Issues in the restaurant industry are still cropping up from the longstanding effects of the pandemic. Supply chain challenges with labor shortages and significant increases in cost of goods sold (COGS) are pushing restaurant operators to search for actionable strategies to overcome the obstacles. 

Let's look at the contributing factors behind ongoing supply chain issues in the restaurant industry, and proven tactics to help solve them.

Labor Shortages

Supply chain labor shortages are running rampant across the board. Employers lack the number of workers needed to effectively manage and process imports, causing major logistical issues and shipping delays. Here are a few reasons why:

• Growers/farmers. At the beginning of the chain in the growers/farmers sector, travel restrictions and lockdowns combined with the fear of workers contracting COVID-19 created an atmosphere where hiring workers became extremely difficult.
• Product manufacturers. On the manufacturers' side, in states across the Nation, employees could make more money being on Extended Unemployment because those wages were paying more than the state's minimum wage. 
• Distributors. Finding and retaining drivers within the distribution segment became near impossible. Because of the physical demands placed on drivers, the labor pool was already small and only continued to diminish with restraints from the pandemic. 

Technology and automation will be star players this year to reduce the impacts of labor shortages in the supply chain. However, some see this as a bit of a double-edged sword. Employers need to recruit talent with the physical skill to perform their duties and the wherewithal to adapt to new technologies to increase efficiencies and productivity.

Strategy 1: Partner with a single distributor. Operators should focus on leveraging their current relationships with their vendors. Review your current list of distributors and see where you can make cuts to place the sole focus on a single distributor (if possible). If you create a deeper level of engagement with your distributor, they can help strategize WITH you so both parties can mitigate the impacts of the current operational challenges together. As a bonus, distributors will be more willing to go the extra mile if they know that they'll be consistently delivering larger orders.

Strategy 2: Change delivery days. Operators should work with their distributors to learn their week's scope in deliveries. With fewer drivers, route sizes have increased, and the demands placed on drivers who are still working are at an all-time high. Distributors are typically busiest on the weekends. Therefore, if you can avoid deliveries on their busy days and re-strategize your ordering to work on a 'skip day,' that will be most beneficial to your distributor. Questions to ask include:

• What is the most available capacity day for drivers/deliveries?
• What day/night makes the most sense for both the restaurant and the driver?
• Will a truck be in your area on your desired day/night? Keep in mind that many driver routes have changed post-pandemic. Understanding where your restaurant falls within a route can help you plan accordingly with your distributor.

Strategy 3: Consider key drops/turnkey deliveries (caveat — must typically order +50 cases for this to work). While this strategy is slightly nuanced, it can benefit both parties immensely to alleviate delivery constraints. Many operators turn to key drops and provide drivers with a back door code or a restaurant key. This allows drivers to pull an order off the truck and set the product where needed. Your distributor can then serve you at any hour, when it's most convenient for their schedule, while still satisfying your own needs.

Increasing Backorders

If you've ever taken an Economics 101 class, the first lesson was on the relationship between supply and demand. Take the fluctuating demands brought on by the pandemic and post-pandemic world. Add the backlogs of ships with U.S. imports sitting in major seaports because there are not enough workers or shipping containers to relieve the bottlenecks. Sprinkle in a six-day blockage of the world's largest waterway in the Suez Canal. Plus, a dash of unforeseen worldwide events like a freeze in Texas or an earthquake in Japan. We've created the perfect recipe for the most significant magnitude of supply chain disruptions we've seen to date. The increases in backorders are forcing operators to rethink their approaches to ordering to ensure they can keep their inventory afloat and meet the needs of their guests. 

Operators can expect these challenges to remain intact in the near future. As the disruptions have continued to build, it will take time to unravel the mess. Here are some strategies to lessen the burn.

Strategy 1: Order early. This strategy is a simple concept; order early. Typically, the orders that are filled first are the orders that are placed first — first-come, first-served idea. Additionally, placing orders early enables your distributor to react quickly and produce substitution items if needed. Lastly, give your distributor as much time as possible. If you're placing bulk orders, place them early in the week so they can plan ahead. Work directly with your distributor to understand lead times, so you've got your finger on the pulse of timing your orders correctly.

Strategy 2: Allow for flexible inventory. Keep more of the critical items that drive money for your business in stock. This strategy works best for less perishable items, like dry goods with a longer shelf life. Stocking up on these particular items means less ordering, fewer deliveries and one less thing to worry about with the increase in backorders.

The Rise in COGS

Historically, commodity prices fluctuate considerably, dependent upon global events. The issues in the restaurant industry with the supply chain are no exception to the rule and have impacted commodity prices immensely throughout the pandemic. There's going to be a significant increase in COGS, notably products like meat and cheese. As commodity prices continue to increase throughout the next year, we're looking at a 6% or 7% rise, on average, within those two categories alone. Performing consistent COGS audits and complete adherence to menu engineering, inventory and strategies that track waste will help ensure that operators make the most out of the product they're bringing in.

Strategy 1: Consistent audits. Restaurant COGS takes up a significant amount of your restaurant's overall expense, and frequent COGS audits will ensure you're making every penny count. The formula for COGS is as follows: (Opening Inventory + Purchases - Credits - Ending Inventory) / Sales = COGS.

When reviewing the COGS formula, your sales basis is the sales for that specific cost basis (e.g.., your food cost is a percentage of food sales, and liquor cost is a percentage of liquor sales). You should have corresponding cost categories with your master sales departments; therefore, the percentage is based on your sales basis.

Strategy 2: Menu engineering. This strategy recognizes the relationship between sales and profitability in each of your menu items. Accurately identifying this association enables operators to reprice, replate, rethink or retain their top contributing items and get the most bang for their buck on their menu.

Taking a weekly inventory enables you to more accurately manage volatile food costs and directly contributes to the success of your menu engineering. Additionally, it's the most accurate representation of your actual usage. Your inventory consists of all the food products, nonalcoholic beverage, beer, wine and liquor (Note: For QSRs, we suggest including your packaging as well). As a bonus, weekly inventory helps to track the following:

• Waste. Are your chefs over-ordering on PAR levels, and is product spoiling?
• Error. Are servers making mistakes with ringing in items through the POS (comps vs. voids)?
• Portion size. Are your chefs over-portioning (over-portioning adds up quickly in dollar amounts)?
• Theft. Are servers giving away items to customers without ringing it in?

Strategy 3: Cross utilization of product. Utilize your high-cost proteins and your produce in at least three dishes. With lower shelf lives, this allows you complete usage of the product in multiple ways. This is important because it will enable you to defray costs and promote price elasticity in those menu items. Make sure you look at your menu categories and spread the product across those segments. You can then price each item out for their contributed margin (the amount of money that each item sold will contribute to the overall gross profit margin).

Max Strycker is director of supply chain partnerships at RASI.

Issues in the restaurant industry are still cropping up from the longstanding effects of the pandemic. Supply chain challenges with labor shortages and significant increases in cost of goods sold (COGS) are pushing restaurant operators to search for actionable strategies to overcome the obstacles. 

Let's look at the contributing factors behind ongoing supply chain issues in the restaurant industry, and proven tactics to help solve them.

Labor Shortages

Supply chain labor shortages are running rampant across the board. Employers lack the number of workers needed to effectively manage and process imports, causing major logistical issues and shipping delays. Here are a few reasons why:

• Growers/farmers. At the beginning of the chain in the growers/farmers sector, travel restrictions and lockdowns combined with the fear of workers contracting COVID-19 created an atmosphere where hiring workers became extremely difficult.
• Product manufacturers. On the manufacturers' side, in states across the Nation, employees could make more money being on Extended Unemployment because those wages were paying more than the state's minimum wage. 
• Distributors. Finding and retaining drivers within the distribution segment became near impossible. Because of the physical demands placed on drivers, the labor pool was already small and only continued to diminish with restraints from the pandemic. 

Technology and automation will be star players this year to reduce the impacts of labor shortages in the supply chain. However, some see this as a bit of a double-edged sword. Employers need to recruit talent with the physical skill to perform their duties and the wherewithal to adapt to new technologies to increase efficiencies and productivity.

Strategy 1: Partner with a single distributor. Operators should focus on leveraging their current relationships with their vendors. Review your current list of distributors and see where you can make cuts to place the sole focus on a single distributor (if possible). If you create a deeper level of engagement with your distributor, they can help strategize WITH you so both parties can mitigate the impacts of the current operational challenges together. As a bonus, distributors will be more willing to go the extra mile if they know that they'll be consistently delivering larger orders.

Strategy 2: Change delivery days. Operators should work with their distributors to learn their week's scope in deliveries. With fewer drivers, route sizes have increased, and the demands placed on drivers who are still working are at an all-time high. Distributors are typically busiest on the weekends. Therefore, if you can avoid deliveries on their busy days and re-strategize your ordering to work on a 'skip day,' that will be most beneficial to your distributor. Questions to ask include:

• What is the most available capacity day for drivers/deliveries?
• What day/night makes the most sense for both the restaurant and the driver?
• Will a truck be in your area on your desired day/night? Keep in mind that many driver routes have changed post-pandemic. Understanding where your restaurant falls within a route can help you plan accordingly with your distributor.

Strategy 3: Consider key drops/turnkey deliveries (caveat — must typically order +50 cases for this to work). While this strategy is slightly nuanced, it can benefit both parties immensely to alleviate delivery constraints. Many operators turn to key drops and provide drivers with a back door code or a restaurant key. This allows drivers to pull an order off the truck and set the product where needed. Your distributor can then serve you at any hour, when it's most convenient for their schedule, while still satisfying your own needs.

Increasing Backorders

If you've ever taken an Economics 101 class, the first lesson was on the relationship between supply and demand. Take the fluctuating demands brought on by the pandemic and post-pandemic world. Add the backlogs of ships with U.S. imports sitting in major seaports because there are not enough workers or shipping containers to relieve the bottlenecks. Sprinkle in a six-day blockage of the world's largest waterway in the Suez Canal. Plus, a dash of unforeseen worldwide events like a freeze in Texas or an earthquake in Japan. We've created the perfect recipe for the most significant magnitude of supply chain disruptions we've seen to date. The increases in backorders are forcing operators to rethink their approaches to ordering to ensure they can keep their inventory afloat and meet the needs of their guests. 

Operators can expect these challenges to remain intact in the near future. As the disruptions have continued to build, it will take time to unravel the mess. Here are some strategies to lessen the burn.

Strategy 1: Order early. This strategy is a simple concept; order early. Typically, the orders that are filled first are the orders that are placed first — first-come, first-served idea. Additionally, placing orders early enables your distributor to react quickly and produce substitution items if needed. Lastly, give your distributor as much time as possible. If you're placing bulk orders, place them early in the week so they can plan ahead. Work directly with your distributor to understand lead times, so you've got your finger on the pulse of timing your orders correctly.

Strategy 2: Allow for flexible inventory. Keep more of the critical items that drive money for your business in stock. This strategy works best for less perishable items, like dry goods with a longer shelf life. Stocking up on these particular items means less ordering, fewer deliveries and one less thing to worry about with the increase in backorders.

The Rise in COGS

Historically, commodity prices fluctuate considerably, dependent upon global events. The issues in the restaurant industry with the supply chain are no exception to the rule and have impacted commodity prices immensely throughout the pandemic. There's going to be a significant increase in COGS, notably products like meat and cheese. As commodity prices continue to increase throughout the next year, we're looking at a 6% or 7% rise, on average, within those two categories alone. Performing consistent COGS audits and complete adherence to menu engineering, inventory and strategies that track waste will help ensure that operators make the most out of the product they're bringing in.

Strategy 1: Consistent audits. Restaurant COGS takes up a significant amount of your restaurant's overall expense, and frequent COGS audits will ensure you're making every penny count. The formula for COGS is as follows: (Opening Inventory + Purchases - Credits - Ending Inventory) / Sales = COGS.

When reviewing the COGS formula, your sales basis is the sales for that specific cost basis (e.g.., your food cost is a percentage of food sales, and liquor cost is a percentage of liquor sales). You should have corresponding cost categories with your master sales departments; therefore, the percentage is based on your sales basis.

Strategy 2: Menu engineering. This strategy recognizes the relationship between sales and profitability in each of your menu items. Accurately identifying this association enables operators to reprice, replate, rethink or retain their top contributing items and get the most bang for their buck on their menu.

Taking a weekly inventory enables you to more accurately manage volatile food costs and directly contributes to the success of your menu engineering. Additionally, it's the most accurate representation of your actual usage. Your inventory consists of all the food products, nonalcoholic beverage, beer, wine and liquor (Note: For QSRs, we suggest including your packaging as well). As a bonus, weekly inventory helps to track the following:

• Waste. Are your chefs over-ordering on PAR levels, and is product spoiling?
• Error. Are servers making mistakes with ringing in items through the POS (comps vs. voids)?
• Portion size. Are your chefs over-portioning (over-portioning adds up quickly in dollar amounts)?
• Theft. Are servers giving away items to customers without ringing it in?

Strategy 3: Cross utilization of product. Utilize your high-cost proteins and your produce in at least three dishes. With lower shelf lives, this allows you complete usage of the product in multiple ways. This is important because it will enable you to defray costs and promote price elasticity in those menu items. Make sure you look at your menu categories and spread the product across those segments. You can then price each item out for their contributed margin (the amount of money that each item sold will contribute to the overall gross profit margin).

Max Strycker is director of supply chain partnerships at RASI.