Achieving Sourcing Transformation in the Restaurant Industry
At a time when restaurants’ margins are incredibly thin—and consumers continue to spend cautiously—e-sourcing has emerged as an invaluable tool for improving growth and profitability. In the last decade, the technology has helped restaurants’ procurement teams uncover double-digit savings in both direct and indirect categories, new process efficiencies, higher procurement contract compliance, and dramatically lower savings leakage—amongst other benefits.
So what is e-sourcing? Also referred to as “e-auctions” or “reverse auctions,” e-sourcing is a real-time dynamic negotiation between a host company and a group of pre-qualified suppliers who compete against each other to win the business. The competitive environment established by e-sourcing enables restaurants to discover new sources of supply, mitigate risk, uncover potential new products, and improve margins.
But more importantly, e-sourcing has the potential to transform the role of the procurement team within the restaurant industry. The problem is that, despite the obvious advantages, less than half of all businesses have adopted e-sourcing—and what's more, many restaurants that do leverage the technology aren’t realizing its full potential.
That number is troubling—especially when considering the volatile, uncertain market that restaurants operate in today. According to Bloomberg, restaurant sales contracted this past June and July, despite the fact that consumer spending on similar discretionary categories—like homes and automobiles—increased. Leaving time, money, and value on the table isn’t smart business, but surprisingly, that’s what many restaurants are doing today.
E-Sourcing Adoption Challenges in the Restaurant Industry
Even though many restaurants today rely on e-sourcing technology, industry-wide adoption is still lacking. Why? Procurement transformation can be a daunting process—and procurement faces a number of internal obstacles when trying to implement or promote its use within a business, including:
Fear that long-standing, carefully nurtured supplier relationships will suffer.
Skepticism that technology or outside consultants can replace traditional procurement skills and experience—or that the technology will live up to vendors’ claims of double-digit savings.
Perception that strategic sourcing has little impact on greater business objectives.
Lack of staff and resources required for execution.
The issues can be especially complex for restaurants, where sales can be directly impacted by the quality of food and ingredients that they source. For example, if two of your best-selling meals included shrimp, would you risk changing suppliers for a 5 to 7 percent savings? How about savings in the 10 to 15 percent range?
These roadblocks can hinder—or even entirely prevent—restaurants from successfully implementing an e-sourcing program, and realizing its full potential. However, several strategies exist that can help ensure an organization views e-sourcing as an integral part of the business, and is committed to achieving supply chain excellence.
Starting at the Top
The c-suite sets the tone of an organization, and procurement is no exception. Just like any aspect of his or her business, the CEO or CFO can have a major impact on how a company views procurement.
How? By reaffirming the importance of strategic procurement and articulating the company’s commitment to financial excellence, the c-suite can help ensure that restaurant employees accept e-sourcing as key cog in the procurement process, and a critical business function.
As a reference, let’s go back to the shrimp dilemma. The example comes from a 200-location nationwide restaurant chain. At first, the team was highly skeptical about e-sourcing. But management’s perceptions changed instantly after one trial event. The results were shocking. In just the three categories used for testing (import items; cutlery, serving pieces, and straws; and shrimp), this chain was missing out on 23.37 percent in savings—a staggering $2.4 million.
Leveraging Data and Experts for Greater Success
E-sourcing can also help restaurant buyers make smarter decisions by providing greater insight into a company’s spend—including the categories where the company is spending money, suppliers used, historical data, market trends, and more. This helps buyers run more effective sourcing events, and enables more effective souring techniques, such as combining vendors or sourcing multiple categories in a single event.
For example, if a restaurant uses one vendor for cloth napkins and another for table cloths, there’s a good chance it's leaving money on the table, since higher purchasing volume generally leads to lower costs. E-sourcing makes consolidating this spend easy.
Additionally, by tapping outside sourcing experts, procurement managers and buyers can gain a fuller understanding of the best times to source specific categories, and can help ensure that events are run quickly, and with the best possible results.
These additional sources of sourcing expertise make it easier for buyers to be successful—which will make them less likely to resist change.
Driving Growth and Profitability
When it comes to procurement transformation, positivity and empowerment breeds success. When a company is fully committed to supply chain excellence, there’s no limit to how much value can be delivered. The transition isn’t easy, however. The first step will be to identify the potential institutional roadblocks that might hold an e-sourcing program from fulfilling its potential.
From there, it’s a matter of shifting the company culture. It requires complete organizational participation, starting at the top of the corporate ladder—with the c-suite establishing the tone—and disseminating down. After that, it’s up to the procurement manager to ensure that buyers believe in the program, feel empowered to make an impact, and are rewarded and recognized appropriately for their success.
By committing to maximizing the value of their supply chain, restaurants can gain a huge competitive edge that drives market share, revenue, and customer satisfaction.
The opinions of contributors are their own. Publication of their writing does not imply endorsement by FSR magazine or Journalistic Inc.