Developing a Supply Chain Strategy for a Midsize

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DEVELOPING A SUPPLY CHAIN STRATEGY FOR A MIDSIZE RESTAURANT CHAIN Wu, Lifang;Kloppenborg, Timothy J;Walsh, James P Journal of Small Business Strategy; Spring/Summer 2006; 17, 1; ABI/INFORM Complete pg. 63

DEVELOPING A SUPPLY CHAIN STRATEGY FOR A MIDSIZE RESTAURANT CHAIN

Lifang Wu Xavier University [email protected]

Timothy J. Kloppenborg Xavier University [email protected]

James P. Walsh The Honey Baked Ham Company of Ohio [email protected]

ABSTRACT

In this paper, we develop a supply chain strategy for a growing midsize restaurant chain. Based on a case research of The HoneyBaked Ham Company of Ohio, we propose that an integrated approach should be applied to handle the challenges presented in the midsize restaurant distribution system. Specifically, we focus on action plans for mitigating inefficiencies found in the previous supply chain of HBH. As the success of supply chain management has increasingly become part of the competitive advantage of many firms, our work provides managerial insights to practitioners and researchers in the area of chain restaurant management where supply chain is often overlooked as a standard '"back-office" function.

INTRODUCTION The success of the restaurant supply chain management can be attributed to this focus Supply chain management (SCM) refers to a (Ritchie, 1990). In this paper, we will discuss set of systematic approaches utilized to the development of a supply chain strategy efficiently integrate supply chain parties so for a midsize restaurant chain. The research that merchandise is produced and distributed is based on a recent supply chain project at the right quantities, to the right locations, conducted at The HoneyBaked Ham and at the right time (Simchi-Levi, Company of Ohio (HBH). Kaminsky, & Simchi-Levi, 2003). These parties include suppliers, distributors, Small and mid-sized enterprises (SMEs) are transporters, and stores. A restaurant supply distinctive in the sense that SMEs are chain consists of all parties involved, directly relatively small in size and scale, and some or indirectly, in fulfilling a customer request SMEs are in the fast Jane for growth. The at restaurant outlets. It at least partially size distinction is often seen as a includes business functions such as disadvantage, as SMEs may not have a large procurement, logistics, distribution, invent supply chain work force or a sophisticated IT tory, operations, and marketing. Quality, infrastructure to support the logistics system. service, cleanliness, and value are the cornerstones of many successful restaurants. However, this does not necessarily mean

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. I 7, No. I Spring/Summer 2006 SCM is not important to SMEs. The small offering these competitive advantages in the size and often rapid growth of SMEs like marketplace. For example, the fast and HBH instead create a unique challenge in timely shipment of product is essential for managing their supply chains. Operating an providing high quality food. A restaurant effective and efficient supply chain is, in supply chain presents many challenges that a fact, vital to their overall success in the long traditional supply chain does not have. At the term. same time, since distribution or SCM is often seen as a "standardized" or "back-office" The goal of SCM is to maximize the supply function in the restaurant industry, many chain profitability, which is defined as the people think it does not contribute to the difference between the revenue and the total corporate competitive advantage. In cost incurred in the supply chain (Chopra & companies that employ a centralized Meindl, 2003). Clearly, there is only one distribution, the reason is often to achieve source of revenue in a supply chain: the better price negotiations through centralized customer. All flows of information and buying rather than improving logistics product generate costs within the supply (Bernstein & Paul, 1994 ). As a result, despite chain. SCM is extremely important to all the extreme importance of managing a business owners and managers simply successful supply chain in a restaurant chain, because it has a strong impact on both the this topic has received little attention in the revenue and costs for all firms in a supply SCM and restaurant management literature. chain (suppliers, distributors, and retailers). Focusing on eliminating waste in both Among the related articles, Mawson and material and process, the notion of lean Feame (1996) identify key elements of the supply chain management has increasingly buying process to facilitate the development attracted attention in recent years (Vitasek, of supplier-buyer strategies for a sample of Manrodt, & Abbott, 2005). Companies, UK chain restaurants. They utilized the case especially small ones, need to pursue study method to analyze the supply chain innovation and focus strategies to support decision-making processes in one of the their growth (McGee & Shook, 2000). As largest restaurant chains in the UK. Their small businesses continue to grow, their findings suggest that chain restaurants value supply chains also need to change to not only technical competence and financial accommodate the challenges from the stability but, also, consistency of their expanded business. In this respect, supply suppliers. Samuel and Hines ( 1999) use the chain strategy is essentially important in quality function deployment method to offering sustainable business compete involve inputs from a range of tiveness. While results have varied, evidence representatives from a major food distributor suggests that formal strategic planning is for making supply chain improvement related to superior performance in business decisions. There are also a number of papers management (see Schwenk & Schrader, dealing with food distribution issues in a 1993; Brews & Hunt, 1999; Perry, 2001). general setting. Salin and Nayga (2003) Further, strategic supply management has examine the inter-company relationship in been empirically linked to firm performance the cold food supply chain used for exporting through measures of return-on-investment, frozen potatoes from the U.S. to developing profit as a percentage of sales, firm revenues, countries in Asia. Fernie and McKinnon etc. (Carter & Narasimhan, 1996). (2003) assess the potentials for further cost savings in the grocery distribution sector in In general, the marketing strengths for the UK. More recently, Aghazadeh (2004) restaurant chains are consistency, conven explores ways of improving logistics and ience, and value for money (Mawson & distribution supply chains within the food Fearne, 1996). SCM plays a critical role in retail industry.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. 17, No. 1Spring/Summer2006 This paper will explore the topic of strategic inventory was replenished without excessive supply chain management in the restaurant transportation delay. However, there were industry. Through the HBH case, this paper disadvantages such as high purchasing cost sets out to identify key strategies of and the difficulty associated with managing managing an efficient and responsive supply the whole restaurant chain consistently. chain in the mid-size restaurant chains in the Stores could carry different products for non U.S., with a view to facilitating the develop core items; customers could receive a ment of strategies which are clearly focused different sandwich from store-to-store. This on integration of activities, coordination, cost clearly created confusion. reduction, and information sharing through out the entire supply chain. In 1999, HBH started to use a primary broad line distributor along with local distribution. HBH SUPPLY CHAIN The concept of this program was to minimize costs with the centralized distribution. The HBH Historical Development clear benefits were savings on inventory aggregation and the less expensive The Honey Baked Ham Company of Ohio contracted prices for procurement due to the (HBH) is one of five companies that large purchase volume. Since 1999, HBH comprise Honey Baked Ham. The five has used three distribution modes for companies were divided many years ago shipping products to stores: broadline from the original Honey Baked Ham distribution, direct (ham) deliveries, and Company, which only sold hams to go. The local distribution. The local distribution in various companies collaborate on a few each market is used primarily for fresh things such as health care, some products breads, produce, and salads. The hybrid offerings, and Federal Express contracts, yet distribution program was not quite successful they operate completely independently from as explained below, especially during the each other regarding most of their supply important peak holiday seasons of Easter, chain issues. There is also a slight overlap in Thanksgiving, and Christmas, which account geography between companies. HBH of for a large percentage of the annual sales Ohio and HBH of Michigan cooperate in revenue. servicing on-line and catalog sales at a facility in Toledo, but this facility is The Unique Challenges of completely separate from the supply chain Midsize Restaurant Supply Chains strategy for the 51 stores owned and operated by HBH of Ohio. This article only concerns Most supply chains are concerned with three HBH of Ohio distinctive flows: physical products, infor mation, and funds (Chopra & Meindl, 2003). HBH offers a holiday dinner solution as well However, for mid-size chain restaurants like as a casual dining experience to customers HBH, managing these three flows presents through its 51 stores located in ten markets many unique challenges: throughout the country. Ten years ago, the HBH business could be characterized as • 51 stores in I 0 states owned and basically a ham business. HBH utilized local operated by HBH (See Figure I) distributors for everything but the hams. The • Different menus for different hams were shipped direct to each store from regions (For example, Kentucky the producers. The district managers were stores have a dinner roll called responsible for the management of the local Camelot buns, and Kansas City distributors and worked with them on stores have swirled dessert bread assortment management. As a result, the called Povitica.) stores were relatively independent and • Short shelf-life products such as

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bread and salads • Increasing number of stock keeping • Extreme seasonal demand (see units (SKUs), especially due to the Figure 2) (For example, the average new cafe business. (Currently there sales in December is 14 times the are about 250 common SKUs average sales in January.) offered at all stores.) • Unpredictable demand due to • A hybrid distribution system based weather and events. on third-party logistics (3PL)

Figure 1 - HBH of Ohio Store Location Map

•- 7 10 stores • 4 - 6 stores • 1-3 stores

Figure 2 - Demand Seasonality of HBH of Ohio

Percent of Annual Store Sales per Month

Jm1 Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. 17. No. I Spring/Summer 2006 The supply chain structure of HBH presents offerings-thereby, increasing the product an efficiency obstacle since the markets are variety and the amount of difference from widely scattered. Nine of the ten markets are store to store. These specific characteristics within 1000 miles of the headquarters, but make the midsize restaurant supply chain few are very close. One supply chain very challenging to manage. characteristic is the extreme variation in demand. Peak demands occur at Easter, Specifically, the product line carried by Thanksgiving, and Christmas. Regarding chain restaurants like HBH usually other supply chain characteristics, the HBH complicates their supply chain significantly. supply chain is responsible for delivering a HBH delivers a wide variety of fresh meats, wide variety of products, supplies, pack cheeses, and other food products necessary aging, cleaning, and other materials, many of to operate the business. Each item has a which have limited shelf life. There are more different demand rate, demand uncertainty, than 350 SKUs carried in its current supply temperature requirement, cost, and contri chain (the number is still increasing as the bution margin. Moreover, based on the company is expanding its casual dining temperature at which products are kept, business). Furthermore, the mid-size items are classified into three categories: company that still has the desire to accelerate frozen, refrigerated, and dry products. growth presents other unique challenges. For Accordingly, frozen items and dry items example, some supply chain strategies that have longer shelf life and can be stored in the worked well for a small company may not be system for a minimum of several months. adequate any more; yet some supply chain However, frozen items need additional economics that are appropriate for a large freezer capacity for maintaining the required company are not yet realizable in midsize temperature while dry items do not need supply chains. Due to the volume limitation, freezers. Refrigerated products include a for example, companies like HBH have to variety of meats, cheeses, produce, and other use third-party logistics (3PL) providers for fresh items. Their shelf life is relatively their distribution function. Thus, many short. Overall, HBH's supply chain presents supply chain techniques developed by large a number of industry-specific supply chain companies such as cross-docking may not be characteristics shared by many midsize applicable. restaurant supply chains.

Within the supply chain, because of the Because of these difficulties and the limited independent ownership, many firms study of strategic supply chain management primarily take care of their own interests in the small and midsize restaurant industry, when making decisions. To worsen the the HBH supply chain is an intriguing case situation, quite often many supply chain to investigate. The supply chain needed to be members have conflicting goals in running aligned with the recent strategic plan of the their business (Narayanan & Raman, 2004). company, which was to double both sales There are directly conflicting goals such as and the number of outlets in 10 years. The one's cost being the other's revenue and team working on the project immediately indirectly conflicting goals such as when an saw the following issues that hampered the action taken by one party does not benefit effectiveness of the existing system and itself but does hurt its supply chain partners beyond. (Walsh & Wu 2006). These, in tum, add to the complexity of managing HBH's Weaknesses of the Current HBH Supply distribution system. Further, HBH experi Chain enced rapid growth as it rolled out its new casual dining format to existing stores. HBH The major weaknesses identified for the has decided to be innovative in its product existing supply chain came from the

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. I 7, No. I Spring/Summer 2006 distribution system. The system's perform issue. ance during the three peak holiday seasons 8. Expanding product assortment: The (Easter, Thanksgiving, and Christmas) was above problems are also clearly not satisfactory in achieving complicated by an assortment that is corporate objectives. Problems such as constantly changing and increasing stockouts and overstocking take away value with new products, seasonal from the customers. The following specific products, deleted products, and operational issues have been identified in substituted products. Without an HBH's supply chain: effective distribution plan, the situation will only be exacerbated 3. Stock outages: Stock outages with the rollout of additional stores occurred throughout the year, and new services. especially on the most important products. Most of the above operational issues are 4. Shelf life: Additionally, the stores fairly common to many of the mid-size had to contend with .shelf-life restaurant supply chains as they share much issues: products often were of the same structure and demand delivered with little remaining characteristics in this industry. These issues shelf-life, and in some cases, they are strong indicators of supply chain were expired. inefficiency. The next sections present 5. Forced distribution problem: There strategic thoughts on mitigating these was a battle between too much problems, along with the potential solutions product and not enough product. developed under the framework of supply There was often the need to force chain strategy. products from the distributors to the stores. Some of this was the result SUPPLY CHAIN STRATEGY of not ordering to historical demand, but much was due to over Nature of Supply Chain Strategy ordering by the distributors. For example, district managers have In the restaurant industry, a supply chain "driving product from store to store strategy essentially determines the within their region at peak times" procurement, transportation, and distribution listed as their job description. of products to the customers. The supply 6. Delivery capacity: The delivery chain strategy specifies what the company system was not adequate to ship will attempt to do particularly well regarding products during the fall holidays. these functions to support the company's The number of cases delivered in overall business strategy. Therefore, December was twelve times that of decisions regarding inventory, transportation, an average non-peak month, and the operating facilities, and information flows system did not have the necessary within the supply chain are all part of the resources (trucks, trailers, drivers, supply chain strategy. At the strategic level, and warehouse capacity) to meet the the HBH SCM team, using a cross-functional demand. perspective, developed very detailed 7. Collaboration: In recent years, descriptions regarding the strengths and various distribution mistakes were weaknesses of the existing supply chain, as repeated. Little change was made well as the expectations for the new supply even after some parties agreed to chain system. This was used as a foundation solve these problems. Apparently, to develop the requirements for the new collaboration between companies system. within the supply chain is a tough

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. 17, No. 1 Spring/Summer 2006 On the other hand, the overall business ( 1) Support the overall corporate strategy. strategy defines ways of creating and For example, the supply chain strategy will maintaining the competitive priorities provide the flexibility and capability to required in the marketplace. Strategy support the anticipated growth in business development has received continuous volume and the increase of SKUs. attention from both practitioners and scholars (2) Support and maintain consistency with as markets become more competitive (Bettis other functional strategies. For example, & Hitt, 1995). The competitive strategy and improve the distribution performance such as all functional strategies, such as marketing in-stock availability while containing the and supply chain strategies, must fit together total cost. The overall cost of stock-outs and to form a coordinated overall strategy (Hill, markdowns must be minimized, yet the 2000). Each functional strategy must support distribution plan should cost no more than other functional strategies and help reach the the current level. The marketing functions corporate objectives such as profitability, will benefit from better forecasting that will growth, return-on-investment, etc. A com be possible from more current and accurate pany may fail either because of a lack of information obtained by the new supply strategic fit or because its supply chain does chain system. The company will also enjoy not provide the required capabilities to the long-term benefit of better-trained store support the desired strategic fit (Chopra & staff with regards to the ordering, receiving, Meindl, 2003). At HBH, the SCM group inventorying, and transferring of product. consisted of managers from different areas to ensure that the new supply chain system Internal departments such as store would meet all other functional expectations, operations, purchasing, and accounting at fit into the existing operations system, and HBH were asked to identify their achieve the long-term goals of the company. expectations of a successful supply chain system so that their specific needs can be Functions of HBH Supply Chain Strategy understood and selection of a plan that most closely matches expectations can be To HBH, customer service remains a top facilitated. The expectations include: competitive advantage through hosting, educating, and anticipating and fulfilling • Account management customer needs. SCM determines HBH's • Pricing schemes ability to have the right product at the right • Purchasing time (Fill rate or cycle service level is used • Cost effectiveness to indicate this capability), therefore, SCM • Service level has direct and fundamental impact over the • Internal operations standards customer service offered by HBH. Besides, • Delivery accountability HBH uses direct mailing and a toll-free • Supplier and distributor cooperation telephone number with its customers. In the near future, HBH aims to double the number The expectations were incorporated into the of distribution points through additional cafe Request for Quote that was sent to each conversions of existing retail outlets, prospective new supplier to HBH. Quotes additional corporate and franchise locations, were evaluated on both service and cost and strategic partnerships, to dramatically factors to determine the best method of enhance customer convenience and increase distribution for HBH. In the end, improved shopping frequency. Along with this financial performance is the most frequently strategic plan, a successful supply chain cited benefit to be obtained from a successful strategy at HBH should serve the following supply chain strategy. A clear, well-thought purposes: out supply chain strategy is the key to maximizing corporate profitability while

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. I 7, No. I Spring/Summer 2006 avoiding supply chain pitfalls. present. The suggestions offered in this article present some effective tools to RECOMMENDATIONS MADE TO HBH mitigate the negative impact of the existing store network. The supply chain strategy also Supply chain management consists of firms needs to stay in line with the company's collaborating to leverage strategic various functional strategies, so as to support positioning and to improve operating the overall competitive strategy. efficiency. In some sense, a supply chain Customized Distribution strategy is a channel arrangement based on acknowledged dependency and collabo The food supply chain is characterized by a ration. Supply chain operations require number of features, such as the associated management processes that span functional lead-time, shelf-life, seasonality, variety, and areas within individual firms and link trading uncertainty. As a result, a hybrid distribution partners and customers across organizational system works better in meeting the needs for boundaries. It is the interrelation of functions low cost and fast delivery than any pure and organizations that challenges the method. A new system consisting of the successful implementation of integrated following five distribution modes was logistical management (Bowersox, Closs, & proposed: Cooper,, 2007). As a response, an integrated approach is needed to handle the interrelated • Local Distribution: Local distri-bution nature of logistical work at HBH, covering will be utilized in each market for those areas such as procurement, collaboration, items that need to be distributed weekly transportation, warehousing, and facility to each store. Broadly, items with low network design. We present our supply chain demand or short shelf-life such as bread, planning recommendations in this section. produce, salads, and beef are appropriate for using this option. Strategic Planning • Direct Distribution: Products are As the leader of the supply chain, HBH has shipped direct from suppliers to stores. learned to "think earlier" and "plan earlier." Only products with very high demand SCM requires "early thinking" on many can be justified for using this method. In decisions relating to the flow of goods, addition to hams, turkeys will also be information, and funds along the timeline. distributed directly to the store. These decisions fall into three categories (supply chain strategy, planning, and • Central Distribution: The HBH operation), depending on the time frame over proprietary items will be shipped to a which a decision category has an impact. central warehouse and distributed five Strategic decisions such as store additions, times per year to the stores. This allows supplier selection, distribution system for the central distributor to meet design, supply network design, etc. have a minimums on these items and to cost Jong-lasting effect on HBH's operational effectively distribute them to the stores. performance. They must be made based on a Examples include HBH seasoning, a careful systematic analysis well in advance. variety of HBH soups, and HBH logo While the store locations of HBH are packaging. Comparatively, the central seemingly inappropriate, these location distribution can be seen as an decisions are decades old, made under intermediate option between Direct and different circumstances by a different Local shipping methods. generation of leaders. The decisions might have looked sensible at the time, but they can • Dray Distribution: Local drays will be present supply chain challenges in the used for frozen products during the fall

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. 17, No. 1Spring/Summer2006 holiday season. This will allow for local Coordinating System Improvements storage and delivery of highly seasonal Through Aligning Conflicting Goals items such as HBH side dishes, cheesecakes, and various baked pies. Different participants in HBH's supply chain such as HBH, distributors, and suppliers • Rental option: Rental trucks can be frequently have conflicting goals. For leased for adding temporary storage example, in order to save ordering cost, capacity when necessary. This can be distributors tend to place large orders, which used together with all of the above four can create shelf-life issues downstream for distribution options. HBH. Performance measurement, infor mation sharing, and close collaboration Based on the available distribution options, between HBH and its distributors can be the key decision for implementing the new very effective in mitigating these problems. distribution system is the determination of For example, information regarding the which option must be used for which item in distributor's ordering cost and HBH's order to minimize the system cost while overstocking cost can be shared to facilitate providing the required service level. The efforts to reduce the overall system cost. group initially selected a hybrid distribution Long-term inter-company strategic partner system based on the company's experience ships also help create a win-win situation for with the old distribution system since the supply chain members. Overall, without the historical data was incomplete and of retailer's participation, no distributor can do questionable accuracy. The initial hybrid well in achieving both effectiveness and plan serves as a good starting point, and the efficiency in distributing highly seasonal and hybrid structure allows future refinement and unpredictable products. improvement of the new system. Because one item can possibly be carried through two Generally, some conflicting goals are visible; or more distribution modes, opportunities for for example, the revenue of a supplier is the realigning the new distribution system cost for the downstream partner. This is a develop. This potential redundancy may also zero-sum game; what you lose, your partner provide useful information regarding backup gains. On the other hand, some conflicting distribution plans under some "what-if' goals are invisible. One·s cost is not scenarios. For example, if a central distri necessarily the revenue for others. In other bution item is not available through the words, the action taken by one party may not central system, the second (least expensive) benefit itself but does hurt its supply chain distribution method can be employed to partners. For example, without proper deliver the product. Furthermore, each store inventory rotation, the product shipped by carries a different product assortment the distributor could have little remaining (meeting local demands), and their sales shelf-life, which is very costly for HBH to volume varies. Thus, for the same item, correct later on. The challenge is how to different distribution options might be coordinate all of the firms in the supply justified for serving different stores. At the chain network so that conflicting goals are current stage, the SCM team decided to tailor realigned such that everyone can come out the distribution options for each of the l 0 ahead. Bowersox et al. (2007) argues that the markets instead of each store. It made sense main challenge for SCM will be the to plan at the market level because these management of intense relationships across markets represent clusters of stores in close enterprises that involve such issues as proximity. At the same time, it is noted that collaboration, information sharing, parti store level cost and other data are not tioning, diverse corporate cultures, shared available for further analysis. cost and risks, and trust. We believe these issues constitute the major causes of many

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. I 7, No. I Spring/Summer 2006 visible and invisible operational problems we Benchmarking is a systematic procedure that mentioned earlier. measures a firm's processes against those of industry leaders. Companies like HBH can A contract-based incentive is one of the tools use benchmarking to understand better how that can be used. A supply contract details outstanding companies plan and implement the requirement of procurement of goods, supply chain strategies so that they can transportation of materials, and distribution improve their own supply chain perform of the product to the customers. Based on the ance. Benchmarking focuses on setting visible cost and other operational quantitative goals for improvement. Typical information, the proper incentive can be measures in restaurant industry include unit offered to supply chain members for cost on procurement and distribution, service synchronizing their decisions. For example, level, lead-time, and inventory turnover. In some stubborn inventory stockout problems the logistics area, differences in managerial can be cured by offering financial incentives style and organizational culture do not affect to the distributor for improving the service the performance significantly, thus, bench level such that the overall supply chain marking is particularly encouraged. In inventory cost is minimized. Since HBH's case, benchmarking data can be operational actions are basically self-interest possibly collected from other similar driven, without a monetary incentive, restaurant chains that do not compete probably no other method can work as well directly with HBH. in coordinating supply chain decisions. Financial incentives must be properly Integrative approach to decision making structured and aligned to drive and sustain the behaviors of all supply chain stages. Most of the companies are divided into a After all, a win-win situation is materialized number of functional areas such as only if everyone receives their share of accounting, marketing, and operations. revenue mcreases. Unfortunately, most real supply chain problems do not define themselves in this With the conflicting goals, information is way, meaning they are cross-functional in often not shared among supply chain nature. We can break down SCM into members. Every firm needs more timely and various parts but one must not lose sight of accurate information about its supply chain the fact that SCM is rooted in senior level performance. When companies cannot decision making for the purpose of observe another firm's actions, they find it facilitating a cross-functional integrative hard to design, implement, and justify any approach. Most efforts to improve supply necessary collaboration program. Trans chain performance fall short because they do parent information is an important basis for not challenge the fundamental structure of sincere cooperation. It is hard to win mutual the supply chain but, instead, attempt to trust if one company has information that improve performance within ex1stmg others in the supply chain do not. In order to limitations, often by installing expensive align interests, supply chain members' new technologies (Frozen Food Age, July hidden actions have to be visible to every 2003). HBH recognized the importance of participant. Under the updated distribution this, and both the president and COO of the system, HBH is allowed to collect and company were deeply involved in the SCM analyze better information, such as cost, project team. As a result, the HBH inventory, and delivery data, to share with integrative approach focuses on the bottom other supply chain members. line of the company, satisfies all functional areas' expectations, and seeks cooperation Learning Through Benchmarking from all supporting departments such as IT, as well as outside suppliers.

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CONCLUSIONS & IMPLICATIONS supply chain management.

HBH operates a midsize restaurant supply For some areas where HBH is doing chain serving 51 stores in I 0 widely scat satisfactorily such as forecasting, no further tered markets. We have found that the discussion is offered in this paper. restaurant supply chain is a complex network Forecasting at HBH is quite detailed, of facilities dispersed over a large especially for the small peak at Easter and geographical area dealing with a unique the large peak at Thanksgiving and product assortment. We have shown that it is Christmas. All deliveries are based upon challenging to design and operate such a these forecasts and they have proven to be supply chain so that systemwide costs are very accurate by region, although product minimized and service levels are maintained, needs to be shipped from store to store considering the extreme fluctuations in within a region frequently. As demand demand and food item shelf-life constraints. forecasts form the basis of all supply chain Different members in the supply chain planning, advanced forecasting technology frequently have different, conflicting can be still applied to further enhance objectives. Under the framework of demand prediction at HBH. developing supply chain strategy, we have offered integrative recommendations for In developing our analysis, some mitigating many of these issues. We have assumptions were made in order to facilitate found that for this particular growing, the necessary cost and performance midsize restaurant chain, the most evaluation. For example, demand for each appropriate distribution option is an store is assumed to be deterministic and improved hybrid model. The chain is too big equal to average store demand. Demand for to run as an individual store, yet is too small each market is assumed to be the to run a proprietary distribution system. The multiplication of the store number in that diverse product mix dictates that, economi market and the average store demand. Along cally, various modes of distribution make with other problems, these assumptions sense for different SKUs and stores. The new indicate many unresolved issues. More system will allow more timely and accurate research is needed to further improve our data to be gathered which will be useful both understanding on how to design and operate in optimizing distribution decisions and in a restaurant supply chain. For example, sharing with supply chain partners to Jansen et al. ( 1998) use discrete event simu promote trust and collaboration. The new lation as an effective tool to predict favorable hybrid distribution system is very flexible, logistics scenarios in multi-compartment allowing for both growth and changes in distribution of the catering supply chain. product mix. Ultimately, the hybrid solution Simulation models clearly have the potential is expected to provide the capability to be of being applied to the HBH supply chain for competitive in the marketplace and meeting addressing many of the intricate problems various functional expectations within HBH. we have not been able to solve. The suggestions presented in this paper are also consistent with the core requirements of As small and mid-size restaurant chains lean supply chain management. (See lean strive to improve their operational efficiency SCM attributes identified in Vitasek et al. and expand their business aggressively, we (2005) such as waste elimination, cost offer in this paper that strategic supply chain reduction and cross-enterprise collaboration.) management can and must be part of their Based on the six attributes identified in competitive strategy. As noted in Steiner and Vitasek et al. (2005), the suggestions pre Solem ( 1988), successful small firms must sented in this paper are also extremely seek a balance between the ends to which the consistent with the core requirements of lean organization aspires and the ways and means

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Journal ofSmall Business Strategy Vol. I 7, No. I Spring/Summer 2006 available to them. Strategic SCM is such an Retail, Distribution, and Consumer accessible and powerful means for achieving Research, 13(2), 161-174. competitive advantage in restaurant industry. Hill, T. (2000). Manufacturing strategy: Without it, due to the special challenges Text and cases (3'd ed.). New discussed in the paper, their supply chain can York: McGraw-Hill. be easily misaligned, and a misaligned Jansen, D.R., Van De Vorst, G.A.L., & Van supply chain can be the major cause of Weert, A. (l 998). Multi- numerous operational problems as well as an compartment distribution in the inferior corporate financial performance. catering supply chain. International Transaction in Operations REFERENCES Research, 5(6), 509-517. Mawson, E. & Fearne, A. (l 996). Purchasing Aghazadeh,S-M. (2004). Improving logis strategies and decision-making tics operations across the food processes in the food service industry supply chain. International industry: a case study of UK Journal of Contemporary Hospi restaurant chains. Supply Chain tality Management, 16 (4), 263-268. Management: An International Bernstein, C. &Paul, R. ( 1994 ). Winning the Journal, 1(3), 34-41. chain restaurant game: eight key McGee, J.E. & Shook, C.L. (2000). strategies. New York: John Wiley Responding to industry consoli & Sons. dation in fragmented industries: The Bettis, R. & Hitt, M.L. ( 1995). The new role of capabilities in small-firm competitive landscape. Strategic survival. Journal of Small Business Management Journal, 16 (Summer Strategy, 11(2), 21-32. special issue), 7-19. Narayanan, V.G. & Raman, A. (2004). Brews, P. & Hunt, M.R. (l 999). Leaming to Aligning incentives in supply plan and planning to learn: chains. Harvard Business Review, Resolving the planning /learning November 2004, 94-102. school debate. Strategic Manage Perry, S.C. (2001 ). The relationship between ment Journal, 20, 889-913. written business plans and the Browersox, D.J., Closs, D.J., & Cooper, failure of small businesses in the M.B. (2007). Supply chain US. Journal of Small Business logistics management (2"d ed.). Management, 39 (3), 201-208. New York: McGraw-Hill/Irwin. Ritchie, P. ( 1990). McDonalds: A Winner Carter, J.R. & Narasimhan, R. ( 1996). Is through logistics. International purchasing really strategic? Journal of Physical Distribution & International Journal of Purchasing Logistics, 20(3 ), 21-24. and Materials Management, 32 ( 1), Salin, V. & Nayga, R.M. (2003). A cold 20-28. chain network for food exports to CEO involvement key to supply chain developing countries. International improve-ment. Frozen Food Age. Journal of Physical Distribution July 2003, Vol. 51, Issue 12. and Logistics Management, 33( l 0), Chopra, S. & Meindl, P. (2003). Supply 918-931. chain management: strategy, plan Samuel, D. & Hines, P. (l 999). Designing a ning, and operation (2"d ed.). Upper supply chain change process: a food Saddle River, NJ: Prentice-Hall. distribution case. International Femie, J. & McKinnon, A.C. (2003). The Journal of Retail & Distribution grocery supply chain in the UK: Management, 27(10), 409-419. improving efficiency in the logistics Schwenk, C.R. & Schrader, C.B. (1993). network. International Review of Effects of formal strategic planning

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Lifang Wu is an Assistant Professor of Operations Management at Xavier University, Cincinnati, Ohio. His current research focus includes supply chain management and small business strategies.

Timothy J. Kloppenborg is Castellini Distinguished Professor and a Professor of Operations Management at Xavier University, Cincinnati, Ohio. His current research focus is on project management and supply chain management.

James P. Walsh, is the Director of Supply Chain Management for The HoneyBaked Ham Company of Ohio.

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