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A strong restaurant supply chain can drive customer loyalty and satisfaction.

Why Fixing the Supply Chain Can Improve Guest Loyalty

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With growing consumer demands, better supplier relations are critical.
By Bernard Goor October 2017 Expert Insights

“Maybe we should try somewhere else tonight.” That’s something a restaurant never wants its loyal customers to say, let alone do, and yet it happens all the time. These customers love your food and the service, but it’s a delicate thread that binds them to your establishment. All it takes is a disappointing meal, a sold out favorite menu item, or an ingredient that is not as fresh as it could be, and one day you realize that you haven’t seen that once loyal family in a while. Quite possibly, these once “regular” customers were on their way to visit you when someone uttered the dreaded words, “Maybe we should try somewhere else tonight.”

Today’s consumers are more adventurous and fickle than ever before. A recent study by Thanx analyzed 18 million merchant transactions and found that most customers never come back. Worse, the study concluded that 70 percent of previously loyal customers were “at-risk” of defecting and unlikely to return. Now, more than ever, retention is the new acquisition since it costs 5–7 times as much to acquire a new customer as it does to keep one. As a result, smart companies are focusing just as much—if not more—on keeping their current customers happy. Keeping customers happy is a good thing since 64 percent of all revenue is contributed by only 25 percent of patrons, according to Thanx. So, how do you go about thrilling your customers each and every visit, given the challenges restaurant companies face today?

The challenges to satisfying individuals are formidable, as the industry is currently suffering from low-to-no growth in this “restaurant recession.” Customers are more health-conscious than ever before, and consistently demand fresh ingredients and top-quality meals. Complicating matters is the fact that restaurant companies need to service 100 percent of their customers’ orders at the lowest cost-per-meal if they are to remain competitive and successful. And let’s not forget that they need to ensure food safety and full traceability from farm to fork. Scott Ford, president of Goodsense Franchise Systems, may have summed the solution up best when he said, “One of the most important aspects of building and running a successful business is learning the art of agility. The slow and stubborn simply can't survive in today's world.”

Understanding What’s Eating into Restaurant Profits

One of the key issues that factors into the bottom line is that restaurant companies have been short-changed by traditional, enterprise-centric technology that is ill-suited to running a complex restaurant chain. Getting these systems up and running is one challenge, as they have to be connected within the enterprise and across all of your supply chain partners. The process is tedious, costly, and time-consuming. Once connected, batch processing between siloed systems means the supply chain is plagued by delays, stale data, inefficiency, and poor decisions.

Poor planning based on stale data compounds the problem, especially when combined with execution of a plan that doesn’t reflect the current reality. This leaves restaurants juggling shortages and excess supplies, while trying to effectively manage limited time offers (LTOs) and new menu item introductions. Not only could this take a big bite out of your profits, it could erode customer loyalty and market share and lead to brand erosion in a market where growth is hard to come by.

How the Supply Chain Can be the Recipe to Revitalization

In an effort to serve 100 percent of consumer demand at the lowest cost per meal, it is critical that the business optimizes the flow of supply to its restaurants. However, most are using slow and siloed enterprise technology that simply cannot meet this requirement, and according to CIPS, just 6 percent of firms have achieved supply chain visibility. To overcome these challenges, restaurant operators are learning a lesson from AirBnB and other disruptors, and are adopting real-time networks that connect, flow, and match supply and demand in real time. Unlike cumbersome and error-prone manual processes, on-boarding to a real-time network connects restaurant companies with all their suppliers, distributors, and logistics services as they occur. These networks flow consumption data at the ingredient and restaurant level back through the network, allowing trading partners to act immediately based on current and precise real-world conditions.

More importantly, they provide visibility to supplies and shipments across the network as they happen, autonomously optimize orders and inventory, and collaborate with distributors, suppliers, and franchisees to ensure offers and products can meet actual demand. These networks support more accurate forecasting and ordering solutions, and since critical data flows continuously, forecasts and orders are precise and up to the minute. They can also be automatically adjusted as conditions change.

For a restaurant struggling in today’s environment, this is a very big deal. With the ability to perform instantaneous “course corrections” leveraging forecasting and ordering these multiparty networks can provide:

  • A “single version of the truth” of customer demand at the restaurant/day/menu item level, automatically translated into requirements for ingredients and supplies, and shared over the multi-tier delivery network, from restaurants to distributors and manufacturers
  • Highly accurate consumer-driven demand forecasts for menu items, ingredients, and supplies
  • Machine Learning agents that continuously optimize the forecast based on actual near real-time demand
  • Integration of event planning, such as LTOs and new Menu Item launches
  • Accurate restaurant perpetual inventory system based upon actual POS and delivery receipts
  • Accurate and automated suggested restaurant ordering system, which ensures that the right ingredients are ordered in the right quantity at the right time to satisfy demand 100 percent of the time
  • Integrated order management, replenishment, and shipment processes, which ensure delivery of the right ingredients and supplies to the right restaurant in the right quantities at the right time
  • Traceability of ingredients from farm to fork
  • Real-time visibility and collaboration across all trading partners, to drive faster, highly efficient and more profitable decisions

Because these capabilities are delivered on the network, all parties such as restaurant managers and planners, distributors, suppliers, and carriers have access to the same concurrent data and alerts which significantly optimizes the entire process, from forecasting to ordering, shipping, and receiving.

The Proof is in the Pudding and the Profits

What restaurant companies can achieve with this technology is impressive. As Juan Guerrero, SVP Global Supply Chain, Bloomin’ Brands Inc. explained, "Our POS data is fed into a demand forecasting engine in real time, and that demand engine adjusts the forecast as sales are occurring, with built-in smart agent technology that allows the forecast to be adjusted daily. That feeds our distributors and our suppliers, so they see this in real time, which has basically eliminated the bullwhip effect." This dynamic, pinpoint accuracy of forecasting and inventory levels is made possible, because it is based on actual consumption.

By seamlessly connecting the restaurant supply network, restaurant operators are yielding impressive results, such as

  • Forecast accuracy increased to 85-90 percent
  • Cost of Goods Sold (COGS) reduced by 5-10 percent
  • Inventory levels reduced radically across the entire network, including by as much as 50 percent at the restaurant level
  • Available shelf-life increased by 50 percent at the restaurant level
  • Waste reduced by as much as 75 percent
  • Near perfect fill rates
  • Reduced cycle times for ordering, replenishment and delivery
  • Improved sales and margin performance for LTOs and new menu item launches

If restaurant companies want to retain more customers and revitalize the restaurant business, there’s no better place to start than by revitalizing their outdated supply chain. Sluggish enterprise systems shunting stale data between silos are dragging down margins, profits and customer service. Modern day networks are cooking up new profits by improving customer satisfaction, lowering cost per meal, and seizing a larger share of the market than their competitors. More importantly, they are proving to be the key ingredient to stave off the dreaded “maybe we should try somewhere else tonight” sentiment.

Bernard Goor is VP and industry evangelist at One Network, the global provider of a secure, and scalable multi-party network in the cloud.