Supply Chain Changes

Sourcing Strategies

The rise of cage-free eggs and demands for fresher, healthier food requires unprecedented visibility and collaboration.

By Vishy Visweswaran

As food trends continue to shift in the coming year, so too will the restaurant industry. According to a 2015 Nielsen survey, more than 57 percent of global respondents are expanding their diets with more natural, fresh foods. In a 2014 study, the American Humane Association found that 75 percent of people surveyed stated they were very willing to pay more for humanely raised meat, dairy and eggs.

Restaurant chains have become intimately familiar with these new consumer preferences and the challenges they present. Undeniably, addressing these challenges – while remaining relevant and profitable – requires significant supply chain changes.

Cage-free egg sourcing, a movement currently influencing companies such as McDonald’s, Taco Bell and Dunkin’ Donuts, among others, exemplifies a major shift in the supply chain. While many restaurants and food companies made cage-free egg commitments in 2015 – and momentum continues in early 2016 with Wendy’s, Denny’s, Target, ConAgra, Mondelez and others making cage-free announcements – these companies have indicated that a complete transition will take five to 10 years. This extended time frame demonstrates just how complex it is to significantly change sourcing strategies because the impact encompasses real estate, assets, processes and P&Ls that are firmly entrenched across the extended enterprise.

Not all trends will evolve at the same pace or with the same level of acceptance from suppliers. While egg producers have been relatively accommodating of the transition to cage-free environments, meat producers have been slower to meet mounting expectations for antibiotic-free and humanely raised meat. Therefore, different trends will have (often dramatically) different timelines to successful – or failed – adoption.

When key stakeholders are resistant to trends in the marketplace, food and beverage companies will require exceptional supply chain visibility to evaluate their options. When trends are accepted and accelerated, the focus will be on securing supplier capacity in the face of heightened competition.

Regardless of the pace of adoption of trend-driven sourcing, one thing is indisputable: unprecedented investment opportunities exist in the sourcing arena this year.

Why? Because current low commodity prices enable restaurants, manufacturers and suppliers to funnel working capital into their funds for new sourcing strategies in 2016. There may never be a better window of opportunity for making upfront investments to production and distribution infrastructure. Related ongoing costs will become more manageable over the long term as the entire industry shifts to a new normal.

These changes are daunting, but companies who do not make them risk losing relevancy in the eyes of consumers and ultimately, marketshare. Traditional supply chain management – marked by decentralized and manual processes – moves slower than today’s leading brands require to meet evolving consumer demands. Meeting these demands while ensuring profitability can only be achieved with intelligent supply chain management powered by technology.

ThinkstockPhotos 476562232There are four key areas where supply chain technology can help restaurants meet the challenges and mitigate the risks inherent in shifting to humane, natural foods.

Managing Costs and Visibility

All major food brands monitor commodity markets to utilize hedges and manage costs, but today’s market volatility necessitates moving beyond simply controlling costs to managing operating margins. This requires a comprehensive, real-time view of information across the supply chain.

The right supply chain technology platform provides managers with an understanding of the drivers for cost changes and enables them to analyze “what-if” scenarios to identify cost savings and trade-off opportunities. Without updated, accurate information on costs, capacity and what second-tier suppliers expect in the future, restaurants and food manufacturers cannot ensure profitable responses to trends and volatility. Companies with the right technology platform can establish visibility and predictability in their business that wouldn’t otherwise exist today.

Ensuring Supply

Given the dynamic nature of food trends, supply chain professionals need to make real-time plan adjustments in the face of demand fluctuations and supply bottlenecks. Supply chain technology must provide integrated visibility into store sales, inventory and supplier capacity to prevent stock-outs, or conversely, excess supply.

Restaurants chains should also ensure technology gives them the data necessary to make intelligent decisions on when to launch promotions, new products or limited-time offers given supply constraints or surpluses.

Confirming Compliance

As we know, consumers are closely watching the claims that brands are making regarding fresh, natural and humanely sourced food. If a supplier invalidates those claims by deviating from regulations, it can spell disaster for the brand.

In this environment, managing suppliers and maximizing their performance requires sophisticated tracking and analysis that extends well beyond traditional capabilities. To ensure supplier compliance, companies should invest in technology that enables them to achieve visibility into supplier operations and capacity while also delivering supplier benchmarking and performance rewards.

Enabling Collaboration

Companies across the extended supply chain – restaurants, manufacturers and their suppliers – face tremendous external pressures in keeping up with these trends. A collaborative environment between the brands and suppliers can greatly help improve efficiency and effectiveness for all relevant parties. A shared technology platform that establishes one version of the truth for all companies in the extended supply chain builds reciprocal trust and improves decision-making.

When professionals on both sides have access to an aggregated view into information such as how much supply is committed versus what is available compared to regional demand, they can make investments accordingly. The industry will continue to move into this more collaborative model because it has evolved from a “nice-to-have” to a “must-have” requirement to maintain competitive advantage. For those who have one, a collaborative technology platform enables restaurant chains, manufacturers and suppliers to better understand the demands that drive trends, their impact and how to respond to them.

Faced with evolving industry trends and the elevated expectations of today’s consumers, restaurants can leverage technology to capture data that is needed for greater visibility, collaboration and tracking from farm to fork. Solutions that streamline the delivery and analysis of relevant, real-time information enable restaurant chains and their suppliers to turn data into actionable insights. Those insights, in turn, help improve profitability, match supply with demand and ensure supplier compliance.

Vishy Visweswaran is the chief technology officer of SCA Technologies. In this role, he leads the development and delivery of SCA’s proprietary technologies for supply chain cost management, category sourcing, and optimization. Visweswaran has over 16 years of experience helping restaurants improve margins and manage costs using SCA’s solutions.

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