Supply Chain Strain

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The supply chain is the key to the whole foodservice enterprise, helping efficiently move goods from farm to distributor to table. Even a minor breakdown can be potentially catastrophic, leading to shortages or excess food.

Yet the foodservice supply chain is also under greater stress than ever, particularly as operators continue to introduce limited-time offers (LTOs) in an effort to entice customers. LTOs help create a sense of “get-it-before-it’s-gone” urgency among consumers, goosing sales and even creating new brand loyalists.

Larry Oberkfell, president and CEO of the International Food Manufacturers Association (IFMA) in Chicago, says there were approximately 5,500 LTOs introduced in the U.S. alone last year (many from chains with Canadian operations), with activity expected to grow by as much as 10 per cent a year.

“They use these LTOs as a form of innovation and if it works, it may go on their menu,” says Oberkfell. “The frequency [of LTOs] is way beyond what new items ever were, and that’s putting significant stress on supply chains.”

Starbucks is one of the most prolific champions of LTOs, having introduced 294 new menu items across North America since June of 2014. Taco Bell has introduced 190 items, Red Lobster 158, McDonald’s 136 and Outback Steakhouse 135.

“Consumers love variety and new tastes, but meeting them in a way that we can deliver a very high standard is important,” says Tom Newitt, senior director of Marketing and Brand Communications for A&W Canada. “It does bring challenges and occasionally, if you’re using unique, fresh ingredients, you can run out.”

In October, A&W brought back one of its most popular limited-time menu items, the Mushroom Mozza Burger. The recipient of an 8.5 out of 10 score in a December 2015 edition of the online Junk Food Report, this extended member of the A&W burger family has been popping up on the QSR chain’s menu for the past several years.

The Mushroom Mozza is one of five or six feature burgers typically introduced by A&W throughout the year. Last year’s LTOs included the Spicy Mama Burger, the Double-Cheese Double-Bacon Burger, the Smoky BBQ Teen Burger, the Sriracha Teen Burger and the Peppered-Bacon Papa Burger.

For foodservice operators, maintaining the appropriate number of ingredients, particularly when it comes to LTOs, is a balancing act. Potentially being stuck with millions of dollars’ worth of excess ingredients is bad business, of course, but chains are also wary of disappointing customers who may be eager to try a limited-time menu item — particularly in an age when disgruntled patrons aren’t shy about taking to social media to voice their displeasure.

“Running out can be seen [by customers] as ‘Oh, it’s very popular,’ but the reality is you don’t want to run out,” says Newitt. “You want to be in stock for the entirety of that promotion; you want as many guests that want to try something to be able to do so.” For A&W, which boasts approximately 950 restaurants across Canada, this means ensuring it has the right number of mushrooms from its supplier for the Mushroom Mozza Burger. “We always have to increase our forecasts for fresh mushrooms,” says Newitt. “If you run out, you can’t just order more.”

Oberkfell says getting a handle on supply-chain management is becoming an imperative for the foodservice industry. “Consumer trends are counter to the efficiency of [supply chains],” he says. “The supply-chain people would like to have a lot less, but the consumer is asking for more. It’s one of those situations where, if we’re going to be successful, we have to find a better way to make the customer happy.”

The root of the problem, he says, is that many foodservice operators, as well as their suppliers and distributors, don’t have a single, real-time view of their supply chain. This is often a recipe for inefficiency, waste or customer dissatisfaction. “If you just have some person in a corner forecasting, but they have no knowledge of marketing or supply chain, then how can they ever do a good job forecasting? They’re going to fail,” he says. “Everybody in the supply chain needs real-time information.”

The U.S.-based Subway chain was featured in a 2017 story in The Wall Street Journal that underscored the difficulties faced by restaurant chains in maintaining the appropriate ingredient levels for LTOs. A combination of couponing and advertising helped make Subway’s Reuben-sandwich promotion a hit with customers, but the world’s largest QSR chain quickly found itself running low on key ingredients such as rye bread and corned beef — just three weeks into the planned eight-week promotion.

“They had no tools in place for best-practice forecasting,” says Oberkfell. “They accounted for what they thought consumer demand for the Reuben would be, but they didn’t account for the consumers who wanted rye bread or corned beef on a different sandwich.”

Cristina Wells, senior marketing manager for Subway Canada, acknowledges the strain LTOs can place on its supply chain. “When offering an LTO, we plan well in advance and build in proper lead time to allow us to coordinate with [our] partners and our distribution network to help ensure we see minimal product disruption or issues,” she says.

Banding Together
Oberkfell says supply-chain management is one of the key issues facing foodservice operators, driven by the combination of consumer desire for the new and different and the continued growth of LTOs.

Earlier this year, IFMA partnered with HAVI and Kinetic12 (a management-consulting firm specializing in the food industry), to establish the first-ever best practices for foodservice supply-chain optimization.

Fifty companies, including national chains such as Starbucks, Subway and Wendy’s, as well as food-and-beverage manufacturers such as Unilever and foodservice distributors, are part of the so-called Supply Chain Optimization (SCO) initiative.

According to the group’s charter, the end result “will ensure product is in the right place, at the right time and quantity and the consumer is 100-per-cent satisfied with their food experience.” Preliminary discussions identified four key areas of challenge/frustration around supply-chain management: collaborative communication; accurate and timely forecasting; transparency and information sharing; and inventory management. LeAnne Garoutte, a partner in Kinetic12, says the need for best practices is becoming increasingly apparent as the foodservice industry grows in complexity and continues to rely on LTOs for business growth and differentiation in an increasingly crowded landscape. “It’s really taxing the supply-chain system within foodservice, not to mention keeping up with the core menu items,” she says. “With a core menu item or LTO, it’s devastating to a manufacturer if they have to cut the promotion short because they run out of [an ingredient].” According to Garoutte, this is a “fairly common” occurrence.

Interestingly, a survey of participants in the SCO initiative revealed 75 per cent believed in the effectiveness and efficacy of their supply chain, with 10 per cent characterizing it as highly effective or efficient.

However, Garoutte says once sessions got underway, the participants quickly learned there were improvements to be made. “One of the key learnings, once we got everyone in the room, is there were a significant amount of inefficiencies, but when you don’t know something is broken, you don’t know it’s broken,” she says. “People just thought ‘We’ve got a process and we’re doing okay. We don’t have customers that are complaining.’ But when you put 50 people in a room and they start talking openly, they begin to think ‘Wow, maybe the system isn’t as efficient as we thought it was.’” Or, as one survey respondent put it: “I don’t know what I don’t know.”

Subway recently introduced an LTO using some of the principles and approaches espoused by the SCO initiative. It led to just 50 cases of excess goods — a remarkable number for a chain comprised of an estimated 27,000 stores.

“From our perspective, that would be a gold standard,” says Oberkfell. “If you don’t have any product left, you’ve disappointed consumers; if you have too much, you’re continuing to run an LTO that nobody wants to buy. The goal is to have a minimum amount of product when the promotion ends.”

Written by Chris Powell 

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