Higher Procurement Costs, Hit Profitability!

To gain more profit, we should pay attention on the procurement process besides focus on gaining sales or raising price. When the procurement costs seem unchangeable, it's time to analyze the process inside and optimize it.

Procurement

A restaurant, X, is a well-known restaurant. Here are the flow of its procurement process:

The supervisor do daily check on the ingredients needed. If there are some ingredients less than standard quota, then the supervisor will send the purchase order (PO) to the supplier by fax. After that, the supervisor will call the supplier to make sure that they receive the PO, check the availability of the ingredients requested, and ask the delivery date.

Based on the PO, the supplier will deliver the ingredients to the X. The original copy of the PO will be used by the supplier to claim the money to head office. Meanwhile, the copy of the PO is kept by the supervisor.

E-Procurement

The process could be optimize by using e-procurement - the electornic integration and management of all procurement activities including purchase request, authorization, ordering, delivery and payment between a purchaser and a supplier.

A restaurant supply chain from beginning to end must be focused on delivering customer satisfaction and increasing the restaurant profitability. Every restaurant has extensive inventories to track, an increasing number of products/ingredients to manage, quality standards to maintain and often numerous suppliers to negotiate with in order to remain profitable and ensure the availability of each ingredients. 

For this reason, it is imperative that every link in the restaurant supply chain be managed. There are significant financial benefits to managing them well. The e-procurement system provides restaurant organizations the opportunity to automate all aspects of their value chain, such as product sales, ingredient forecasting, suggested food ordering, contract auditing, demand planning, collaborative purchasing, and etc. The e-procurement system can automate and integrate your existing supplier network.

For example, for Restaurant X, if they use the e-procurement system, the supervisor do not need to request every single day. They just need to confirm the quota and supplier, and then the supplier will automatically deliver the ingredients needed if the stock less than the quota. Furthermore, the system will also make the payment system easier.

Possible problems

The average restaurant company today spends nearly half of every dollar earned on food and beverage products and services. With increasing competition and market saturation, executives are looking to optimize for efficiency and capture unrealized return - the supply chain is the first place to start. However, before you can simply cut costs, you have to know where they are being created. Top line procurement cuts or compromises can have significant consequences to operations and customer services. 

If the benefits of automation are so clear, why are so many supply chain initiatives unsuccessful? The reason is that effective supply chain automation is not an isolated application. It has to be effectively connected to the operational systems and users not only inside your organization but between your partners and suppliers as well, regardless of technology platform or sophistication.