To Avoid Supply Chain Games, Track, Record and Shop
When a shipment of kosher salt is $26 and the next order is $46, it’s not commodities or a dire salt shortage; it’s just the typical supply chain games. To keep things even, it means operators have one more thing to do, but new technologies help keep things manageable.
Conventional wisdom for restaurant operators is track the stuff that matters. Generally, 20% of food supplies account for 70% of the costs of goods sold. Tracking more than that was an expensive headache that often wasn’t worth the time away from operations.
Third party technologies, however, are helping to modernize supply chain from the outside and make it easier to track everything. It’s still a relationship business, and a stubbornly outdated part of the restaurant industry by design. If the major suppliers were to go the way of Amazon and list all the prices up front, revenue from those price fluctuations wouldn’t work.
“A lot of what I find after talking with restaurants is that the sales reps at these vendors are very old school and the relationship is built by the rep,” said Plate IQ head of accounting Patrick Wachter.
A new report from Plate IQ, one of the handful of price tracking solutions, shows just how much those prices fluctuate. By looking at invoice data from thousands of restaurants, it analyzed instances where the same supplier sold the same item on the same day to different restaurants at different prices.
During a 90-day period, the company found that 64% of items varied daily. Among those items, prices varied as much as 50%. The biggest variations came in some of the most basic pantry goods like granulated sugar, canola frying oil, greens mix and little gem lettuce—those were also the items which saw shifting prices change every single day.
Certainly volume discounts affect some of those swings but not all, as Wachter described.
“We are definitely seeing there is some level of vendor discretion. Not all of this is explainable by bulk discounts,” said Wachter.
Data showed that 51% of items actually had the same price for high and low volumes. Wachter said that vendors sweeten the deal on those key ingredients
“There’s a lot more flexibility in the vendor eyes to move that price around. If you have a bakery, you give them a good deal on the sugar and make it up somewhere else,” said Wachter. “If you’re getting a good deal on a certain amount of your goods, you may be getting a worse deal on others.”
While the variations across the contract might be hard to get around, the key to making sure they don’t tick up when you’re not watching is tracking everything.
“The first thing is track your own pricing, there’s no reason anything that isn’t completely seasonal should be increasing much more than inflation," he continued. "Any chemicals, paper goods if they jump by 10% you need to call the rep and say, ‘You can’t pull this on me, I’m tracking pricing.’”
Equipped with that data, it’s a great first step to shopping around for another vendor.
Bill Michalski, chief product officer for ArrowStream, another supply chain logistics company, agreed data is everything.
“I may have a bias, but I think it all starts with data, if you’re going to find the soft spots in your supply chain, you cant do that without good visibility into your product flow and product cost,” said Michalski.
Without technology to do so, tracking all that data can be an extreme undertaking.
“If you’re a chain and you’re getting 1,000 invoices a month, you could have a team of 10 people and still struggle to get a handle on price variance issues,” said Jon Aderson, senior marketing manager at ArrowStream.
Barry Barnett, senior vice president of global supply chain and purchasing at Church’s Chicken, said it’s not all about saving on auditor labor.
“It’s kind of hard to quantify the actual savings, but I will say that we have been able to better effectively manage our supply chain because we have access to this accurate data so we’re not making decisions without full transparency,” said Barnett. “It’s less people or labor costs, it’s about having that actionable data.”
Barnett, who recently extended a contract with ArrowStream, said he oversaw similar tracking in the past, but back then, “we had to build our own; which was very expensive.”
When he came to Church’s Chicken after past positions at Burger King and as president of Cooperative Purchasing and Supply Chain services, sticking with a third-party was a no-brainer.
“It’s all the maintenance costs, to me, in a mid-size chain, it’s not scalable. Even if you could build your own system, then you’d have ongoing maintenance,” said Barnett. “It was not even a serious look.”