Please find my recommendation report to the China based Linyi Hannover Bar & Grill overleaf.
The report follows from the proposal previously submitted and is prepared for the attention of the restaurant’s General Manager, Financial Manager and Executive Chef who are the key decision makers in the company.
The recommendation report explores the option of purchasing fresh food ingredients daily in-market versus using a food supply delivery service to have the ingredients brought to the restaurant. This is done by mainly looking at several factors relevant to restaurant operations such as budget, quality of ingredients, desired frequency of supply, legal and financial risks, as well as the operating environment. The delivery service method is the option recommended because it provides more benefits for the restaurant when the factors aforementioned are examined.
I hope that you will find this report satisfactory
Executive Summary
Linyi Hannover Bar & Grill is a fancy buffet style restaurant located in a mid-size city in China that mainly serves Southern American barbeque meals.
The report explores two options for the restaurant to obtain fresh ingredients daily in order to meet its demand; having the ingredients delivered by a food supply delivery service versus having employees go to the market to select and purchase the items.
After examining several factors relating to the restaurants operations, including the quality of ingredients needed, the ideal frequency of supply, the amount of time that the restaurant can expend on the selection and procurement of ingredients, the budget for procurement of ingredients, legal risks and the competitive environment, it was determined that the delivery service is more suitable.
Regarding the quality factor, the in-market purchase option is best used when high quality ingredients are needed. Hannover Bar & Grill does not need to purchase premium quality products because it is a buffet type restaurant; buffet restaurants do not offer premium quality meals. The majority of dishes are processed so consumers cannot they easily discern the quality of starter ingredients provided that the end result is delicious.
Owing to the frequency with wish fresh ingredients must be purchased (daily) it would be too costly for the restaurant in terms of time, human resource and transportation to purchase in-market.
The restaurant also has significant time constraints so if a delivery service is used, the time that staff spends on the procurement process will be reduced to the receipt and checking of goods delivered; saving time that is critically needed to support other areas of operation.
Using the delivery service is more economical than purchasing in-market daily because in the latter method, man-hours and transportation costs become significant. Additionally, there are significant savings to be derived from the fact that delivery companies get a higher purchasing discount than the restaurants do because the delivery companies are purchasing for several restaurants and purchase a higher volume; higher volumes equal higher discount margin. There are also a few delivery companies whose parent companies are farms and the discount options are great.
Because the Hannover Bar and Grill requires a large volume of supplies, in-market selection would place excessive physical strain on the employees that have to lift and transport the supplies. This increases the risk of injuries, resulting in loss of work hours/manpower and insurance claims and possibly legal costs to the company so the delivery service which would absorb the risks, would be a better option.
Purchasing supplies from food delivery companies would indemnify the restaurants from legal
and reputational risks; given the fact that it is impossible to closely monitor farmers and meat processors when purchasing directly in-market. This is especially important given the fact that a number of food safety violations have taken place in China so many other restaurants either buy from a central warehouse or import.
Report
In order to arrive at a solution to Hannover Bar & Grill’s need for fresh ingredients daily, the option of using a daily delivery service was compared to the option of having a restaurant representative directly purchase ingredients from the market. Under the first method, an order supply list would be provided to the company each morning; the company then obtains and transports the order to the restaurant. The other option is for a company representative or employee to go directly to the market vendor(s), select, purchase and transport the items back to the restaurant.
Several factors were considered including the quality of ingredients needed, the ideal frequency of supply, the amount of time that the restaurant can expend on the selection and procurement of ingredients, as well as the budget or funds available for procurement of ingredients. Each factor is explored below:-
Quality of Ingredients
The in-market purchase option would give Hannover Bar & Grill the ability to select the best quality ingredients available, however the restaurant does not need to purchase premium quality products because it is a buffet type restaurant. Buffets do not offer premium quality meals but it is understood by customers that “food purchased by reputable buffetsis perfectly fine, edible, and enjoyable” (“Low Priced Buffets Quality” 6). Additionally, the majority of dishes are processed so consumers do not expect, nor can they easily discern the quality of starter ingredients provided that the end result is delicious. Market research conducted by a local food marketing agency confirms that although Hannover Bar & Grill has a fancier ambience than other buffet restaurants, the Chinese market’s expectation of food quality at Hannover Bar & Grill is the same is the same as any other buffet restaurant.
The delivery service, as a registered food-service supply company in China is mandated by several laws to provide ingredients that meet public health standards including The Food Safety Law and The Agricultural Products Quality and Safety Law so Hannover BBQ Restaurant can rest assured that the quality of ingredients will be satisfactory; especially because the Chinese Ministry of Health which is mandated to “formulate health standards” also “supervise(s) their enforcement” (Zhu).
Supply Frequency
Because Hannover Bar & Grill sees over one thousand customers every day, it must have a consistent supply of fresh ingredients. Restaurants such as Hannover Bar & Grill that require fresh ingredients every day would need to travel to one or more suppliers daily in order to inspect, select and purchase items if the delivery service is not used. The time, human resource and transportation investment for this method adds up significantly over time- especially if demand increases which would see the daily frequency of the in-market purchase increasing.
A survey of local food supply delivery companies shows that they will not only provide the amount of items needed according to the desired frequency (for example, once or twice daily) but are usually flexible if business needs change. Therefore it would be better for the restaurant to rely on a delivery service for its supplies.
1.3 Time Constraints
According to the organizational chart, there is no purchasing manager or officer position and from discussions with the Executive Chef, he, along with the Commis Chef are best positioned to go into the markets to select and purchase the food items. However, these are two critical kitchen positions and taking time from kitchen duties to go into the market would mean that other kitchen staff would be unsupervised for several hours and non-kitchen staff that rely on kitchen staff would go unsupported.
In order to maintain good quality meals and service, staff must have sufficient time to prepare for customers and accommodate them; in a situation where time has to be shared among these tasks and the task of going into the market to shop, there is a high risk of meal quality and service being compromised.
If a delivery service is used, the time that staff spends on the procurement process will be reduced to the receipt and checking of goods delivered. The delivery service therefore has the advantage of saving Linyi Hannover BBQ Restaurant time that is critically needed to support other areas of operation.
Budget
Janet Erickson, restaurateur and restaurant management trainer posits that “one-third of sales in a typical restaurant goes toward food purchases,” so effective management of those costs can “have a strong impact on a company’s bottom line.” It is therefore important to analyze which method of obtaining fresh ingredients daily is the most budget friendly.
The total cost of the Executive and Commis Chefs going to market to select and purchase items is ¥3592.25, with manpower being the most expensive line item. On the other hand, using the delivery service will see Hannover Bar and Grill paying ¥3411.44- a ¥180.81 difference. The main reasons for the price difference is that many delivery companies get a higher purchasing discount than the restaurants do because the delivery companies are purchasing for several restaurants and purchase a higher volume; higher volumes equal to a higher discount margin.
There are also a few delivery companies whose parent companies are farms and the discount options are great.
So although there are external costs involved in using the delivery service (mainly insurance and delivery fee) the cost of the actual food items are notably less than the in-market purchase method.
It is important to note that from a cost perspective, the savings that are derived from using a delivery service only applies to larger restaurants like Hannover Bar and Grill that have a large order volume on a frequent basis.
Quantity
Linyi Hannover BBQ Restaurant has a large supply volume so in-market selection would be impractical because it is excessive physical strain on the employees that have to lift these items in order to transport them to the restaurant and unpack them upon arrival. This increases the risk of injuries; resulting in loss of work hours/manpower, insurance claims and possibly legal costs to the company.
Additionally because it is highly unlikely that all items will be purchased from the same vendor, traveling to and from different vendors with large amounts of food not only becomes cumbersome and impractical but increases the risk of losing supplies to thieves. To guard against this, Hannover Bar and Grill would need to hire additional staff to protect purchases or contract a security company; both options increase operating expenditure.
The delivery service on the other hand, has specially trained staff and equipment for loading and offloading supplies, as well as managing security arrangements, so by using the delivery service, Hannover Bar and Grill would eliminate additional risk of injury and unnecessary stress from its staff’s operations.
Legal Risk
Food safety is a major consideration in food supply management. Purchasing supplies from
food delivery companies versus one or more in-market vendors would give Linyi Hannover BBQ a legal advantage; since the delivery companies usually give a quality assurance and assume most risk.
“Breakneck growth” in the food supply chain has reduced restaurants’ ability “to monitor thousands of farmers and meat processors, many of them small and remote, with incentives to cut corners” (McDonald) so it is important that Linyi Hannover BBQ Restaurant indemnify itself from risk in this area. When restaurants procure directly from market or supply farms, it is difficult to trace sources of contamination or break down in storage that affects restaurant meal quality. Whereas supply companies, because they offer quality guarantees, are better positioned to monitor sources of food to ensure that the highest possible quality reaches its customers.
Breakdowns and shortfalls in monitoring do occur and it is possible for restaurant meals to be affected, oblivious to the restaurateur. In cases like these, there is more to be gained from ascribing risk to the delivery service than to individual vendors because of the delivery companies’ service guarantees and also because individual vendors often do not operate sturdy businesses and compensation claims are not usually successful.
2.1 Operating Environment
A survey of the operating environment shows that a number of chain restaurants “use proprietary ingredients and require franchisees to buy from a central warehouse” (FSW Education), while most ‘ritzy’/upscale restaurants in China import their meat supplies from Australia and milk from New Zealand. According to Martin Patience, BBC Beijing correspondent, the popularity of meat and milk importation is the consequence of a number of food safety and quality scandals. Many persons feel more confident in sources external to China than local food supplies because a number of restaurants have been implicated in claims of rat meat being sold as lamb.
Similarly, even established chain restaurants have not escaped scandal. A Chinese supplier was accused of selling expired beef and chicken to KFC, McDonald's and possibly other restaurant chains. Prior to that, KFC's sales plummeted after it became known that a supplier violated rules on drug use in chickens.
Perhaps the most debilitating food mishap in the Chinese food industry was the death of six babies and sickening of thousands of persons when milk that was tainted with melamine entered the food market between 2007 and 2008. The melamine chemical was added to watered-down milk to pass quality assurance tests.
There were public complaints that China paved the way for food safety infringements by encouraging dairy producers to obtain milk from unknown suppliers- suppliers that could not be regulated by virtue of the fact that they were unknown. It is even more difficult to implement enforcement methods because the industry is so large and fragmented- approximately five hundred thousand food processors compared to the United States of America’s fifty-thousand.
China also does not have sufficient regulations for companies that move food from processors to restaurants. There are also no requirements in place for expired foods to be destroyed; instead expired food is allowed to remain for sale as animal feed and there is the possibility that it can renter the restaurant supply chain.
There are at least thirty restaurants in Linyi China and there is an equal division between those that purchase in-market and those that use a food supply delivery service. Restaurant customers surveyed were not overly concerned about whether or not their food was imported, provided that the suppliers were reliable and basic public health standards were upheld.
Delivery service companies offer customers a choice between local and imported supplies so this method of supply procurement would still be relevant if Hannover Bar and Grill chooses to rely mainly on imports.
Having considered several important factors related to Hannover Bar and Grill restaurant’s operations, a delivery service to obtain fresh food ingredients daily is the most suitable. Owing to the frequency with wish fresh ingredients must be purchased (daily) it would be too costly for the restaurant in terms of time, human resource and transportation to purchase in-market.
The restaurant also has significant time constraints so if a delivery service is used, the time that staff spends on the procurement process will be reduced to the receipt and checking of goods delivered; saving time that is critically needed to support other areas of operation.
Using the delivery service is more economical than purchasing in-market daily because in the latter method, man-hours and transportation costs become significant. Additionally, there are significant savings to be derived from the fact that delivery companies get a higher purchasing discount than the restaurants do because the delivery companies are purchasing for several restaurants and purchase a higher volume; higher volumes equal higher discount margin. There are also a few delivery companies whose parent companies are farms and the discount options are great.
Because the Hannover Bar and Grill requires a large volume of supplies, in-market selection would place excessive physical strain on the employees that have to lift and transport the supplies. It must be emphasized that there are no specialized positions for this on the restaurants organizational chart so to have the Executive Chef and Commis Chef take on these duties is a great risk that should be avoided at all costs; mainly because the risk of injuries will increase, resulting in loss of work hours/manpower and insurance claims and possibly legal costs to the company so the delivery service which would absorb the risks, would be a better option.
Purchasing supplies from food delivery companies would indemnify the restaurants from legal
and reputational risks; given the fact that it is impossible to closely monitor farmers and meat processors when purchasing directly in-market. This is especially important given the fact that a number of food safety violations have taken place in China so many other restaurants either buy from a central warehouse or import.
Also, the operating environment is one in which food security and quality is often compromised so it is recommended that Hannover Bar and Grill reduce legal and reputation risks by limiting fresh food purchases to a reputable delivery company, versus farmers and other vendors in-market that are more difficult to monitor. Especially because the Chinese Government does not have sufficient regulations in place that mitigate against expired products re-entering the food market. Notwithstanding, even with sufficient regulations, there are companies and individuals that value profit margins over public safety and food quality will be compromised by these individuals. Consequently, the quality guarantee that most reputable delivery companies offer should be taken advantage of.
References
"Do You Know Where Your Food Comes From? Following the Restaurant Supply Chain." FSW Education. Web. 28 Apr. 2015. <http://www.foodservicewarehouse.com/education/chefs-corner/do-you-know-where-your-food-comes-from-following-the-restaurant-food-supply-chain/c28242.aspx>.
Erickson, Janet. "Top 5 Supply Chain Management Issues For Restaurants." Top 5 Supply Chain Management Issues For Restaurants. 17 Sept. 2012. Web. 28 Apr. 2015.
McDonald, Joe. "Fast Food Ambitions in China Hampered by Safety Scares." CTVNews. 21 July 2014. Web. 28 Apr. 2015.
"Ministry of Health." Ministry of Health. Web. 28 Apr. 2015. <http://www.gov.cn/english/2005-10/09/content_75326.htm>.
Patience, Martin. "Rat Meat and Chinese Food Safety - BBC News." BBC News. BBC News, Beijing, 13 May 2013. Web. 28 Apr. 2015.
"The Art of the Buffet OR All You Can Eat Is Not a Challenge." : Do Low Priced Buffets Mean Poor Quality? Web. 28 Apr. 2015.
Appendix
Map showing location of Linyi in China
Image showing sample menu items (Southern BBQ)
