Society uses restaurants a lot more frequently at present than in the past, but the role of restaurants goes through cycles. Recent published accounts suggest that business at casual-dining establishments slows during July and August, while visits to fast food restaurants increase. To maintain a stable business, it is imperative for restaurants to adjust to these changes.
To describe some of the efforts made by restaurant suppliers to help their clients cope with change, the first Foodservice Distribution Conference & Expo held in College Park, Georgia, assembled a panel of executives from four large, regional and national foodservice distributors. Steve Spinner, president and chief operating officer at Performance Food Group in Richmond, Virginia, and Greg Hickman, executive vice-president, broadline operations at US Foodservice in Columbia, Maryland, represented distributors with national scope. Malcolm R Sullivan Jr, president and chief operating officer at Pate Dawson Company in Goldsboro, North Carolina, and Terry Walsh, executive vice-president and chief operating officer for Maines Paper & Foodservice in Conklin, New York, offered views from the perspective of regional distributors.
Foodservice customers constantly pressure distributors for error-free deliveries. In fact, the ability to produce an error-free delivery will become one of the highest barriers to entry in the foodservice industry within the next five years, Sullivan said. Technology has progressed to the point that a distributor must be error-free simply as a condition of staying in business. For instance, Pate Dawson uses voice-directed order selection to drive down the error rate during picking and order shortages at shipping. Current performance results in less than one error per 10,000 cartons selected, he said.
At the other end of the delivery process, Pate Dawson uses bar code scanning at the customer location to reduce delivery errors. The combination of voice direction for order accuracy in the warehouse and scanning to prevent delivery of another customer's product helps reach the goal of an error-free system, Sullivan said.
Not only must the distributor provide error-free service, but that service must occur without interfering in the primary business of the customer, Walsh said. Probably the long-term goal is for the distributor to become invisible to the customer: the product just appears. It's there; it's correct; and it's on time.
Maines has begun making quite a few unattended deliveries, Walsh said. Product is scanned as it comes off the truck. To generate proof of delivery, the company places a bar-code placard on the wall inside the delivery location. Scanning that placard is considered the same as getting a customer signature, he said. In fact, scanning is used throughout the Maines system. Scanning has replaced physical counts as a way to check product count and selection accuracy prior to loading on the dock. Scanning prior to loading checks a representative quantity of orders, while 100% of orders are scanned at delivery.
Becoming error-free may look easy, especially with the large number of hardware and software companies eager to sell their systems, Spinner said. However, distributors need to step back and define goals and determine how to reach those goals. Becoming error-free must be a cultural value before it can ever be a physical reality, he said.
When distributors make a delivery error, they tend to look for the reason and treat the symptom rather than finding the cause underlying all errors, Spinner said. The challenge is change the view of how problems need to be solved. The correct approach is to determine the source of errors and then begin to use technology to prevent errors, he said.
The tools available for reducing errors are excellent, but implementation must start with personnel, Sullivan said. The ability to operate error-free starts at the top and must flow throughout the company. If a company does not have a culture of error-free operation, high-tech tools will not help at all. Bar codes and all the scanning technology on earth won't help if the company mindset is not attuned to using those tools effectively, he said.
One way to increase accuracy is to move away from traditional thinking about error rates and seek to achieve perfect invoices and perfect deliveries, Hickman said. An error-free system can only come about if the distributor understands what the customer is looking for. Error-free thinking must extend in both directions from the distributor. In order to make error-free deliveries, distributors need to put more pressure on their suppliers to improve accuracy.
Foodservice distributors have a tougher time of maintaining high service levels and accurate deliveries, because they have such a large number of items available. This results in a tremendous number of bar codes that must be kept updated in the warehouse management systems. In terms of operating technology, foodservice distributors may trail retail supermarket operators by at least 10 years, Spinner said. It may be that the best way to catch up is to produce proprietary software tailored to foodservice applications.
Plenty of technology already exists; the challenge is to make all the various systems work together, Hickman said. For instance, the technology available for use in the delivery fleet is extremely capable. Foodservice distributors need to find a way to integrate that delivery technology with their back-office systems to improve efficiency and productivity.
The technology is in place to help distributors do a better job, Spinner said. However, distributors must resist the temptation to buy new systems before the vision for using it is set. First decide what is needed and how it will improve operations; then make the purchasing decision.
When trying to develop an error-free system, don't forget to include customer demands, Walsh said. Customer receiving practices have a big impact on the ability to make efficient, accurate deliveries. Maines has customers that have committed to becoming part of the team and having the company help them develop effective receiving practices to ensure that deliveries are received accurately. Making an error-free delivery doesn't help much if the receiver does not record the transaction accurately, he said.
Communication between distributors and customers is vital. A great divide still exists between a perfect invoice and an error-free order.
Mixing chains, independents
Customer mix has a large impact on order and delivery accuracy. Most distributors serve a mix of restaurant chains and independent restaurants. Without fail, the largest number of errors occurs servicing independent restaurants, Spinner said. Sometimes, it seems as though the same customers are returning the same products every week. Until that can be stopped, distributors won't make much progress with delivery efficiency and accuracy.
Technology is fine, but it won't stop a sales person from padding an order or the customer from deciding an item isn't really needed that day, Spinner said. Distributors need to capture the data on repetitive returns and work out the problem with the customer.
The whole process begins with the customer, Sullivan said. By understanding what customers want and how to serve those needs, distributors can design systems to streamline operations and reduce errors for both their companies and for their clients.
Meeting customer expectations is a management responsibility. While the sales force may still be the primary point of contact with customers, it is the division manager of a multi-location distributor who must be responsible for serving clients properly, Walsh said. When the division manager knows what customers expect, the stage is set to put policies in place to meet those expectations throughout the system from warehouse receiving through order selection to final delivery. With chain customers, the goal has to be addressing the individual location operator's concerns before they are taken farther up the management chain.
Service to independent restaurants is more competitive now than ever, Hickman said. That requires distributors to include customers in a team concept to give division managers the tools to work closer with customers.
Many distributors have tried appointing ombudsmen, company officials dedicated to representing customer concerns, Spinner said. However, to be effective, the customer ombudsman must actually be the chief executive officer of the distributor, he said. The executive office is where the process and the company culture begins. An executive who seeks to maintain a perfect operation and shows that effort in every action has established the rules of the game for everyone else to follow. Company culture is a top-down environment with initiatives starting with the executive followed by training and implementation through the ranks to every level of the company, Spinner said.
That is not to suggest that mid-level contacts with the customer are not important, Sullivan said. The key, however, is frequent contact and clear communication between the top distributor executive and high-level customer officials. If the executives set priorities, operating personnel have an example to follow, he said.
Distributors can serve chains and independents effectively as long as neither business segment dominates the operation, Spinner said. Serving both customer groups requires a disciplined approach to business. One of the best aspects of serving chains is that their business can cover a great percentage of a distributor's fixed overhead. However, serving chains takes away the luxury some distributors have of managing their growth in a controlled environment, because chains always apply pressure for distributors to expand along with them. The demand is always there to serve more locations in areas ever farther from the distribution center. “At some point the distributor must have the discipline to decline expanded geographic coverage,” he said.
Align operating strategies
Not all chain business is good, even when serving chains produces profit under most circumstances. Distributors need to align their businesses with chains that fit into a common operating strategy, Hickman said. If distributors and chains share common goals, it is more likely that they can reach partnership arrangements that are beneficial to both parties.
Serving chains requires strict operational discipline, because chains want to work with distributors that can show a low cost of operation, Sullivan said. The positive side of chain business is that meeting their cost targets usually helps lower costs throughout the distribution environment.
In serving chains and independents, Maines Paper & Foodservice has evolved into two separate businesses under one roof, Walsh said. To make sure each business segment gets the service desired, Maines dedicates one shift to each customer category — second shift to chains and third shift to independents. The differentiation is so complete that different sections of the warehouse are slotted specifically to serve the two types of customers.
Distributors have a great deal to learn from their chain-account customers, Sullivan said. One of the primary lessons is that customers get the best service when they work with a single supplier, he said. An independent restaurant operator can achieve significant advantages by cutting the number of trucks at the back door to one from five or six if that single distributor works efficiently to help manage food cost.
Monitor vendor service
Maintaining accurate deliveries while dealing with vendor inconsistencies can be a problem, Walsh said. Vendor problems can eat up administrative time as well. “It takes time to work out the balance between the late charges we levy on vendors and the detention charges their carriers place on extra waiting time,” he said.
Pate Dawson measures it vendors on inbound service levels, Sullivan said. Those measurements take the number of pieces delivered and on-time performance into account. Sometimes the lack of performance by vendors is stunning. Either orders are incomplete, or maybe they are complete but significantly late.
“If we served our customers the way some vendors serve us, we'd be out of business,” he said. “Inventory is a perfect example — vendor problems cause us to carry too much inventory just to make sure we can service our customers.”
Efficient inbound freight management is one of the keys to the future of foodservice distribution, Hickman said. This is true for inventory levels as well as the cost of inbound transportation with the rising cost of fuel and higher prices for equipment as truck engines change in 2007 and again in 2010. Carriers also face higher costs for finding drivers and for insuring their businesses. Distributors have to take more control of inbound management in order to control costs and to protect the ability to supply customers.
Stay focused on goods cost
The supply chain is naturally an adversarial relationship between vendors, distributors, and customers, Spinner said. The solution to smoothing that relationship is to stay focused on the cost of goods. If a distributor takes a controlled approach to the cost of goods, the other parts of the supply chain relationship will come into focus.
That cost is particularly important to independent restaurants. Distributors have a responsibility to help independents survive, because the industry contains three times as many independent restaurants as chain locations. However, the chains enjoy a 20% cost advantage compared to most independents, Spinner said.
Looking to the future, distributors will begin to use more technology to monitor product temperature throughout the supply chain, Walsh said. Most distributors already have temperature-monitoring systems in their warehouses. With increased emphasis on food safety, those systems will begin to move downstream into the delivery fleet so that distributors can verify a constant chain of protection from vendors through the wholesale warehouse all the way to the restaurant door.
Food safety may become the critical issue for foodservice distributors in the future, Hickman said. Exclusive of costs, food safety is the one issue that has the potential to shut a business down in the shortest period of time.
Maintaining the cold chain is critical now and will be more so in the future, Sullivan said. Distributors must be prepared to monitor temperature from the warehouse to the customer and even at customer locations in some cases. Distributors should keep a record of product temperature and be prepared to take responsibility for temperature maintenance. RFID chips will be a big part of the monitoring process. “When RFID tags reach the magical price of five cents each, the whole world will change,” he said.