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How Spur Overhauled Its Supply Chain

Proving that large organisations can innovate and make big savings on the bottom line that benefit all their stakeholders, Spur has overhauled its supply chain to grow its R5 billion restaurant group.

Paul Smith

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Vital Stats

  • 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

  1. 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.
  1. 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.
  1. 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.
  1. 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

Spur-franchise-logoAnother 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%.

We-recommend-tickWe recommend: Entelect CEO Shashi Hansjee’s 4 Life Hacks and 1 Little Quirk That Deliver the Dough

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.

Supply chain management

Paul Smith is a writer and startup scientist. He currently manages an accelerator, Ignitor, which helps entrepreneurs start and grow their businesses. Ignitor has developed a new model that significantly improves early stage start-ups odds of success. His primary research interests include understanding the behaviours of expert entrepreneurs, as well as, how to most effectively support high potential start-ups. Follow him on Twitter and visit his website.

Lessons Learnt

(Podcast) ‘Bizarre Foods’ Andrew Zimmern: ‘I’m Addicted To The Hustle’

How this week’s ‘How Success Happens’ guest overcame personal struggles and built an empire.

Dan Bova

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I didn’t know what to expect when we scheduled an interview over breakfast with today’s guest Andrew Zimmern. As you may know, the chef, writer, restaurateur and TV personality made a name for himself traveling the world and eating some, well, bizarre foods on his hit travel/food show, Bizarre Foods.

Turns out our breakfast was pretty normal – we didn’t dig into a fresh plate of scrambled brains or anything – but the conversation was anything but typical.

Over the past couple of years, Zimmern has built a true empire around his name with books, TV shows, restaurants (including his new Twin Cities joint Lucky Cricket), and a production company, but as he very candidly told me, the road to success has not been easy. He has gone through a lot of personal pain on his journey, and he says it is a daily endeavour to keep himself moving on the right track.

As Zimmern explained, over the course of his life, he’s had problems with substance abuse, depression – even homelessness – and he was very open about sharing the lessons he’s learned along the way about coping and finding redemption. We also spoke about his dear friend, Anthony Bourdain, and about the struggles of feeling overwhelmed that most of us face.

Related: Gareth Cliff Shares His Tips For Starting Your Very Own Podcast

But don’t get me wrong, he’s really funny, too! There’s nothing “normal” about Andrew Zimmern. Hope you’ll enjoy our conversation, thanks for listening.

This article was originally posted here on Entrepreneur.com.

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Lessons Learnt

How BrightRock Is Disrupting The Insurance Industry With These 2 Pivotal Strategies

Developments in technology, and clear communication are positioning BrightRock to disrupt their industry and transform the consumer experience.

Monique Verduyn

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Vital Stats

  • Players: Sean Hanlon, Leopold Malan, Schalk Malan, Suzanne Stevens
  • Company: BrightRock
  • Est: 2011
  • Visit: www.brightrock.co.za

BrightRock was started around a dining room table in 2011 by four people with years of industry experience and — importantly — a diverse set of complementary skills.  They wanted to make changes to an industry with an age-old methodology by allowing customers to co-create a solution that precisely meets their individual needs, and adjusts as those needs change. Today, BrightRock is the fastest-growing insurer in the intermediated individual life risk market. It also provides underwriting management services to funeral parlour businesses and, more recently, has entered the group risk insurance market, offering its needs-matched approach to employees.

The founders of BrightRock, established in 2011, knew the life insurance industry all too well, and they found its methodology wanting. “Traditional life insurance lumps all the individual’s needs into one policy,” says CEO Schalk Malan.

“It’s a methodology that has been around for centuries. We started afresh and looked at how we could design life insurance based on individual requirements. Our cover is designed to exactly match each specific financial need. Because there is no waste, it’s more cost efficient and sustainable. And if circumstances change and our customer needs more cover, it’s easy to get it because needs-matched design enables the policy to change in line with changing needs.”

1. Embracing digital technology to provide needs-matched insurance

Suzanne Stevens, marketing executive director at BrightRock, points out that this type of innovation achieves efficiency (cost savings) and effectiveness (higher returns). “By harnessing digital technology, we have made our operations more efficient, and aggressively lowered costs by up to 30% for our customers. Every rand they spend with us works harder for them. That’s the benefit of a solution designed around the customer.”

BrightRock’s founders took a similar approach. ‘We ditched legacy thinking in favour of creating a product that is intuitive and easy to navigate. An enormous amount of time and effort went into writing and designing that system, and creating the optimal customer journey.”

Related: How BrightRock Is Rocking The (Industry) Boat In Only 5 Years Since Launch

Unlike clunky legacy systems, BrightRock’s platform is modularised, and was built according to the agile principle of rapid delivery cycles. The result is a technology stack with longevity, that is also flexible enough to be tweaked when needed.

“The advantage of the technology available today is that you can plug things in and pull them out as required,” says Suzanne. “That’s one of the enablers of a truly disruptive mindset. To step away from accepted norms and find new solutions requires curiosity and creativity, as well as a lot of courage to go up against large incumbents in the market. There is always resistance to new technology, although we are fortunate in this country to have one of the most innovative insurance sectors in the world.”

2. Effective communication is critical

These disruptors have set themselves above the rest through one surprisingly simple tactic —  effective communication. They agree that it simply doesn’t matter how world-changing your product or service is if you don’t communicate it to the right audience at the right time. New companies that fail to communicate their remarkable new development will quickly be pushed aside by other disruptors. Without a clear communication strategy that reaches the audience in the industry you’re trying to disrupt, you’ll set yourself up for failure. A key question to ask when you are developing your communication strategy is simply whether people understand what you do.

“Because the premise for our product was fundamentally different from anything on the market, communication and clear messaging were critical to convincing our clients to put their trust in us,” says Schalk.

“It was especially important to educate insurance advisors so they would understand what we were doing, why we were doing it, and how it was better than the other options available. That was key to disrupting the individual life market.”

Currently, BrightRock employs 380 staff, has experienced 40% year-on-year growth, and has an annualised premium income of more than R1,3 billion. The company has recently entered the group risk environment with a similar offering that addresses many of the same shortcomings of traditional group risk products. “The inefficiencies of the structuring of group products has meant that, to remain competitive, insurers have cut the benefits offered to employees, undermining their sense of financial security. Change is needed, and we believe our needs-matched philosophy positions us to change the group risk market too.”

‘We ditched legacy thinking in favour of creating a product that is intuitive and easy to navigate. An enormous amount of time and effort went into writing and designing that system, and creating the optimal customer journey.”

Unlike clunky legacy systems, the BrightRock’s platform is modularised, and was built according to the agile principle of rapid delivery cycles. The result is a technology stack with longevity, that is also flexible enough to be tweaked when needed.

Related: BrightRock’s 5 Entrepreneurial Tips For Start-ups

This iterative, modular approach typically begins with defining the strategy and programme plan upfront, delivering a core capability fast so it can provide benefits immediately, and then continuously improving with regular, incremental capability improvements to achieve the objectives of the strategy. It’s an approach that fosters closer collaboration between stakeholders, improved transparency, earlier delivery, greater allowance for change and more focus on the business outcomes.

“The advantage of the technology available today is that you can plug things in and pull them out as required,” says Suzanne. “That’s one of the enablers of a truly disruptive mindset. To step away from accepted norms and find new solutions requires curiosity and creativity, as well as a lot of courage to go up against large incumbents in the market. There is always resistance to new technology, although we are fortunate in this country to have one of the most innovative insurance sectors in the world.”

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Lessons Learnt

The 9 Obsessions You Need To Have To Become A Self-Made Millionaire

Here’s how to stay focused on your millionaire goals.

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elon-musk

The ones who succeed weren’t handed a golden ticket; it wasn’t chance that helped them cultivate their fortune. To reach millionaire status, you must be driven to reach your dreams. You must be obsessed in order to be successful.

These are the nine obsessions that give every self-made millionaire an edge in creating success and wealth.

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