Managing the supply chain effectively is a critical part of successful business in all industries. But, with the hospitality industry, if you get it wrong you will have limp lettuce and deeply dissatisfied customers. Just a few hours can make the difference in food quality, and the cost of wasted stock comes straight out of profits.
The concept of supply chain management (SCM) is simple. It is about selling things at the right price and storing them for no longer than is necessary. But, as hotel and restaurant chains get larger and the range of goods they handle grows, the task becomes more complex.
"The catering industry is the worst of both worlds, really," says Carson Reid, director of supply chain consultancy Intelligent Buying. "You have a very disparate supplier base and a broad customer base. Coupled with this, you have a very short life cycle and time to market. Everybody wants fresh stuff - it is a battle of logistics."
For large companies, there are established software suppliers that can help. One is German software company SAP, which provides SCM software under the MySAP brand. SAP claims that this will support a fully automated replenishment process that updates daily or even more frequently. This could allow kitchens to replenish ingredients more efficiently, resulting in reduced stock levels and shortened order times.
However, major software implementations such as this can be costly and time-consuming, and are usually only attempted by large businesses with large IT budgets.
Another way of managing the supply chain cost-effectively is to use an electronic point-of-sale (EPoS) solution and link it to a real-time stock control system, says Steven Rolfe, operations director at technology provider HIT Solutions. Such a system could enable some restaurant, pub and fast-food outlets to minimise both over- and under-ordering, to track profit margins, and to limit time spent on paperwork by using automated tools such as order generators.
"In the catering industry," says Rolfe, "where stock is perishable or expensive to store, and it is easy to replace, it makes sense to use an EPoS-based stock control system so your business is prepared to meet the peaks and troughs of seasonal demand."
Some restaurants are already making these kinds of IT investments. Retailer Harvey Nichols is rolling out supply chain and EPoS systems to support its expansion plans and improve stock management across its five UK stores, in-store restaurants, and the Oxo Tower restaurant, bar and brasserie on London's South Bank. The roll-out of the EPoS system is expected to be completed in time for Christmas, and the supply chain system is due to go live by April 2005.
According to Martin Schofield, head of IT at Harvey Nichols, implementing technology was "essential" in helping the company control and reduce its overheads. n
One to watch:
Radio frequency identity tagging (RFID) is currently attracting a lot of interest from retailers aiming to use it to track large amounts of goods through the supply chain. A small chip can be attached to most items, emitting an identity code which can be picked up by special receivers. When these are then hooked up to database software, the codes can be matched with individual products or items. The system is similar to bar-coding, with the advantage that it can be done not with hand-scanners but automatically. For example, an item's code could be recognised when the item passes through a warehouse doorway.
Brewer Scottish Courage was one of the first companies to implement this technology, in an attempt to drive down the cost of lost and stolen barrels. But Scottish Courage can also use this information to help publicans to streamline their processes when they are ordering too much stock. Logistics director Graham Miller explains: "We can help them manage their stock better, so that they can get fresh deliveries every week, rather than serving beer that has passed its sell-by date."
Two years ago, Macdonald Hotels made a commitment to spend more of its budget with its main food suppliers. It wanted to reduce the time taken to place, chase and complete orders. It also wanted to give its head office more management information so it could control purchasing more effectively.
But instead of buying a software package, or developing its own, Macdonald, which has a portfolio of more than 70 properties in the UK, turned to a software hosting company, ABS, to meet these business goals.
ABS hosts and manages an online supply-chain management system called Tradesimple, which produces product catalogues, product lists and price lists for chefs in Macdonald Hotels. These are distributed throughout the supply chain, allowing the chefs to create online orders and generate all the relevant paperwork electronically.
Andrew Hastings, head of finance at Macdonald Hotels, said: "We have achieved a significant financial saving through the service, and allowed our chefs to manage their business more effectively."
The system is now available in all of the group's hotels, which means that chefs now place 90% of orders electronically, freeing them from inbound telesales calls. It also means that they can place orders at a time of day that is right for them - which can be critical in a busy kitchen. Since implementing the new system, "on contract" spending with the company's main suppliers is up to 93%, which has improved gross margins. Head office is also able to track all orders, so it can easily identify erratic buying patterns, analyse aggregated data, and improve discounts negotiated with suppliers. The result is continuously improving margins.
Suppliers also benefit from using the system, as it reduces processing costs and pricing errors, and provides more accurate invoicing. This, in turn, means that the hotels can benefit from better margins without squeezing their trusted suppliers.
Case study Omni Hotels
A key factor in supply chain management is anticipating demand for products. For many businesses, this translates into demand for goods, but for hotels it can mean demand for rooms.
USA-based hotel chain Omni Hotels is using revenue optimisation technology from Manugistics in precisely this way. The system is designed to forecast future demand and allocate capacity to ensure that rooms are available for more valuable business. Relative room prices, amounts spent on food and beverage, length of stay, and other important data of value to the business are all examined to help ensure that accepted reservations maximise revenue and enhance profitability. "This brings Omni Hotels to the next level of demand management," says Tom Chevins, vice-president of sales and marketing. "The collection of incidental data along with room-revenue data has enabled us to better understand the value of our guests."
Crucially, Manugistics' product, NetWorks Hospitality Revenue Optimizer, helps Omni to better serve its most valuable customers, while improving the probability of repeat business.
The system automates availability adjustments in response to changes in demand throughout the day. And it is accessible to key decision makers throughout the group's hotels, regional offices and corporate headquarters. If adjustments are warranted, staff can make them directly from their PCs.
Ken Gifford, Omni Hotels' corporate director of revenue management, says: "Decision making is placed where needed most - often, the individual hotels' directors of revenue management."