The Role Of Purchasing And Supply Chain Management In Food And Beverage Operations

The Role Of Purchasing And Supply Chain Management In Food And Beverage Operations

Introduction

Purchasing and supply chain management is a critical process in modern businesses. In food and beverage operations, purchasing and supply chain management involves the process of sourcing, purchasing, storing and utilising key commodities with the main aim of fulfilling the outlined catering needs (Davis et al, 2008). In addition, purchasing and supply chain management involves the management of information, knowledge, activities, and resources with the main view of transforming raw materials to finished products (Greasley, 2009). From an operational, tactical and strategic standpoint, purchasing and supply chain management helps food and beverage establishments to increase revenue and build profitability by cutting down operational costs and through building synergies and maximising the utility of core resources. This is in line with van Weele (2005: 4) postulation that modern businesses have turned to purchasing and supply chain management as the key solution to the numerous operational challenges they face emanating from the highly unpredictable environment characterised by high competition, high supplier and buyer power, threats of substitute products, and low barriers of entry.

Arguably, purchasing is a core facet of management in service industry in general and in food and beverage establishments, in particular.  In food and beverage establishments, purchasing and supplies managers are forced to initiate long-term relationships with suppliers so as to ensure a constant supply of critical commodities such as fresh farm produce at the right quality, right quantity, right time, and right prices (Fitzsimmons and Fitzsimmons, 2010). In essence, purchasing as a management activity aims at minimising the costs of doing business while at the same maximising profitability. Nevertheless, the unpredictable nature of contemporary business environments requires food and beverage businesses to subject their purchasing and supply management models to constant review (van Weele, 2005). Arguably, purchasing and supply chain managers of food and beverage establishments will find it prudent to make informed buying decisions in order to manage their operation costs. The effects of such processes are usually reflected in the final profits the establishments make. This paper critically evaluates the role of purchasing and supply chain management in food and beverage operations. In addition, the paper examines how a proactive approach to cost control can provide food and beverage businesses with competitive advantage in a difficult trading environment.

Role of Purchasing and Supplies in Food and Beverage Operations

Purchasing and supply chain management helps food and beverage establishments to build synergies. According to Ketchen and Hult (2006), no organisation operates in isolation and food and beverage establishments are not an exception. As a matter of fact, eateries and pubs rely on suppliers of fresh produce to maintain a seamless flow of commodities like beef, eggs, pork, and milk. They again rely on individual and institutional customers to consume their processed meals and drinks. Again, and as van Weele (2005) asserts,  there is need for food and beverage establishments to enter into relationships with other establishments in order to build sustainable business entities that are capable of surviving harsh economic climates. For instance, when launching a new product such a new beer targeting the young female population, pubs and brewers normally form networks either by liaising with product development consultants to identify the most appealing packaging and distribution techniques to employ or by engaging the services of pub owners at the ground in order to assess consumption potential of the targeted clientele. Sometimes even rival food and beverage establishments can team up and lay down strategies for joint purchase of critical commodities such as fresh farm produce so as to enjoy high quantity discounts or even to increase their bargaining power and therefore counter any future potential cases of supplier sabotage as is sometimes common with coffee and tea cartels that buy large amounts of supplies from the farmers in developing countries like Kenya and Ethiopia and hoard it so as sell to large food and beverage establishments such as McDonald’s and Starbucks at exorbitant prices. To this end, Davis et al (2008) and van Weele (2005) assert that supply chain networks, whether upstream or downstream among large eateries and pubs may end-up lowering suppliers’ and buyers’ bargaining power and therefore create a sustainable opportunity (synergy) for entrepreneurs. Moreover, synergies can be created on technological fronts especially when using e-commerce platforms to meet potential suppliers (Ketchen and Hult, 2006). Further, many food and beverage retailers can even utilise a common internet-powered supply chain platform to mobilise each other when buying in large quantities or even to educate suppliers on the most environment-friendly methods of packaging and transporting supplies. This will definitely create synergy in the areas of innovations as well as green business operations in the long run.

Purchasing and supply chain management in the food and beverage industry enhances the quality of services afforded to customers. According to Davis et al (2008), it is the duty of food and beverage businesses to ensure that their products and services reach the targeted customer in a good manner in terms of quality and quantity. The nature of service industry in general, and food and beverage industry in particular requires stakeholders to fulfil a number of key performance indicators which include but not limited to the quality, speed, dependability, and the flexibility of the service delivered (Johnston, Clark and Shalver, 2012). Specifically, and due to the changing socio-economic dynamics, customers expect to be served in the shortest time possible and they are therefore most likely to perceive the quality of service they receive at their eating joints to the amount of time they spent in the cashier’s till or at the table awaiting to be served (Drysdale and Galipeau, 2008). Moreover, Davis et al (2008) argue that though the number of households who prefer to eat out has been on the decline in the last 20 years due to factors such as health and lifestyle concerns as well as hard economic times, customers still expect food and beverage joints to be reliable in delivering quality service. Further, contemporary customers expect eateries and pubs to offer the most exclusive service there can be to satisfy their highly dynamic tastes and preferences. At the same time, contemporary customers expect eateries and pubs to offer flexible services that can be customised to meet their unique needs (Johnston, Clark and Shalver, 2012). Analytically, food and beverage operators cannot meet these four unique performance indicators while realising good profits margins if they lack a good purchasing and supply chain that embraces responsible buying. Responsible buying entails paying farmers reasonable prices for their fresh produce, teach them modern farming methods that rely on both artificial and natural climatic conditions, and most importantly, motivating them to increase their farming acreage (Davis et al, 2008). Moreover, the operators should ensure they employ highly qualified personnel who can successfully transform knowledge, information and material resources into high quality services. For instance, medium size pubs that brew their own wine are tasked with the responsibility of ensuring a seamless supply of fresh grapes all year round and engaging the services of passionate brewers, marketers and customer service executives.

Purchasing and supply chain management help food and beverage businesses to cut down their operation costs. According to Davis et al (2008: 32), the recent economic slowdown has necessitated the need to control the costs of doing business. Many food and beverage businesses depend on fresh farm produce supplies from different regions, some even from abroad and are therefore occasionally hit by economic slowdowns or other disruptions experienced in these far regions. For instance, Starbucks can suffer immense costs due to disruptions in Africa as it relies on coffee cultivated in Ethiopia and Kenya while McDonald’s can incur huge operational costs if there is an unfavourable business climate in South America because it relies on beef imported from Argentinean and Brazilian ranches. To this effect, purchasing and supply chain managers in these two food and beverage establishments must lay down proper operational procedures to have these critical resources shipped to their locations in the right quality, quantity, price and right time for them to meet their cost advantage strategies. This can take the form of Resource-Based View (RBV) model that will see operations and supply chain managers liaise with farmers from these regions and seal mutually exclusive and long-term contracts that will allow the supply of high quality coffee and beef at subsidised prices. However, for this model to work right, the two establishments must ensure that the quality, quantity, and price of these two valuable resources are unique and competitive, that is, inimitable and non-substitutable by rival establishments (Barney, 1991). This will allow the two establishments realise above average returns because they will have access to high quality, fresh produce at reduced prices than their rivals. This is true since van Weele (2005: 11) argue that food and beverage managers need to control costs associated with purchasing and supplying of goods and services in order to ensure that the services they finally offer to their customers at the table are capable of generating good profit margins to cushion what was spent in purchasing the respective raw materials. In a nutshell, the cost control aspect of building competitive advantage among food and beverage establishments like Starbucks and McDonald’s will require operations and purchasing and supply chain managers to liaise with suppliers of valuable resources so as to ensure an uninterrupted and cost-efficient supply-channel that can be sustained in the long run.

Responsive purchasing and supply chain management helps food and beverage establishments to reduce redundancy in their operations. According to Davis et al (2008) and Johnston, Clark and Shalver (2012, time is an important for successful operations in the hospitality industry in general, and food and beverage sector in particular. Most food and beverage businesses rely on perishable raw materials and therefore there is a need to make necessary plans so that the supplied materials are utilised as soon as they arrive at the establishment. Purchasing and supply chain managers should only order the exact amount of commodities to be used within a given time to avoid cases of spoiled supplies (Drysdale and Galipeau, 2008: 20). One of the best supply chain models to achieve this feat is the Just-in-Time (JIT) model which discourages organisations from storing supplies by encouraging a responsive operational framework that allows for quick ordering and conversion of inventory. This ultimately increases return on investment while reducing the level of inventory in progress as well as the cost incurred in storing stock. This is a typical model for most food and beverage businesses since services are highly perishable and irreplaceable (Mintel, 2011). To this end, a JIT model will ensure that there is a clear purchasing, conversion and supply procedures that connect the suppliers of fresh farm produce to the final consumer. This will involve the development of appropriate specifications for each commodity purchased, procedures for selecting suppliers, procedures for evaluating the quality of commodities, and procedures for the regular review of an outlet’s operational demands (Ojugo, 2010: 22). Such procedures will ensure that the right personnel are engaged in the sourcing, shipping, conversion, and delivery of food and beverage products to the final customer in an effective and efficient manner.

How Cost Control Create Competitive Advantage

The cost control aspect of purchasing and supply chain management as discussed in the first section of this report enhances high return on asset (ROA) and return on investment (ROI) margins. According to Davis et al (2008), owners of food and beverage establishments aim to offer highly differentiated products that meet customers’ value for money expectations while at the same time realisi.............