Food Service Supply Chain

ISQA 458/558

Mellie Pullman

Food Service Supply Chain Issues

• Days worth of inventory in Supply Chain?

• Costs involved with this?

• Average profit for Distributer?

• Average profit for the restaurant or food service?

Demand

• 45% of food consumed in US is food-prepared-away-from-home – Consumers purchase $360 Billion in sales– Operators purchase $131 Billion in product

• Potential gains from Food Service Supply Chain efficiency improvements?

Layout of Supply Chain

Farmers

Processors

Ranchers Manufacturers Distributors Restaurant

Distributors

• Broadline– Multiple products from

multiple manufacturers.(180,000 SKU)

– Biggest players: Sysco, Alliant Foodservice, US. Foodservice, and FSA.

– Many have own brands (lower priced)

• Specialty

Distributors Role

• Store• Break-loads• Deliver• Finance• Value-added

service

Manufacturing

• Transform raw materials into products for sale

• Forward-buying or purchase outside of region to ensure prices and availability

• Costs of forward-buying– Long-term storage– Processing– Transportation

• Distributors knowledge key

Pricing & Promotion

• Off-invoice income:Distributors benefiting from manufacturing incentive programs (not passed on to customers > customer sees original cost on their invoice)– Growth programs– Rebate– Bonus-on-Bonus– Pickup allowance– Prompt payment discounts– Volume– Income from food-shows– Advertising in distributor magazines

Restaurant vs. Distributor Relationships

• Positive or Negative?

• What does the food service want from a distributor?– Price– Service– Quality

• Distributor's pricing structure to a restaurant based on:– Average order size– Distance and ease

of service between warehouse and operator

What influences the service to the restaurant?

• Size and number of delivery windows• Site delivery requirements

– Unloading into specific areas of storage, stairs, or elevators

– Order size– Order entry mechanism (electronic,

phone, fax)– Rebate recovery programs

• Product condition

Distributor Sales Rep (DSR)/Marketing Associates

(MA)• Paid on commission• “Street” account = a relationship between a

restaurant and a DSR/MA• “Program” or primary vendor account

– 70-80% products from a single distributor

• Sysco’s MA’s can hand-price based on the relationship – Tiered pricing depending on the restaurant– Street: cost plus 35%– Program: cost plus 8-14%

Value-added Services

• Menu Design• Recipe Development• Kitchen and service

training• Safety and sanitation

education• Software for improving

operational efficiencies

Distributors Procurement“merchandisers”

• software support– Inventory management, forecasting, and

recommended purchase quantity• Order size based on?

• FCFS in warehouse = proper rotation• Age reports• Perishables:

– Meat frozen near end of shelf life and sold at reduced price or sold to processors

– Milk: exchanged for fresh– Food bank and Prisons– Dumpster > write-off loss

Produce Pricing

• Highest variability– Weather– Growing conditions– Esp. in California

• Need multiple and diverse suppliers for consistent high quality products

• Big D’s have their own quality assurance people in the fields

Restaurant Obstacles

• Lack of Technology– 80% processed manually

• Multiple distributors– Different ordering systems

“proprietary”

• For a large distributor– Less than 4% orders come

from internet– Those are QSRs…

• Lack of integration between POS and Back-office

Restaurant POS

• What could a restaurant POS tell management?– What ?– How much? And what’s left?– When?– Who?– To whom?

• What could you do with that information?

If there is waste in the food service supply chain, what does it take to

make it more efficient?

Efficient Foodservice Response

• Industry wide mission• 5 Strategies to address Problems

– Electronic commerce using EDI to improve revenue and reduce cost

– Supply Chain demand forecasting with product ID and bar-coding for scanning

– Logistics optimization: reduce inventories at manufacturer and distributor levels

– Foodservice category Management: Seeks to measure consumer demand vs. menus and ingredient assortment

– Equitable Alliances: seek to forge relationships between operators and suppliers to better match costs to revenues.