suppliers in such situations becomes difficult for businesses that rely solely on traditional supply chain management methods.

4. Traditional supply chain management methods concentrate only on production and provision, whereas organizations operating under a modern supply chain management regime create and improve the value of the final product.

5. Businesses depending on traditional supply chain management methods are often denied quick and smooth communication with the various entities of the supply chain. In that case, vendor management suffers, and a restaurant is unable to identify which suppliers are helping the business and which are not. Therefore, it becomes impossible for such a restaurant to strike a favorable deal.

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Advantages of Modern Food Supply Chain Management Software

1. Technology ensures that there is network-wide visibility of consumer behavior, supply chain activities, demands, and disruptions. Information silos may arise when distinct sections of the supply chain don't communicate consistently, or when departments within an organization do not exchange information seamlessly.

Consequently, forecasts may be inaccurate, planning and implementation flawed, and response to unanticipated events weak. Modern supply chain management software like Zip Ordering and ZipSupply Chain help solve these problems. Both these restaurant software solutions are available on Hub Works, a specialty app store that caters to the restaurant industry.

Technology enables better inventory management, order management, logistics management, vendor management, and better collaboration between individuals and organizations.

Zip Ordering, for instance, allows restaurant owners to instantly search out and connect with local vendors and get hold of their product catalogs. Custom inventory order guides can be created and saved, which makes business operation easier.

2. Technology helps in better understanding and evaluation of data to gain insights on various aspects of supply chain management, including customer demand, transportation/warehouse restrictions, and supplier lead times. This, in turn, allows businesses to make better decisions.

Zip Ordering, for example, gives restaurant owners a complete idea of how much each menu item costs. This allows an operator to decide whether to retain or remove that item from the menu.

3. Supply chain management software makes a business process more agile and quick to respond to risks. For instance, the search feature of Zip Ordering gives restaurants a cushion if regular suppliers fail.

4. Software makes sure that many tedious, yet important tasks like monitoring stocks, reordering supplies, communicating with vendors, and tracking supply deliveries are automated. Points of sale with built-in inventory management and supply chain solutions are additional boosts.

Furthermore, automated inventory ordering and supply chain tracking systems let restaurants trace raw materials to their source digitally, detect changes in demand, correct supply forecasts, and collaborate with suppliers on appropriate restocking.

5. Supply chain management software plays a critical food safety function as well. By helping to easily track supplies to the source, it ensures that a restaurant can quickly switch its supply orders if a disease outbreak is connected to a particular raw material and supply is disrupted.

How to Select Great Supply Chain Software?

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1. Supply chain management software can be expensive, and a business may not need the entire array of functions offered by some of the software products in the market. A business, therefore, must identify the core functions it wants the supply chain management software to fulfill.

2. The supply chain management software should be easily paired with the operation's existing IT infrastructure.

3. The software company must be carefully selected, with a preference for those offering excellent customer service and possessing a dependable service history. Hubworks ticks all the boxes

4. One should look for software that is scalable and can grow with the business, and can also be updated and upgraded in keeping with technology changes.

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