The New Restaurateur's Guide to Restaurant Supply Chain Management

Mastering restaurant supply chain management may not be the sexiest part of learning how to run a restaurant, but it’s one of the most important. If you don’t have a good handle on sourcing, procuring and purchasing raw ingredients and supplies for your restaurant, you’ll have a difficult time running a successful business.

But where do you begin if you’re a first-time restaurateur? There’s no need to panic. Consider this your quick-start guide to restaurant supply chain management. We’ll cover the basics and more, including:

• What restaurant supply chain management is
• The relationship between supply chain and inventory management
• Best practices for managing your supply chain
• How supply chain efficiency can help your restaurant boost sales

What is restaurant supply chain management?

Restaurant supply chain management is a complex, technical topic. To understand what it means, you first need to understand what the supply chain is.

Supply chain is the steps involved in getting raw materials from the source, turning them into sellable goods, and distributing them to customers. These steps typically involve working with a number of vendors who specialize in each step of the chain.

Supply chain management, therefore, means actively monitoring and managing your supply chain to maximize efficiency and value.

Restaurant supply chain management involves developing and managing relationships with food suppliers to produce products  — i.e., meals — to meet customers’ demands. Just like how restaurant management ensures personnel are on track, restaurant supply chain management ensures that every “link” in the supply chain is doing what it’s supposed to. 

Here’s an in depth, step-by-step look at what’s involved in restaurant supply chains:

• Sourcing raw materials: Identifying restaurant food suppliers, like farmers and wholesale food distributors, and vendors who sell takeout containers and paper goods, and negotiating contracts with them.
• Logistics: Finding partners that will deliver the raw materials to your restaurant.
• Production: Turning raw materials into sellable goods. For restaurants, this involves the magic that takes place in the back of the house, cooking!
• Distribution: Getting your sellable goods to your customers. These restaurant logistics can be as simple as bringing food from the kitchen to the dining room, or as complex as making deliveries to customers’ homes.
• Inventory management: Keeping track of supplies to know when it’s time to reorder them and how much to order.

In a perfect world, once you establish your supply chain by making deals with vendors, everything will go smoothly. Unfortunately, disruptions to restaurant supplies are all too common and have a significant impact on the industry. 

For example, at the height of the COVID-19 pandemic, many people involved in agriculture and food distribution couldn’t work due to unsafe conditions and lockdown measures. This meant that when restaurants were ready to reopen after lockdown restrictions were lifted, there were fewer raw ingredients available, so restaurants weren’t always able to get enough ingredients to meet customers’ demands.  

And because items were in low supply and in high demand, prices went up. According to the U.S. Bureau of Labor Statistics, the price of beef rose 20% between March and June 2020. Restaurants mitigate increased food supply costs by raising their prices.

That’s all to say that restaurant supply chain management is rarely given much thought but has a significant impact on daily business operations. 

The relationship between supply chain and inventory management

Inventory management is an important part of the supply chain. It helps you keep your customers happy and your kitchen running smoothly.

Inventory management involves keeping track of what ingredients and supplies you have in stock so you know when you’ll run out and need to order more. It informs your demand and purchasing decisions.

According to research by Oracle, 87% of companies would be able to reduce their inventory – and thus related costs – by 22% if they had more visibility into their supply chain. The better you manage your supply chain, the less you need to spend on inventory. And when you can make purchasing decisions based on data and accurate forecasts, rather than hunches, it’s easier to order what you need, nothing more and nothing less. 

Restaurant supply chain management best practices

Since you’re a rookie when it comes to supply chain management and restaurant logistics, here are several best practices that will set you up for success. 

• Price shop for the best deals, whether that’s for restaurant supplies, inventory management software or food delivery partners. When restaurant suppliers compete for your business, you benefit by getting a good deal.
• Reevaluate vendors often. You don’t have to work with the same restaurant food suppliers and logistics providers for the rest of time. Evaluate your vendors’ prices at least once a year, if not more, and look for new vendors if you can find better deals and service elsewhere. But first, make sure you aren’t locked into any long term contracts you can’t get out of.
• Join a collective. There’s power in numbers. By joining a group purchasing organization, you can get better deals on supplies than you could on your own. 
• Streamline your supply chain by working with restaurant suppliers that can take care of more than just one step on your chain. For example, look for restaurant food suppliers who can provide ingredients and deliver them to you, instead of making you pick them up.
• Weigh the pros and cons of doing things yourself. Evaluate which steps of your supply chain are best kept in-house, and which ones are worth outsourcing. For example, while it may be worthwhile to pay a premium to have food suppliers deliver ingredients to your restaurant instead of going to a market to pick them up, it may make sense for you to fulfill your own food deliveries instead of using a third-party fleet, like Postmates, to do it.
• Make sure you have enough supplies for promotions. What’s worse than launching a new product or promotion and no one being interested in it? Many people being interested in it but not being able to buy it because your restaurant has run out of the ingredients to make the dish. While exclusivity has its perks when created deliberately, when it’s created by accident, it’s just a bad business move. If you’re revealing a new dish or sending out coupons for a particular item, make sure you have enough supplies to fill the increase in demand. Coordinate your marketing efforts with supply chain availability. Look at supply forecasts to ensure you’ll have enough chicken for your new sandwich or enough coconut milk for your new lattes.
• Boost restaurant efficiency with software. Restaurant technology, like supply chain management software and inventory management software, is making the tedious, but important, tasks of monitoring inventory, reordering restaurant supplies, communicating with vendors and tracking supply deliveries easier. These tools can cut down the time it takes to do these things. Plus, if your restaurant POS system has inventory management tools built in, or integrations with supply chain management solutions, you can even automate many of these steps.
• Track your supplies to the source. Knowing where your raw ingredients come from is critical for food safety. Remember last year’s E. coli outbreak? It was linked to leafy greens, so key salad ingredients like romaine and spinach were in short supply. Stay attuned to agricultural reports from the regions from which your ingredients come so that you can anticipate disruptions in the supply chain and pivot by switching up your menu or supply order. 

How supply chain efficiency can help boost profitability and sales

Restaurant supply chain management is important because doing it well can lead to business benefits — namely, more sales and higher profitability. But how?

First, when the “links” in your supply chain can share information, they can collaborate better. This collaboration ultimately gives you more control over your business, so you can increase profit margins more easily. Collaboration also reduces risk, which saves you money. 

Let’s say, for example, that your restaurant purchases bread from a local bakery instead of making it in house. If you learn that there’s a shortage of flour, and the bakery will therefore increase prices, you can reduce costs by either removing bread from your menu while flour is in high demand and low supply, or looking for an alternative. 

Second, supply chain efficiency helps you spend less on inventory. As we already mentioned, Oracle’s study found a link between supply chain visibility and inventory cost savings. The more you know about where your restaurant supplies come from, what they cost, and how shortages will impact you, the better informed you’ll be when making purchasing decisions. 

Finally, a streamlined supply chain keeps you in the know and makes it easier for you to inform customers of disruptions in service or supplies. For example, if your ice cream shop is known for its seasonal pumpkin spice flavor, but nutmeg is in short supply, you can keep customers happy by altering your recipe or offering alternatives. By anticipating and working around crises, you can keep customers happy. And when customers are happy, they’ll keep coming back for more. 

Supply chain management makes the restaurant world go ‘round

If you’ve made it this far through this article, then you have the information you need to tackle restaurant supply chain management like an industry veteran. So, go forth and build relationships with food suppliers, keep an eye on agricultural reports, and look for software that can help you streamline your supply chain and restaurant logistics.

Lightspeed’s POS simplifies supply chain management by offering built-in inventory management solutions and integrations. Watch a demo today to learn more.