How optimizing your supply chain is key
What measures can the hospitality sector take to combat soaring ingredient costs? With global benchmark coffee futures, London robusta, hitting new record prices a few weeks ago at $3,825 (£3,066, €3,593) a ton, it’s another sign of the trend for rising costs across many key ingredients affecting hospitality businesses. With climate change being responsible for droughts in some countries and floods in others, with both extremes negatively affecting crop yields, increasing costs are set to continue.
Volatility Is Now The Norm
Set against a backdrop of increasing global conflict affecting key supply routes, it’s starting to feel like volatility is the norm. So how can the hospitality industry mitigate these risks and safeguard profitability? Procure4 Food and Beverage Procurement Expert, Category Director Gaelle Vivian provides her insight.
As Martin Luther King, Jr. once said:
“You can’t build a great building on a weak foundation. You must have a solid foundation if you’re going to have a strong superstructure. Do you wish to rise?”
Ensuring solid business foundations are the building blocks for a successful organization. I’ve outlined two key areas to support successful recovery and to mitigate the current pressures.
While these worries persist, expect pricing to remain high and volatile as the markets digest the latest news. At the time of writing, oil has fallen back slightly due to city-wide lockdowns in China; exemplifying the fact that volatility will remain while the market is nervous about Covid and the consequences of the conflict. To help mitigate the impact, review your supply chain. Can you hold more stock, reduce your delivery days, or increase your average delivery value? Even the smallest change could make a significant impact. Of course the changes implemented do not need to be permanent.
Solid Foundations Are Key
Solid business foundations are the building blocks for a successful company. I’ve outlined two key areas to support successful recovery and to mitigate the current pressures.
1. Get Back to Basics
- Develop a full picture of spend across the business. The best way to achieve this is by creating a spend cube, a multidimensional view of spend across suppliers in real time split across three areas: suppliers, business unit, and category items. Once you have the full picture, you have a starting point.
- Ensure you account for both theoretical costs as well as true costs, such as wastage – spend should be real and not idealized. Maintain a detailed contract database across all suppliers and ensure you are aware of contract compliance. There may be opportunities for consolidation or loopholes.
- Continuously review value for money: buy ‘fit for purpose’ and review the marketplace for both product innovation – including value engineering – and commerciality. Innovation and changes in trends are happening all the time; ensure you stay at the front and are in a position to make changes – fast.
- Finally, ensure your relationships with suppliers are strong. Supplier Relationship Management (SRM) is crucial to supplier vetting and setup, contract negotiation and management, purchasing, distribution and collaboration.
- There are often untapped efficiencies across organizations that can be identified and leveraged during challenging times. Cross-functional process mapping quickly highlights where these efficiencies lie, enabling rapid changes – for example, adapting the menu according to seasonality and market movements.
- Limiting wastage through efficient stock management or streamlining can also be a quick operational win. Effective stock management provides better data for procurement and brings the supply chain full circle, so is advisable for all organizations.
- The last piece of advice would be to communicate. Open communication channels can make or break organizations. Ensure clear communication with all internal and external stakeholders through a formalized plan. All business changes should follow a clear rollout, training and compliance plan.
Maintaining Profitability is Entirely Possible
Challenging times for hospitality businesses due to big hikes in ingredient costs are very likely to continue. Going back to basics and looking for operational efficiencies makes absolute sense and has to be the starting point for businesses wanting to protect their profits without raising their prices further.
To find out more about how Procure4 could help your hospitality business to cut costs and maintain profitability – without sacrificing quality or supplier relationships – get in touch with us for a FREE bespoke cost-saving opportunity analysis report: info@procure4.com.