By definition, a fast-food restaurant experience means a quick one-two-three: you order, it's fulfilled, and you're on your way. So, something is not quite right if you have to stand around because there aren't enough people to serve you. Usually, when lines start building, the store manager pitches in or at least is on hand to bring a little efficiency to things. However, that may not happen if he or she is in the back doing paperwork.
Recognizing that burying restaurant managers with admin work defeated their core responsibility to ensure high-quality customer service, Church's Chicken implemented an on-demand procurement system with a number of benefits beyond just automating purchasing. One of those is freeing up managers from manually keying in data from invoices after each delivery is made of chicken or other supplies.
Church's, based in Atlanta, has more than 1,600 locations in 20 countries and sales exceeding $1bn. It operates 260 restaurants and 12 distribution centers in the U.S. That makes for quite a few invoices, and when the company studied the issue, it realized that invoice management was an application that could quickly deliver efficiencies. Managers at each of its U.S. stores were spending about one and a half hours processing invoices for each of the twice-weekly distribution deliveries.
Working with ArrowStream, a supply chain management solutions provider that has largely focused on the food industry since its inception in 2000, Church's saw a way to remedy its inefficient handling of invoice data. The hosted purchasing solution is called ArrowStream OnDemand. A separate solution, ArrowStream Logistics, manages Church's transportation and inventory needs.
"With the new automated system, it now takes the average manager just five minutes an invoice, offering time savings of about 500 man-hours per week," says David Taylor, director of restaurant systems for Church's Chicken. "This allows restaurant managers to spend more time on customer service, which ultimately improves customer satisfaction and store profitability."
Rodger Mullen, president of Chicago-based ArrowStream, says the manual process that Church's employed effectively barred the retailer from managing its supply chain from manufacturing to distributors and then to its retail stores. The labor-intensive nature of things was evident from the Excel spreadsheets and time involved in individual data entry. "Perhaps most importantly, it was a very reactionary type of environment, versus the ability to drive your supply chain through the use of a lot of information," Mullen says. "That meant reacting to business problems rather than planning for them. That was true for limited-time promotions or in implementing new products as well."
Brendan Clarke, ArrowStream's vice president of software services, was in charge of the Church's implementation. He describes the restaurant chain's method of controlling the purchasing and receiving processes-via calls or faxes to suppliers and distributors-as "backwards."
He says, "They tried to enforce integrity on their receiving process by which point orders may have been out of spec or compliance. The timeliness of items in their receiving system was flawed and would break down. Their largest problem was that the allocation and accounting of food costs was not accurate. So they were not able to drive their business reporting out of their food-cost system."
If anything was end to end, it was the problems engendered by these manual processes, Clarke says, because that's the way things were handled not only at the restaurants but at the corporate office where, of course, purchasing was done, and at company DCs.
The inefficiency built into the receiving process resulted in a large reconciliation process with suppliers as disputes over invoice accuracy inevitably arose.
It's no surprise that accurate information is necessary; no vertical can exist without it. In restaurant operation, says Clarke, purchasers need to know the landed cost of product and the inventory levels on hand, and accuracy at receiving is required for that. It's imperative to know what your actual food cost is, in addition to labor and some other factors. "If they don't have the correct inventory and right prices in the system, there's no way of assessing a store's performance."
With the on-demand system now in force, managers see each order as an advance ship notice, says Clarke. The only thing they have to do is log in any exceptions, such as damaged items.
Alan Stukalsky, CIO for Church's, says OnDemand was unique for three reasons. "First, it allowed us to get the system running quickly, with no investment in hardware and software. It offered complete visibility from the supplier to the back door of the store and includes logistics information. And it synchronized our distributors' data with our own."
Mullen says with the technology, Church's is able to provide daily visibility much quicker than ever before into products coming to its stores. "What they have now is visibility into purchase-order-level detail, which includes the SKUs or the identifiers of the product. They are able to see the weight of product, the volume of it, how much is coming, what the product type is, whether it's chicken or chicken nuggets, some type of potato-all that they can see now.
"In addition, from a logistics perspective, they can see when the product was picked up at the manufacturer, when it was delivered to the distributor, when it leaves the distributor and when it arrives at the back door of the restaurant. They are able to have that visibility logistically for each leg of the supply chain."
Stukalsky described Church's growth targets as aggressive, but says that he feels the hosted purchasing solution can keep pace with his company. "The system is fully scalable to adapt to the chain operator's needs in terms of function and capacity. With [it], I have access to more resources than I could possibly gather on my own."
Mullen says he feels one of the resources that Stukalsky refers to is the provider's expertise. The benefit of an on-demand solution, as he sees it, is in the savings, not least in the size of one's labor force. He cites the expense in developing software from scratch that is tailored to one's needs, then in maintaining it. He estimates that Church's might have had to hire five to 12 people to build and maintain the kind of purchasing and logistics systems it now has through ArrowStream. The logistics solution involves contracting and managing carriers, as well as inventory management, Mullen says.
"We do all those things," he says. "There truly is no need for resources from the customers themselves."
Implementation typically takes about six months, of which personnel training lasts two to three weeks. Mullen says ROI can be expected within year one. "This is not like with a big ERP implementation."
The pricing model is a fairly standard subscription service: there is a monthly fee associated with the technology, which is agreed upon in advance so there is no surprise to the customer. Part of the fee is based on the number of transactions recorded, and a portion depends on how many modules or features a company purchases.
ArrowStream, eight years old, has focused primarily on the casual dining and fast-food side of the food service industry, though it has begun to work in the grocery sector. It numbers Arby's and Applebee's among its clients. Wendy's signed on about a year ago, says Mullen. The logistics solution, aptly named ArrowStream Logistics, is a cost-saver for these chains in these days of high-cost fuel. ArrowStream looks to consolidate as much freight from these competitors as possible to keep expenses low.
"We don't manage one customer at a time," says Mullen. "For Church's, for example, we don't just have visibility from its vendors to its DC. We're looking at Wendy's at the same time. In fact, we're looking at our entire network at the same time because many of these chain restaurants use the same distributors and same vendors, right. So, in some cases we're putting Wendy's product on the same truck with Church's products. What we strive to do is build full truckloads as efficiently as you can."
Aggregating these multiple networks has resulted in a 20 percent saving or so over the original freight cost, says Mullen. That's important because, as in all verticals, restaurant supplies have steadily risen in cost, and significantly so in the last year.
Still, a balance has to be maintained, Mullen says. While the industry deals with many frozen-food items, many others need to be fresh. The challenge for the industry is to have the right amount of fresh food on hand or in a delivery truck on its way.
Success turns on timely and accurate information. "There's a balance there," he says. "I want as little inventory as possible, because it's expensive, but I have to serve my customers with the right product at the right place and time."
Clearly, promotions can skew things, and purchasing, replenishment and distribution all depend on what the procurement department knows and when it knows it. The OnDemand solution has a Limited Time module designed for promotions that are likely to cause sales spikes. Limited Time has real-time visibility into how sales are proceeding. While not a true forecasting tool, nevertheless it collects historical data that can be used in planning.
"With it, I can see how much product goes to the back door of the restaurant and understand just how well the promotion is going from day one-oh, it's not going well in New England, but very well in the Southeast-so, I'm going to manage my inventory and my procurement for this promotion based on how well these sales are going."
The pain points for Church's Chicken centered on the need to automate its order and receipt entry to put an end to food cost accounting inaccuracies. But the retailer also needed to synchronize information between suppliers and its internal ordering system. OnDemand has integrated all of these links in the network.
Mullen says the order management module has reduced invoice error rate at receiving to zero. What does cutting out 500 man-hours a month mean? Mullen estimates Church's savings at $400,000 a year in productivity.
He says another client, Arby's, has had more than a 300 percent increase in new SKUs, "and the ease with which they've done that without adding people is significant." Applebee's franchisees are recovering $1m million a year in overcharges "that have the potential to exist in their system, and they've done that with pricing audits" made possible via OnDemand.
In general, Mullen says, restaurant chains can reduce overall food costs typically by as much as two to three percent.
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