Global transformation of the supply chain function in franchising food service
Foundation for the transformation of global supply chains
Our client is one of the largest quick service restaurant chains in the world with 23,000 stores in more than 140 countries. To expand its business worldwide, the company leverages franchise partners, ranging from franchisees covering whole countries through to franchisee owners of individual stores.
These decentralized structures were also reflected in the company’s supply chain function. There were separate procurement departments for the individual regions, which hardly cooperated with each other. Cooperation between the regions and suppliers was predominantly reactive, and the potential for global opportunities remained untapped. This initial situation was due, among other things, to the fact that the procurement teams were overloaded and predominantly focused on securing supply for the current and growing restaurant landscape. Consequently, they only had limited capacities for strategic topics, including increasing sustainability through initiatives such as more sustainable packaging and improved animal welfare for proteins.
Objective: Transformation of the supply chain function
KGM Strategy was commissioned to create strategic capacities and to drive forward the transformation of procurement into a value driver within the company which enables the growth ambitions of the business. The supply chain was recognized to be a critical lever in optimizing unit economics and hence attracting franchisee partners.
With the aim of identifying potential savings and increasing supply security and innovation, pilot categories were defined for pilot optimization projects to leverage the benefits of centralizing individual categories in procurement. Based on the project results, the next step was to define a new business model for supply chain management and procurement and develop a roadmap for the transformation.
Approach: Implementation of pilot projects and development of business case
Pilot Projects
As part of the joint project, the seasonings and core kitchen equipment categories were identified as pilot projects. Our consultants developed global procurement strategies together with our client’s buyers. Through close cooperation between the regions on these projects and the centralization of procurement, we were able to identify potential savings, harmonize specifications across the regions and point out inefficiencies in the operating model. This was achieved in spite of various market challenges including the impact of the COVID pandemic and the unprecedented price inflation caused by the Ukraine war.
The first step was to prove value through a Global RFP. This focused on elevating the relationship with suppliers, not solely focusing on price, but establishing future ways of working and redefining contractual agreements to ensure they fit the new relationship. These terms provided both sides with the confidence needed to work more closely together to solve problems for a mutual benefit (i.e. joint product development, efficiency improvements or sustainability-focused projects).
The creation of cross-functional teams was key to the success of the pilot projects and enabled the team to truly deliver value. For example, engineering stakeholders were able to contribute from a technical perspective and identify opportunities for design improvements and future innovation. By doing so, the team was able to look at the category holistically and address pain points within the organization.
Definition of TOM and development of business case
Through the pilot projects, we were able to draw attention to the advantages of a centralized, globally operating procurement organization. We also created clarity about the role and vision of the supply chain function for the future. In concrete terms, this meant that we completely redesigned the target operating model in procurement and initiated the procurement transformation. Important in this six-month process was the support from our client’s CEO and leadership team. This is key to getting all parties around the table and introducing joint centralized activities.
Working with the supply chain function, the project team next developed a detailed business case for the transformation and explored financing options. The business case conveys a clear idea of how the most important procurement categories are to be managed in the future and all the benefits of the new approach (e.g. risk mitigation). This also means for which categories global procurement will lead to success and where regional or local procurement makes more sense.
In line with the business case, we also created a step-by-step transformation roadmap including a timetable and definition of responsibilities and roles. This level of detail in the strategy is essential to ensure that all learnings and aspects are taken into account. After all, cost optimization was only one element of the overall considerations. The risk assessment of the supply chains, our client’s growth plans and sustainability goals were also taken into account to ensure that the team acquire the necessary skills to deliver the strategy.
Results: Long-term value maximization and preservation
- Realized cost reduction despite market challenges driven by the Russian invasion of Ukraine
- Built global category strategies
- Designed the building blocks of the future global supply chain function
- Outlined the transformation roadmap for the global supply chain function
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