When Long John Silver’s decided to outsource its entire supply chain to SpenDifference earlier this year, the choice was about financial strategy as much as it was about the convenience of handing over the purchasing reigns to a third party.
“It’s about access to leverage and expertise,” said Maryanne Rose, CEO of SpenDifference, a Denver, Col.-based company. “We have over USD 1 billion (EUR 896 million) of spend and an infrastructure of experts, financial leverage and technology that provides efficiencies and huge business intelligence. By contrast, it’s very expensive to build your own supply chain from Ground Zero, and it takes you longer to get to full effectiveness.”
Outsourcing your supply chain is typically an option reserved for large restaurant chains with very high revenues. At HAVI Global Solutions, a company that specializes in handling packaging and overall category management, its 12 restaurant clients have revenues north of USD 500 million (EUR 448 million). They include Darden, Denny’s and McDonalds, brands with hundreds to thousands of stores.
“For the mom-and-pop restaurant the scale many times isn’t there and that tends to be a barrier in terms of finding opportunities to outsource,” said Steven Rodgers, VP of business development for HAVI’s analytics, supply chain and promotions. How a brand determines its readiness to outsource its supply chain depends on its level of maturity, he added.
“Some newer restaurant concepts will be potentially more ready to outsource because of where they are in their maturity and how they want to invest in their business. For example, they may be more attuned to wanting to stay true to their core concepts. Outsourcing solutions like ours can handle other aspects of the business and grow them separately, individually of the brand. It allows the concepts to concentrate on their core competencies and use their supply chain on the offensive, to help be a growth engine for them, too.”
Outsource providers such as HAVI and SpenDifference typically show clients their value through savings, but it’s not just about the savings, Rodgers said. “Being able to identify the savings is one thing, but partnering with our restaurant clients in how they use those savings is another. So we look at other cost saving opportunities in their business.”
HAVI’s analytics solutions for category management help its clients to better plan their supply chain so that obsolescence is reduced, productivity improved and freight and distribution costs improved. “We specialize in packaging from a category management perspective but our solutions manage all the products that flow through our clients’ supply chain,” Rodgers said. “On a nightly basis, for example, we access all Point of Sale data for our concepts and run the forecasting analytics to give them a clear supply and demand picture for all products. They’ll use those analytics to help plan their supply chain and replenishments of supply.”
Rose said her company is getting many inquiries about its outsourcing services, particularly as the restaurant industry struggles with reduced margins, high cost of product and a volatile market. SpenDifference handles small to midsize restaurant chains that typically have a minimum of USD 20 million (EUR 17.9 million) in annual spend on paper, packaging and food. Some clients hire the company only for certain categories of outsourcing while others, like Long John Silver’s and its largest client, Focus Brands, hire for the entire supply chain. With 1,100 restaurant units across the United States and Asia, Long John Silver’s will be SpenDifference’s second largest client.
“Our average save across all clients’ product costs is 6.5 percent, plus outsourcing saves them money in general administration and labor,” Rose said. “I’ve had customers where we’ve saved them well over USD 1 million (EUR 895,708), and in general our savings are six and seven figures.” Rodgers said HAVI saves its restaurant clients between 5 and 8 percent of cost of goods sold.
“The bigger picture here is that since 2009 commodity prices are up 50 percent, which has put a lot of pressure on restaurant chains’ margins,” she added. “They’re looking for ways to recapture some of those margins and improve their profitability and SpenDifference is one of the ways you can do that, through access to technology, better expertise and leverage.”
Unger said he and Long John Silver’s CEO James O’Reilly were dealing with margin pressures and examining their G&A under a microscope like every brand. “We’re constantly asking ourselves, is there a better way to do what we do, whether that’s supply chain, development or marketing. SpenDifference does what they do better than we could at a scale that delivers fair, competitive pricing. The sum of their professional attributes allows us and our franchisees to focus on growing our core brand. Basically, SpenDifference is really good at what they do, and we trust them.”
SpenDifference’s expertise includes a staff of 35, among which there are 15 category experts, two focused exclusively on seafood. Of those two experts, one seafood consultant previously purchased for Darden Restaurants and the other worked with a major seafood supplier. “We hire the expertise we need and use it for the benefit of Long John Silver’s and our other customers who buy seafood,” Rose said. “For example, Long John Silver’s might have an in-house seafood expert but not have that same expertise in poultry and other categories, because it gets expensive. We allocate that expertise across other customers, making it a cost-effective way to have access to expertise with no one client having to bear the full burden of that employee’s cost.”
SpenDifference will be providing a dedicated support team on site for Long John Silver’s, a level of active partnership that was important to Unger and his team. “It allows us to have an ongoing daily relationship, to proactively discuss issues and have them voice their opinions and recommendations in our team leadership meetings,” he said.
The decision to outsource to SpenDifference boiled down to smart business, he added. “I can’t project what commodity pricing will do in the future. That’s part of having a key supply chain management company, to help you with forecasting and look for those savings opportunities. SpenDifference is looking at packaging savings and a combination of uninterrupted supply and commodity savings to get us in the best position.”
Rodgers said data management, integration and application of emerging technologies are key components as you’re looking at the success of your supply chain and considering a potential outsourcing partner. “The successful orchestration of these components not only unlocks savings opportunities, but allows concepts to leverage their supply chain partnerships as an engine for growth.”
