Prestige Purchasing’s Chairman, David Read, asks why it takes a crisis for some boards to recognise the value within a well-managed supply chain
In 1998 I began a new role in Purchasing & Supply at a large hotel group. On my very first day (and for some weeks after until we stabilised the situation) I was inundated with phone calls from hotel managers with queues of guests standing impatiently in reception and no linen to put on the beds. Scores of chambermaids loitered in corridors long past their normal hours waiting for linen trucks that often just didn’t arrive at all. Two weeks before, a new deal had been implemented with one single laundry supplier for most properties, with a completely new linen control system, and the delivery and collection cycle had completely broken down. The reputational and commercial impacts were enormous, and this single issue totally dominated my first six months in role.
More recently (in February 2018) the unthinkable happened to chicken chain KFC. They pretty much ran out of chicken. Within a couple of days over 500 of the company’s c900 outlets were closed. The customer and reputational impacts were enormous, and the commercial impacts on both the business and its many franchisees painfully large. Only those at the centre of the storm know what happened, but the consensus view from industry professionals was that a gross underestimation of the risks of a “big bang” change to the whole supply chain was to blame.
Paula MacKenzie, KFC’s UK & Ireland MD was quoted as saying “…. it’s so true that supply chain is the lifeblood of the business. It takes something like the experience of the past year to put it front and centre where it should be”.
It’s good that the KFC team have woken up and smelt the coffee (or maybe the chicken?), but should it really require a supply chain meltdown to bring it to the fore? The difference between foodservice and hospitality and the retail sector could not be more distinct. The Purchasing & Supply Chain functions within organisations like Sainsbury, Tesco, and Waitrose are business critical and strategic. There is typically a deep understanding of how good supply chain strategy adds value, and how to bake it into the balance sheet over the long term.
So, what is it that many operators in our sector are missing from this Cinderella of disciplines? The most obvious difference to the retail world is simply the role of the function. I frequently see purchasing and supply reporting through the Finance Director, with performance metrics that focus on price reduction. In these situations, procurement often struggles to make enough impact, and often carries a “control” influence upon operations. It’s often characterised by being the receiver of decisions made within the business and is charged with “now go away and get the best deal”. The weakness of this role and reporting model is that it removes the very thing that delivers the real value – influence over key decision making. It’s like asking a sprinter to win the 100 metres with their shoelaces tied together.
Great purchasing and supply is not about control. It’s about cost (not just price), together with rigorous risk management, contingency planning, continuity of supply, quality, supplier relationship development and innovation. These things can only be delivered by having the right quality of purchasing people properly integrated into strategic and operational decision making. I recently observed a small dining chain, successfully established in London, decide to target five regional cities for new site growth, without a single thought for the risks and challenges of supply outside London.
But most of all it is about understanding that delivering a fully optimised supply chain starts with making the right decisions internally on menu design process, product range, specification, make or buy, source, provenance, quality criteria, distribution frequency, storage, stock management and new product development. In our sector it’s common for these decisions to be a “creative” process, that needs in some way to be unfettered by commercial reason. In these difficult times, it’s surely sensible to challenge every decision openly against the yardstick of value delivered.
Once a set of requirements is decided upon that both meets customer and strategic needs and is optimised to create the most efficient supply chain, the team can then engage with suppliers to deliver the very best fit for the business and the lowest cost.
These kind of supply teams typically report into the CEO, or if not then the COO. They are truly the lifeblood of the business, adding value every day to the operation, its efficiency, quality and profitability, rather than simply being the price police.
I hear much said by operators right now about how tough trading is, at the same time as I see many businesses overlooking the enormous benefits available through supply improvement. With a strong possibility of a no-deal Brexit later this year, it’s surely time to invite Cinderella to the party.