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 RanchersManufacturersDistributorsRestaurant

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.