Executive Briefings

How Restaurants Can Lower Supplier Costs Despite Rising Food Prices

Restaurants face the perfect supply chain storm. Just when it seemed the economy was poised to turn a corner and offer some much needed relief to the foodservice industry, the worst drought to hit the United States in 12 years has diminished supplies and sent food prices skyrocketing. Add in rising gas prices, and it's not a pretty picture for restaurants.

Meanwhile, with consumer confidence still weak, restaurants face pressure to keep their prices in check or risk losing business. It's a challenging environment, but a solution can be found in the supply chain, where suppliers are still hungry and restaurants have a rare opportunity to drive cost savings and efficiencies, and more importantly, avoid passing rising costs to their customers.

Droughts have diminished corn supplies, raising food prices 6 percent in July, according to the United Nations' monthly Food Price Index. The same report says global corn prices surged nearly 23 percent in the same month. Corn and soybeans, also affected by the drought, are used in many processed foods and corn is also used in animal feed, extending the price increases to meat. Throw into the mix water-starved grazing pastures and you've got reduced production of livestock and poultry. Experts say the results of these factors won't fully be felt until 2013.

To make matters worse, gas prices are quietly rising after falling from a high of $4 a gallon in April. The average price across the nation recently reached $3.86, up 17 cents from only one month ago.

Meanwhile, cash strapped consumers have shown they won't accept price increases in stride. With food costs already ranking as the second biggest challenge for restaurateurs, according to the National Restaurant Association, restaurateurs face pressure to keep prices low as they try to get back on their feet after a lengthy industry downturn.

These urgent business pressures make it impossible for companies to source "the way it's always been done." To profit in today's volatile environment, restaurants need to at least consider their options beyond traditional sourcing. The most successful and forward-looking organizations are embracing innovation - powerful technologies and targeted processes - to generate consistent, and in some cases, astonishing results in cost reductions and efficiencies, despite the current challenges.

Several smart sourcing strategies can provide restaurants with the edge they need to succeed through the current challenges and offer stability through the potentially difficult road ahead.

First, diversification is an essential strategy in both volatile and routine environments, and helps protect against geographic risks and supply disruptions. Changing suppliers can be scary, but proper vetting can help avoid potential issues. New qualified suppliers can offer more than just competitive pricing. In an effort to earn the business they may offer to collaborate on product innovations, offer better pricing terms or extend service add-ons at no additional cost.

Secondly, locking in favorable pricing and securing volume discounts with long-term contracts and internal aggregation is crucial. Looking at spend with a critical eye can bring to light areas of opportunity such as identifying where a current vendor may also supply additional items you're currently getting from another source.

Finding new pockets of savings by e-sourcing both direct and indirect categories is another, often overlooked sourcing strategy. Extensive experience in e-sourcing has allowed some consultants to identify unconventional categories for e-sourcing - an effective way to quickly get to true market value. Categories across the organization can be e-sourced when the proper strategies are employed, leading to impressive cost savings.

Yet another important strategy is driving better value by requiring incumbent suppliers to compete for your business. Strategic relationships are important, but so is making sure you're paying a fair price. Keep your suppliers honest by performing thorough and regular category reviews and RFPs or RFQs.

Driving efficiencies, by leveraging e-sourcing, is also fundamental to cutting costs. Sourcing activities are time consuming when done right. Luckily, there are solutions available that can take some of the work off your plate, while allowing you to maintain full control of the decision process.

Lastly, sourcing professionals need the advice of experts for insight on where prices are headed. If a worldwide shortage hits one of your suppliers, your business can prepare by adapting the menu.

The sourcing team has a major opportunity to drive bottom-line growth for their organizations. There's money to be saved - especially in categories that may have been overlooked - and new efficiencies to be found. Those new efficiencies are key, and sometimes just as important as the actual savings, because they free up staff to focus on the issues that matter most to their customers, like local connections and the dining experience.

But before you set out to transform your sourcing operations, make sure the new processes leverage in-house expertise where possible to avoid the "sweeping changes" feel that may make it difficult to integrate and absorb. When addressed systematically, these new business processes and approaches can be highly successful and generate immediate positive results.

The threat of volatile supplier and transportation prices in the food industry is certainly not new. Without thinking strategically and using the right tools, restaurants risk paying too much, which could make the difference between raising prices for customers and risking the backlash, or providing customers with the value they've come to expect.

Source: Intesource


Keywords: supply chain management IT, online purchasing of supplies, e-sourcing of supplies, e-sourcing in the restaurant business

Meanwhile, with consumer confidence still weak, restaurants face pressure to keep their prices in check or risk losing business. It's a challenging environment, but a solution can be found in the supply chain, where suppliers are still hungry and restaurants have a rare opportunity to drive cost savings and efficiencies, and more importantly, avoid passing rising costs to their customers.

Droughts have diminished corn supplies, raising food prices 6 percent in July, according to the United Nations' monthly Food Price Index. The same report says global corn prices surged nearly 23 percent in the same month. Corn and soybeans, also affected by the drought, are used in many processed foods and corn is also used in animal feed, extending the price increases to meat. Throw into the mix water-starved grazing pastures and you've got reduced production of livestock and poultry. Experts say the results of these factors won't fully be felt until 2013.

To make matters worse, gas prices are quietly rising after falling from a high of $4 a gallon in April. The average price across the nation recently reached $3.86, up 17 cents from only one month ago.

Meanwhile, cash strapped consumers have shown they won't accept price increases in stride. With food costs already ranking as the second biggest challenge for restaurateurs, according to the National Restaurant Association, restaurateurs face pressure to keep prices low as they try to get back on their feet after a lengthy industry downturn.

These urgent business pressures make it impossible for companies to source "the way it's always been done." To profit in today's volatile environment, restaurants need to at least consider their options beyond traditional sourcing. The most successful and forward-looking organizations are embracing innovation - powerful technologies and targeted processes - to generate consistent, and in some cases, astonishing results in cost reductions and efficiencies, despite the current challenges.

Several smart sourcing strategies can provide restaurants with the edge they need to succeed through the current challenges and offer stability through the potentially difficult road ahead.

First, diversification is an essential strategy in both volatile and routine environments, and helps protect against geographic risks and supply disruptions. Changing suppliers can be scary, but proper vetting can help avoid potential issues. New qualified suppliers can offer more than just competitive pricing. In an effort to earn the business they may offer to collaborate on product innovations, offer better pricing terms or extend service add-ons at no additional cost.

Secondly, locking in favorable pricing and securing volume discounts with long-term contracts and internal aggregation is crucial. Looking at spend with a critical eye can bring to light areas of opportunity such as identifying where a current vendor may also supply additional items you're currently getting from another source.

Finding new pockets of savings by e-sourcing both direct and indirect categories is another, often overlooked sourcing strategy. Extensive experience in e-sourcing has allowed some consultants to identify unconventional categories for e-sourcing - an effective way to quickly get to true market value. Categories across the organization can be e-sourced when the proper strategies are employed, leading to impressive cost savings.

Yet another important strategy is driving better value by requiring incumbent suppliers to compete for your business. Strategic relationships are important, but so is making sure you're paying a fair price. Keep your suppliers honest by performing thorough and regular category reviews and RFPs or RFQs.

Driving efficiencies, by leveraging e-sourcing, is also fundamental to cutting costs. Sourcing activities are time consuming when done right. Luckily, there are solutions available that can take some of the work off your plate, while allowing you to maintain full control of the decision process.

Lastly, sourcing professionals need the advice of experts for insight on where prices are headed. If a worldwide shortage hits one of your suppliers, your business can prepare by adapting the menu.

The sourcing team has a major opportunity to drive bottom-line growth for their organizations. There's money to be saved - especially in categories that may have been overlooked - and new efficiencies to be found. Those new efficiencies are key, and sometimes just as important as the actual savings, because they free up staff to focus on the issues that matter most to their customers, like local connections and the dining experience.

But before you set out to transform your sourcing operations, make sure the new processes leverage in-house expertise where possible to avoid the "sweeping changes" feel that may make it difficult to integrate and absorb. When addressed systematically, these new business processes and approaches can be highly successful and generate immediate positive results.

The threat of volatile supplier and transportation prices in the food industry is certainly not new. Without thinking strategically and using the right tools, restaurants risk paying too much, which could make the difference between raising prices for customers and risking the backlash, or providing customers with the value they've come to expect.

Source: Intesource


Keywords: supply chain management IT, online purchasing of supplies, e-sourcing of supplies, e-sourcing in the restaurant business