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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.