Seven Symptoms of An Ailing Supply Chain

Supply chain weaknesses tend to creep up on restaurant chains. Here are some common symptoms that should never go unchecked.

The patient presented himself without any serious complaints and was a little sheepish when asked about his symptoms.

“I’m not sure I should even be here— I’m probably fine,” he said. “It’s just that I’ve noticed a few things—small things, really. I’ve been feeling tired a lot lately and have had more trouble sleeping. I’m short of breath after climbing stairs and there are times when I just don’t feel quite right…”

Twenty four hours later, the patient was immensely glad he’d gone in for a checkup. The signs he’d almost overlooked turned out to be significant after all.

Many Symptoms Are Subtle

It can be the same way when a restaurant chain’s supply chain system is starting to fail. Key symptoms are often subtle, so you should be vigilant that something’s “just not right” with your supply chain arrangements. And if any of these symptoms sound familiar … then you just might have a supply chain problem…

  1. More franchisees seem to be calling the corporate office to inquire about price increases they weren’t expecting … When commodity and ingredient costs change, chain management needs to know at least 60-90 days in advance so they can give store operators time to adjust. No one likes surprises, especially if they cut into margins.
  2. There are recurring product shortages in your local distribution system. It’s easy to blame these on local distributor operating companies, but shortages can also occur because demand forecasts aren’t adequately communicated to distributors. Smoothly running supply chain systems use demand sensing to keep all the players—from culinary development to marketing to purchasing—in a common real-time loop. That way, inventories can be maintained based on changing demand patterns.
  3. You hear about a high priority food recall and know you use the product in question—but don’t know if your product is in the lot being recalled. A supply chain organization should keep management abreast of any food product recalls even remotely associated with its menu, before they hit the TV news. A worst-case scenario? You get frantic calls from your own operating units and can’t advise them if they’re affected.
  4. Stores in your system have rising levels of obsolete inventory. Obsolete inventory is often a hidden cost to chains. When LTOs launch, inventory levels are established based on forecasted demand that will vary over the course of a promotion. If those levels aren’t adequately tracked—and adjusted for along the way—obsolete inventory is the result. If corporate management doesn’t have a good way to monitor how much obsolete or soon-to-be-obsolete inventory exists in the system in real time, poor supply chain management is a likely cause. The profit-stealing costs of obsolete inventory are then borne by store operators, franchisees and local distributors.
  5. You decide to take price bids on a core menu ingredient but discover that your distributor controls the specifications and you do not. Distributor brand products can be a valued part of your mix, but only if the specifications are established by you. Otherwise, product specs can be changed without your knowledge and prices from alternate providers can’t be compared. Distributor brands are critical differentiators as distributors compete with other distributors. You must be very diligent in demanding your specifications are being met.
  6. Your chain is growing rapidly, but new openings aren’t going smoothly and costs are higher than planned. One cause can be that your supply chain organization hasn’t ensured that core products are already stocked in that region. Another is that pricing in the new region varies from that in the home market. Sometimes there are too many product substitutions, demanding last minute choices by store operators whose attention should be on customer-facing matters.
  7. A sure sign of supply chain issues? Promised procurement cost savings that aren’t showing up on your income statements. You’re told a new supplier will save you five percent on the cost of an ingredient you’re using to the tune of a million pounds of a year, but the dollar savings just aren’t there. Perhaps associated freight charges weren’t considered. Maybe the new product isn’t stocked at all the warehouses you use or your usage has declined. Or perhaps you’re still getting billed at the old price. In any case, a strong supply chain organization validates price changes after the fact and accounts for any variances. Having the technology that offers complete cost component visibility is vital.

Symptoms like these should never be ignored and often are a sign of supply chain problems that will only get worse. Don’t let them fester.