Supply Chain Sourcing Partnerships: What’s the Value Proposition?

A supply management philosophy emphasizes procurement partnerships with a multi-dimensional value proposition.

When the foodservice industry talks about procurement, terms like “partnership” and “win-win” are so common that they often aren’t taken at face value. That’s especially true if the relationships in question are based strictly on raw purchasing volume and price.

In contrast, the best supply-chain partner relationships also emphasize deeper, information-sharing relationships that offer value and strategic business opportunities in other areas as well. It’s also what distinguishes this approach from that taken by general-purpose group purchasing organizations.

To explore how such value propositions work out in practice, we spoke to DeWayne Dove, Vice President of Supply Chain for SpenDifference, a Denver-based restaurant supply-chain management firm that specializes in emerging and medium-size restaurant chains.

A value proposition based on custom specifications

“When we leverage the volume of nineteen client brands, we source the vast majority of purchases with custom contracts that match each brand’s specifications.” Dove says.

“A restaurant brand’s ability to customize and own those specifications is what makes it unique in the marketplace and allows it to differentiate itself from its competition. This is much different than a typical GPO approach, which is to establish a single specification for all members to buy.

“It’s also a difference that encourages suppliers to develop stronger direct relationships with the brands. It presents important opportunities for them to achieve more efficient raw product utilization and distribution logistics planning.”

Better pricing certainty is another benefit, he says.  “We develop very buttoned-up contracts for key categories. They have volume commitments that drive growth and are tied to escalator and de-escalator formulas so that variances directly affect pricing.”

 “Building out the bird”

Dove uses poultry as one example. “It is obviously a key category for most of our client restaurant brands and represents in excess of $100 million in category spend for us. But one brand may specify a six-ounce boneless breast; another may want a five-ounce breast with a marinade pump; others may use wings or pulled tenders or dark meat strips.”

“With that aggregated mix of demand, a supplier can better define how a bird will be processed and portioned in production and plan where the components will go post-production. ‘Building out the bird’ in that way enhances a supplier’s ability to fully utilize raw materials. It drives tremendous value for every stakeholder in the relationship.”

Dove points to similar opportunities in other categories, from beef to pre-cut produce to disposables and to a potential for optimizing regional shipment logistics as a result of data-sharing with customers about menu changes that may shift demand.

Demand patterns as business intelligence

Monthly and annual food price forecasts drive this kind of supply chain opportunity because of the business intelligence they generate, he says.

“We regularly develop commodity price forecasts to guide brands’ food price planning,” Dove says. “Technology lets us estimate the impact inflationary trends will have on individual menus by category and line item. The brands use this information to compensate for inflationary trends with LTO planning and culinary development strategy.”

The same technology generates data with significant value for suppliers, he says. “We normalize it across 150 distributor branches to identify where specific item volume will be going. That lets supplier partners match it against distribution volume voids they may have at the regional level in order to build more efficient regional delivery truckloads.

“Or, a supplier may have a 30 percent share in a given category and want to know what the other 70 percent looks like in terms of usage by specification and region. Such guidance can suggest growth opportunities and make it possible for them to enhance the value offering made to our brands.”

Efficient market reach

Suppliers put high value on the direct relationships they can develop with end users, and SpenDifference looks to facilitate these with the structure of its Supplier Advisory Council and meetings it has with the brands over the course of a year. There, strategic trading partners in key categories meet top management from multiple client brands to share information and find ways to work together for mutual advantage. This can include menu ideation sessions, market trend insights, cost saving opportunities and support for culinary development programs.

“The meetings give suppliers a deeper reach into the marketplace and a one-stop opportunity to gain insight into the plans of multiple restaurant brands,” says Dove.

The value of a supply chain approach to procurement for an emerging or middle-sized restaurant brand is being able to function like a much larger multi-unit operator in terms of procurement and other functions like logistics management,” he says.

“The value to a supplier partner is very similar—being able to operate in the space of these fast-growing chains much more effectively than the supplier would otherwise be able to do.”