Posted by: Matthew Molinari | April 17, 2012

A Smaller Supply Chain Means Bigger Savings

Going back to 2008 there has been a growing trend among suppliers of charging a flat delivery surcharge on all orders to help defray the cost of fuel. There was some relief in the past few years from this tactic but with the dramatic rise in gas prices over the past year the surcharges reappeared. This is just one example of how restaurants are faced with rising transportation costs within their supply chain and while gas prices may have peaked according to AAA, it is more than likely that restaurants will continue to feel the pinch moving forward.

The problem with rising costs in the supply chain is that managing them can become increasingly difficult without having to eventually pass on the additional expense to your customers. Unfortunately, more often than not, your customers will already be feeling the same pinch that you are as a business. You can pretty much bet that just as rising fuel costs make business more difficult for you, they also lead to more customers eating at home rather than going out in hopes of saving money.

To help combat these issues companies can look towards ideas based on procurement theories. When you talk about procurement for your business there are 5 key rules that you want to keep in mind. You may not be able to meet all 5 at all times but when purchasing any item you want to get as many as possible; this means finding it at the right price, at the right time, in the proper quantity and quality and getting it where you need it.  Take for instance this Ruth Chris Steak House in Atlanta that has seen the price of their meet increase up to 11% over the past month.

There’s not much they can do about purchasing this product because, not surprisingly, steak is the most popular item on the menu. So despite the fact that they aren’t getting the product at the right price the restaurant must continue to buy the product. However, for many businesses I believe there is an extremely viable option to improve their supply chain – local vendors.

By moving towards a locally focused supply chain, restaurant owners can hope to achieve two things: lower costs and more control. Here in Reno many restaurants are looking to local suppliers to save on costs while simultaneously getting a higher quality product. Take for instance a Reno restaurant called Campo and their push to focus on local suppliers. The key of going local is that your food travels a shorter distance and in many cases you can pool your orders with other businesses to help save on transportation costs.

The overall goal of going local is to threefold. First, you are able to cut down on costs by working with local vendors who have lower overhead and other fixed costs than the larger suppliers. Second, you can control quality by dealing directly with the farmer or rancher who is supplying you with your inventory. Finally, your customers will feel a deeper sense of commitment to you when they see your commitment to sustainability and the local economy (not to mention reasonable prices and higher quality menu offerings).

So while rising costs are probably not going away any time soon, there is an answer to help alleviate the strain. By shrinking the size of your supply chain you can look to create savings while also increasing your ability to control more of the risks. Supply chain management is all about realizing the risks inherent in running your business. The restaurant industry comes with more than its fair share of variables that must be constantly monitored – from labor costs to inventory and quality control. Looking towards the local community to help is one of the easiest and most efficient ways to create better controls while maximizing your customers’ experience. That is a win-win.


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