- Player: Pierre van Tonder
- Position: CEO
- Company: The Spur Corporation
- Turnover: R5 billion
- Visit: spurcorporation.com
In 2005 Spur was a very different company to the one it is today. Revenue was less than a third, restaurants were in charge of sourcing some of their own supplies, as well as phoning through orders to many of Spur’s centralised suppliers. Pierre van Tonder, the current CEO of Spur refers to it as a ‘call and collect system’.
It was a distribution system riddled with inefficiencies and a decade behind best practice in the world’s top food franchises.
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A leakage problem
Realising there was value leakage in its processes, Spur’s team started exploring the Australian and UK market.
It was apparent that their supply chain performance was poor and needed to change.
Van Tonder spearheaded this research in much the same way as many of the world’s most innovative CEOs do, by using ‘discovery skills’ that explore other national markets for ideas.
Research has shown that innovative CEOs spend 50% more time discovering new ideas than CEOs with no innovative track record. For example, Koos Bekker got the idea for M-Net while doing his MBA in the US.
Howard Shultz got the idea for Starbucks while on holiday in Italy. Monitoring international competitors and best practice is a simple and easy way to generate new innovation ideas for your own business and is something every innovative entrepreneur and CEO should be doing.
Today, Spur runs a world-class distribution model that has improved numerous areas, from reducing costs and food preparation time to improving quality and customer satisfaction. The net result of these supply chain improvements has been a win-win-win for the franchisees, suppliers and the franchisor. By working together, they have been able to optimise and improve profits for everyone involved.
The key to this transformation has been finding the right supply chain partner.
“We’ve learnt that in business, your queen in the game is your supply chain partners,” says van Tonder. Through a tendering process, Spur partnered with Vector Logistics, a local logistics company that initially started as the distribution arm for I&J foods.
Vector brought a wealth of supply chain knowledge that enabled Spur to take a three-and-a-half-year journey that transformed its supply chain.
Key supply chain improvements
- Consolidating suppliers: By purchasing from fewer suppliers, Spur was able to reduce costs of food, and improved standardisation of the product, resulting in a cost saving and a higher quality meal on the plate.
- Value-added suppliers: Spur also partnered with value-added suppliers that could improve food preparation. By transferring work that had previously been done in each restaurant to suppliers, franchisees suddenly enjoyed massive cost savings as they were able to reduce kitchen space and have greater consistency in the preparation of their food.
- Business intelligence systems: Spur added a point of sales analytics system that better enables the supply chain to forecast demand and therefore reduce stock-outs and optimise inventory levels.
- Improved standards: By working with fewer suppliers and an expert logistics team, Spur was able to improve health and safety standards with an unbroken cold chain. In addition, they could improve monitoring of suppliers to ensure compliance. Better standards result in higher and more consistent quality – which ultimately leads to greater customer loyalty.
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Supply chain fails and wins
Spur’s excellent results with its supply chain turnaround are not as common as you would imagine.
While many large businesses have invested heavily in improving supply chains, the results are often lack-lustre, or even abysmal. While statistics vary, some studies have found that up to 70% of supply chain projects fail.
In 1999, Toys R Us, advertised that any toys ordered before 10 December would be delivered by Christmas.
An unexpectedly high number of orders meant that many customers got their toys after Christmas, resulting in a major PR disaster that ultimately lead the company to outsource its logistics to Amazon.
Similarly, IBM lost hundreds of millions when it launched its Thinkpad laptop, not because there was a problem with the product, but because it was out of stock for over a year – millions spent on R&D and no follow-through sales due to poor supply chain management.
The true cost of logistics
Another study done by a leading department-store chain found that a quarter of its customers left the store empty-handed due to out-of-stock products. An industry study done on the US food industry estimated $30 billion was wasted annually due to poor coordination in the supply chain.
It’s not just international companies struggling with supply chains though. According to a survey conducted by KPMG, South Africa ranked 124th, the lowest of all BRICS nations on domestic logistics costs.
On the bright side, companies that create world-class supply chains outperform their competitors – often by miles. By being able to get the right product to the right place at the right time consistently, companies can increase sales, avoid mark downs to move old stock and improve customer satisfaction.
For example, in the shoe industry, most companies require stores to pre-order at the beginning of the season. In its start-up days, Crocs bucked this trend, and made the strategic decision to innovate by building factories and warehouses around the world.
While there was a cost to the decision, the resulting sales more than made up for the financial outlay, because stock could be delivered to stores in weeks.
Let’s look at this in action. When Crocs introduced a new sandal in 2006, 250 000 pairs were pre-ordered.
According to a traditional supply chain model, this meant 250 000 pairs would have been sold – it was a popular product, and would have sold out. Because of the additional factories and warehouses however, the manufacturer was able to replenish stock quickly.
As a result, 25 million pairs were sold – ten times greater than a traditional shoe-manufacture model.
Choosing the right supply chain
Marshall Fisher, a global expert on supply chain strategy and a professor at the Wharton Business School, believes the most common reasons supply chain initiatives don’t lead to great results is that companies don’t understand their own products and the right supply chain strategy to suit that product.
To understand the right supply chain strategy, products can be divided into two broad categories: Innovative products and standardised products.
Innovative products: Innovative products are categorised as products with a short product life cycle, large profit margins, large ranges and they usually have to use season-end mark-downs to get rid of old stock. Examples include high fashion and innovative electric goods.
Standardised products: Standardised products, on the other hand, are usually products with longer life cycles, smaller profit margins and should have small ranges that seldom if ever require mark-downs. Common standardised products include toothpaste, stationary and most restaurant franchises like Spur.
Depending on the type of product that you sell, these two categories require very different supply chain strategies.
Innovative products require supply chains that are agile and responsive and can get products on shelves within very short lead times.
Remember, with high margins and fluctuating demand, out-of-stock products mean huge lost profit opportunities. For example, if Crocs had not had an agile supply chain, it would have lost out on the sales of millions of pairs of sandals, just as IBM did with the Thinkpad laptop.
In contrast, standardised products usually have demand that is highly predictable. By using the right forecasting tools, stock-out rates in a well-run supply chain can be as low as 1%.
The supply chain strategy for a standardised product needs to be focused on reducing the cost of delivering the product, just as Spur did when optimising its supply chain.
This simple insight has helped a number of new businesses leapfrog the competition by using supply chain as the core of their competitive advantage.
One of the most famous examples is Zara, a Spanish clothing retailer that realised fashion clothing can be an innovative product.
Instead of focusing on efficiency within the supply chain as many retailers do, Zara focuses on responsiveness and speed. While most of the clothing industry has developed supply chains that focus on efficiency within a six-month lead cycle, Zara was prepared to spend more on getting the right product to market and building an agile supply chain.
Zara designs, manufactures and distributes clothes within two weeks of the original designs first appearing on the catwalk.
Its responsiveness allows Zara customers to wear the latest designs within the shortest lead times possible. The company owns every step in the supply chain, enabling it to get innovative clothes to market faster than any of its competitors.
As a result, in 2014 Zara did around R165 billion in sales. Not only has Zara’s supply chain enabled it to differentiate itself from other fashion retailers, but it sells 85% of its clothes at full price compared to an industry average that’s closer to 60%. The percentage of unsold stock items are less than 10% compared to an industry average closer to 20%.
In short, a world-class supply chain could help you leapfrog your competitors, but you spend millions to make sure your company strategy and your product strategy are really aligned.