The Balancing Act: Smart Product Movement Cuts Costs and Fosters Growth

We’ve all been there before, on the playground with the seesaw. It’s quite a ride when everything is in balance. But too much or too little volume on one side or the other and wham! —suddenly the ride is painful. So it is for chain operators trying to balance inventory with demand.

There is plenty of uncertainty in forecasting and fulfilling demand which leads to cost generating inventory overages. On the revenue side, inventory shortages caused by inaccurate forecasting and inventory cause customer dissatisfaction that deplete future revenue potential.

Additionally, fluctuating consumer behavior only creates more ambiguity. Any chain operator or manufacturer will tell you that with every year consumers become more demanding and unpredictable. The current state of the economy doesn’t help either.  The National Restaurant Association (NRA) 2009 Restaurant Industry Forecast projects that consumers feel tugged in two directions. “On one hand, consumers express serious concern about finances, with nearly all surveyed reporting that they are more worried about the economy than they were the year before. On the other hand, consumers remain strongly desirous of continued—and even increased—use of restaurants,” states the NRA report.

The Dual Focus: Increase Value and Maintain Service
The NRA continues to project that in order for restaurants to be successful during the present economic downturn and prepare for an eventual recovery, restaurant operators must offer the expansive value patrons demand in conjunction with operational improvements that cut costs without detracting from the dining experience.

The report is a clarion call for value and service as defined by the customer: the right product, right price at the right place at the right time. This, in turn, means value and service supported by informed demand forecasting, smart inventory management and fluid product movement. But doing this is often easier said than done.

Best Practices
In today’s competitive marketplace it is all about integration, collaboration and efficiency. While not new terms in the industry, these three principals must now be put into practice to enable operators to achieve fluid product visibility and better identify fluctuations in demand.

ArrowStream’s OnDemand is one example of an integrated inventory management solution that helps operators accurately identify variations in demand. A system like this promotes collaboration through visibility. OnDemand takes the guesswork out of forecasting and inventory management, allowing businesses to see supply in real time assuring the right inventory is in the right place, and that there is enough stock available. This visibility enables product to be transferred from one distribution center to another, based upon demand per store, while reducing unnecessary costs due to ordering too much—which operators know can be detrimental to the chain as a whole.  

Putting It into Practice As one example, Applebee’s was faced with the challenge of attracting and retaining guests in the highly competitive casual dining arena. With extensive television advertising campaigns to promote specific products and product categories, an increased demand for these products is generated—making sophisticated inventory management essential. With popular “fresh” promotions (any products with a short shelf life), ensuring they have enough product on hand to support customer demand is essential for superior customer satisfaction. To guarantee the supply chain can successfully support this initiative, they provide their suppliers with access to ArrowStream’s OnDemand system. This access gives the supplier and distribution centers a synchronized view of inventory positions, replenishment orders and restaurant purchases, enabling each organization to make informed decisions. Information sharing helps transition the process from a distribution center pull to a supplier push—improving efficiency by reducing days from the supply chain process while reducing the potential waste of products. Accurate Results After implementing this solution, Applebee’s was able to quickly see trends and also view inventory of their specific product on hand at distributors. “There is no lost revenue due to running out of product because we can identify the trend in one day and immediately have access to information about where to source inventory,” said David Parsley, CEO of Centralized Supply Chain Services, the purchasing cooperative for Applebee’s Neighborhood Grill & Bar and IHOP restaurants*. “Additionally,” Parsley continued, “With the access to aggregated information available with ArrowStream OnDemand, our franchisees have recovered $1 million in overcharges.”

“Applebee’s guest satisfaction is our number one priority. We must make sure that items are available when guests want them. There is no room for disappointment,” said Parsley. “One way we ensure that we deliver on our commitment to the guest is by creating fluid supply chains which can only be achieved through visibility across our network,” said Parsley.

Applebee’s and many other leading chains and their trading partners now control the ups and downs of supply and demand. By integrating and synchronizing information, they have the power to make smart product movement decisions that deliver real value to customers, thus assuring long-term success for the entire supply chain.

* *Note: Applebee’s and IHOP’s supply chain comprise one of the largest in the industry under the purchasing cooperative, Centralized Supply Chain Services LLC.  The cooperative was recently formed by the restaurant operators joining forces to leverage their size and scale to maximize their purchasing power.