Supply chain disruptions aren’t just nuisances; they can significantly impact a business’ financial performance and reputation. And in some cases, they can even force significant organizational change.
Take McDonald’s, for example. Following a port slowdown and a supplier closure that raised food safety concerns worldwide and created supply shortages that directly impacted sales, the fast food giant was recently forced to appoint a new CEO. Of course, there were many factors at play behind the decision to transition leadership—but poor supply management certainly played a role.
If sourcing disruptions have that much of an impact on your bottom line, how do you plan for and limit this risk? While it’s impossible to eliminate the risk completely, there are many practices that procurement teams can implement to strengthen their sourcing strategies and reduce the impact of supply disruptions. For more insight, Food Logistics (FL) turned to sourcing expert and food industry veteran Brian Miller, the vice president of services at e-sourcing company Intesource.
FL: What could McDonalds have done differently to mitigate the closure of an integral meat supplier and avoid product shortages? How can McDonald’s get back to normal supply and sales levels, and what should they be considering right now when assessing their supply chain?
Miller: It all comes down to visibility and risk management. How well do you know the suppliers you are sourcing with? Most companies could tell you about the product they’ve sourced and the terms of the deal—but that’s just the beginning. You also need visibility into their financial health, the operating procedures and any sub-suppliers that they use to service your purchases.
While it’s hard to anticipate when a supplier may go out of business, or face a serious production problem—it’s not impossible if you have the right data.
In a case like McDonald’s, it’s critical to have multiple back-up sources of supply. If a disruption occurs, you need tested, credible and reliable suppliers ready to ramp up production. It’s also critical to diversify your geographic supply base and transportation network—so if a problem or slowdown occurs in one region, you don’t have all your eggs in one basket.
When a product is core to your menu, it’s also important to split up the supply volume between multiple suppliers—which lessens the burden on each source, and the impact on your business of a potential slowdown.
FL: What are the top supply chain risks facing restaurants and food distributors today? What risks are being overlooked?
Miller: Natural disasters, adverse weather, rising food prices, contract violations, and cyber security issues are the top supply chain risks plaguing the food industry today.
Food safety concerns are also a hot topic, but don’t make headlines as often as these other types of risk. Combatting tainted and modified foods within the supply chain needs to be a top priority, though, as a major incident can have a long-lasting negative impact on the brand.
FL: How should companies respond to supply disruptions? How should restaurants manage their supply chains to avoid menu disruptions?
Miller: Companies can avoid menu disruptions by ensuring they have additional sources of supply for key products and that those suppliers are ready to fill in for the main supplier should a disruption occur.
The best way to prepare is by leveraging e-sourcing on a regular basis; by regularly taking key categories to bid through e-sourcing, procurement teams can establish a clear view of what other suppliers, products and prices are out there, which makes it easier to find alternative sources of supply during disruptions and avoid having to restructure your menu altogether.
Investing in supplier relationships is also helpful, as your suppliers will be more apt to give you an appropriate substitute in the event of a crisis if you have cultivated a long-term relationship with them, and have earned their trust through open and honest communication.
FL: In general, discuss what companies should consider when evaluating a supplier. What factors are often overlooked? How can firms make sure their suppliers are complying with their standards? What can companies do right now to strengthen their sourcing strategies?
Miller: It all depends on what the company is trying to accomplish—cost, quality, transportation, packaging, payment terms, reliability and value, for instance, are all important.
One factor that’s often overlooked: the supplier’s operational and financial health.
You also need to factor in the location of the supplier and how that impacts your broader supply chain, should a regional weather disruption cause problems.
Before the contract is signed, it’s crucial to ask questions about where the manufacturing plants are located, and how many (if any) sub suppliers they use. Understanding their plan of action in the event of a crisis, safety policies, the chain of command structures and inventory practices will provide better insight into what risk you’re taking on in doing business with them.
Conducting regular audits is another good way to make sure suppliers are complying with your standards. Visit, on-site, with your suppliers to get an inside look into the conditions in which your products are being sourced. Scheduling a regular audit procedure and understanding your suppliers’ weak spots will strengthen your overall sourcing strategies.
FL: Discuss the importance of having a diversified supply base. Why do so many companies struggle with this?
Miller: You don’t want to put all your eggs in one basket, which means you need to diversify your base of suppliers. Having a queue of suppliers at the ready allows you to proactively delegate production on an as-needed basis. It’s impossible to eliminate risk altogether, but you need to do whatever you can to maintain as many relationships as possible so you avoid interruptions.
Some companies struggle with this because they don’t know enough qualified suppliers in their market. As mentioned earlier, e-sourcing plays a key role in this process. By regularly taking categories to market through e-sourcing, you gain a better understanding of what is out there and available to you (in terms of product, price, terms, etc.)—enabling you to confidently pull the trigger on a new order during disruptions, if necessary.