10 Strategies for Restaurant Supply Chain Management

Running a restaurant is notoriously difficult, and higher costs have compounded the challenge. Many owners are responding by digitally transforming their businesses across the board, from order-taking in the front of the house to ordering supplies in the back. Notably, digital supply chain management has come into focus to improve operations and drive profitability.

Yet revamping a supply chain presents its own hurdles, especially in an industry that has been slow to adopt new technology. This article outlines the restaurant industry’s supply chain challenges and 10 strategies that address them.

What Is Restaurant Supply Chain Management?

Restaurants’ supply chains have grown more complex as they perform the essential role of delivering food and nonfood items used in the business. Driving this complexity is everything from customers’ farm-to-table menu preferences to the need to diversify suppliers as a contingency against climate change-related ingredient shortages. That said, the basics of restaurant supply chain management involve three key types of partners:

• Direct suppliers: Specialty spice manufacturers, farmers, beverage companies and kitchen equipment makers that sell directly to a restaurant.
• Distributors: National, regional and specialty wholesalers that offer a range of food and non-food products.
• Group purchasing organizations (GPOs): Membership organizations that allow restaurants to pool their orders with others for greater buying power and discounts.

Key restaurant supply chain management functions include:

• Demand forecasting: Restaurant managers first need to determine what to order based on historical sales data, seasonality, recent foot traffic, current stock, special events and other factors. Data inputs for demand forecasting might come from reservation systems, point-of-sale (POS) terminals and menu-engineering tools.
• Sourcing and procurement: Establishing supplier relationships is essential to negotiating good prices and reliable deliveries. This is where vendor portals and supplier relationship management software can make a big difference.
• Inventory management: Maintaining optimal inventory levels can help reduce waste, ensure food quality and safety, prevent customer disappointments due to stockouts and avoid tying up capital in unnecessary stock. Restaurants increasingly use inventory management software to improve this function.

In digitizing these and other supply chain relationships and functions while also relying more heavily on innovations including kitchen display systems, online ordering platforms, digital marketing and accounting, scheduling and payroll software, restaurants have taken up an arsenal of tools that can become unwieldy.

After all, technology isn’t the core business. One answer is restaurant supply chain management strategies that emphasize digital integration across these tools.

Key Takeaways

• Restaurants are grappling with the industry’s generally high costs and flat sales.
• Best practices in supply chain management present opportunities to cut costs, improve operations and gain a competitive advantage.
• Digitizing and integrating supply chain systems with other restaurant technology can fortify these efforts.

Restaurant Supply Chain Management Explained

Most people in the restaurant business are not drawn to the field to do administrative or technology work; it’s the culinary and hospitality roles that attract them. Illustrating this point, only 13% of restaurants think they’re on the leading edge of technology use, according to the National Restaurant Association (NRA). In another survey, by the Nation’s Restaurant News (NRN), about a third of managers cited a lack of knowledge and staff to manage or integrate technology. Shortcomings like these have hindered progress in restaurant supply chain management.

Yet viability relies on well-run, modern supply chain operations. The NRA reported declining sales and customer traffic in the first half of 2024. Separately, independent restaurants recently cited rising food costs and supply chain shortages among their Top 5 pain points. Strong supply chain management addresses both of these issues, driving closer supplier relationships, more accurate forecasting, order automation and other best practices.

Looking ahead, in its “Restaurant Industry 2030” report, the NRA predicted that margin pressures will motivate greater digitization and integration of supply chain systems across the range of restaurant technologies, with dramatic results. For instance, restaurants will employ new data capabilities to develop dynamic menus with real-time pricing that responds to supply-and-demand changes.

Benefits of Restaurant Supply Chain Management

Restaurant managers are looking to not only cut costs and increase the efficiency of their supply chains, but also to improve quality control, enhance customer satisfaction and gain competitive advantage.

• Cost efficiency: Food and nonfood purchases account for about 40% of independent restaurants’ costs, according to a report from the James Beard Foundation and Global Food Institute. Depending on who’s counting, average food costs have increased 20% to over 40% since 2019. Restaurants have been raising menu prices in parallel, but observers say these businesses may have little room left for further increases. Managers can instead look to derive savings in the supply chain by regularly reviewing and renegotiating suppliers’ prices, closely monitoring inventory levels against demand to optimize ordering schedules and rotating menu items seasonally to capitalize on the changing availability of high-quality, low-cost items.
• Improved quality control: At a minimum, restaurant customers expect the food they order to be fresh and consistent. Strong supply chain and inventory management can help ensure that quality does not fluctuate with the seasons, degrade at improper temperatures, diminish over time or vary from supplier to supplier.
• Increased operational efficiency: Over half of restaurants cited operational efficiency as the biggest potential return on their technology investments — far outweighing other benefits noted in the NRN survey. Technology that manages suppliers, inventory and other facets of the supply chain contributes to smoother restaurant operations — ensuring that product orders are accurately filled, deliveries are timely and the right ingredients are always on hand for the chef without costly overstocking and related carrying costs.
• Enhanced customer satisfaction: No customer wants to hear that the item they’ve ordered has been “86’ed” because the kitchen ran out. Supply chain management certainly aims to avoid that scenario. But customers are much more demanding than that. Beyond availability, freshness, consistency and culinary excellence, customers also want to know more about how their food is sourced and produced — often favoring local, organic and sustainable ingredients. Strong supply chain management can help check these boxes.
• Risk mitigation: The global food system always faces risks, which restaurants often experience as spiking prices and shortages due to climate change, wars and tariffs. And that’s all on top of years of inflation. The news scroll produced by the NRA Supply Chain Expert Exchange provides a running account of risks, recently including tight butter supplies, bird flu in milk, spiking avocado prices, a crisis in the orange juice industry and delays in the drought-plagued Panama Canal. At the same time, buying locally carries its own set of risks, due to small farms’ limited quantities or financial fragility, for example. On the demand side, unpredictable customer orders can wreak havoc in the form of inventory overstocks and stockouts. Managing these risks is a priority of supply chain managers, who increasingly run demand forecasts, monitor suppliers and shipments, diversify sources as they’re able and hold buffer stocks of key items in the event of shortages.
• Better data and insights: Most benefits discussed so far come from continually improving data collection and analysis in digital supply chains. The Deloitte management consultancy recently listed a range of insights and innovations possible, especially when supply chain software is integrated with other restaurant technology, such as POS systems, menu-planning tools and third-party market research streams. Among the possibilities: smart limited-time offers on the menu that take advantage of identified supply and demand shifts, and the ability to monitor shelf life, health code compliance and other food safety concerns using data from Internet of Things (IoT) sensors.
• Competitive advantage: Competition is expected to remain intense for the foreseeable future, as customers enjoy a growing array of food service options, the NRA reported. In this context, about three-quarters of restaurant managers said that technology gives them a competitive edge. Digital supply chain operations can be a big part of this picture by, for instance, helping to hold down prices while increasing quality, consistency, menu innovation and, ultimately, customer satisfaction.
• Financial stability: Greater financial stability can be viewed as a product of the many benefits derived from digital supply chain management. At the top line, sales can improve because customers are satisfied by a restaurant’s high-quality, consistency and competitive pricing. From a cost perspective, savings can accrue with the avoidance of business disruptions, reductions in waste and strength in negotiating deals. At the bottom line, these and other benefits can improve a restaurant’s financial stability in an industry where nearly four in 10 businesses said they didn’t make a profit in 2023.

Challenges in Restaurant Supply Chain Management

Restaurateurs face supply chain challenges common to all businesses, such as high costs, transportation bottlenecks, product shortages, siloed data from disconnected IT tools and limited visibility to monitor suppliers. On top of all that, they must manage challenges that are specific to restaurants, such as the sheer variety of ingredients and sources, seasonality, perishable goods and food safety regulations.

• Seasonal variations and demand fluctuations: Ingredients that are in season tend to cost less and taste better, and customers gravitate toward them. So supply chains need to be seasonally calibrated. Restaurant seasonality also refers to changing preferences for ordering in and dining out during cold or warm seasons. Summer can bring tourists, outdoor seating and, generally, more customers, while colder months often see a decline in customer traffic. In the restaurant business, managing procurement volumes and inventory is, by nature, a moving target.
• Seasonal variations and demand fluctuations: Ingredients that are in season tend to cost less and taste better, and customers gravitate toward them. So supply chains need to be seasonally calibrated. Restaurant seasonality also refers to changing preferences for ordering in and dining out during cold or warm seasons. Summer can bring tourists, outdoor seating and, generally, more customers, while colder months often see a decline in customer traffic. In the restaurant business, managing procurement volumes and inventory is, by nature, a moving target.
• Perishability of food products: Time is not a restaurant’s friend in supply chain operations, primarily due to the perishability of food products. Tomatoes that are delayed in transport have already begun to degrade in quality before they come in the kitchen door. If those tomatoes have not been properly handled in temperature-controlled trucks and storage facilities, spoilage can occur even more rapidly. Demand forecasting and just-in-time approaches to supply chain management can help keep food from rotting on refrigerator shelves by taking deliveries of just the needed amount of ingredients right before the kitchen needs them. But restaurant managers also need to anticipate today’s frequent supply chain disruptions with some “just-in-case” inventory. Achieving the right balance is challenging.
• Supply chain disruptions: News reports paint a grim picture of the consequences restaurants are dealing with from global and local climate change, extreme weather and transportation bottlenecks. In one example, squid and sardines are replacing salmon on some menus, as ocean waters warm. In another, disrupted shipping routes from the Panama Canal to the Red Sea have driven up costs while limiting availability of imported ingredients like coffee. Nationally, truck transportation capacity has suffered from endemic labor shortages.
• Sourcing locally is one contingency — as well as a point of pride in farm-to-table restaurants — but local farms can also suffer from weather patterns that reduce their yields or lower the quality of their produce. Supply chain disruptions like these have recently forced nearly one in five independent restaurants to substitute ingredients on their menus, according to NRN.
• Supplier reliability: Restaurant food and equipment suppliers are themselves subject to all of the commodity shortages, transportation bottlenecks and other disruptions discussed above — and they may also have financial or other internal issues that impact their ability to perform reliably. In turn, an unreliable supplier can cause a litany of woes for restaurants, as missing ingredients force menu substitutions, wavering quality disappoints customers and unexpected price hikes give managers no time to find alternatives.
• Logistics and distribution challenges: While a restaurant’s suppliers handle most shipping and other logistics, restaurant managers rely on timely delivery of quality ingredients to satisfy their customers. Yet they often lack the visibility to keep on top of suppliers’ delivery schedules and potential issues.
• Cost management: Supply chain management techniques can help cut costs, but inefficient supply chains add overhead. The culprits include time-consuming, error-prone manual ordering, insufficient data for forecasting and limited visibility into inventory levels and delivery schedules. Multiply these inefficiencies by the variable pricing of a wide variety of ingredients from a range of suppliers, and costs can quickly get out of hand.
• Workforce management: Many restaurants are turning to automation to help alleviate endemic staffing challenges in the industry. One of the key gaps they’re filling in this way is tracking product availability and pricing in real time on vendor portals. Especially with today’s price volatility, manually updating each ingredient with every price change could present a never-ending task. Automating tasks like this frees up staff to focus on other areas of the business.

Restaurant Supply Chain Management Best Practices

A well-oiled supply chain fuels success in a restaurant, supporting the preparation and service of consistent, high-quality food to satisfied diners. While the best practices described below, such as inventory management and data-driven decision-making, run in the background, their benefits are palpable to everyone, from the busy kitchen and wait staff to the repeat customer to the profitable business owner.

1. Strong Supplier Relationships

Restaurant managers need to maintain close communications with suppliers for joint problem-solving, reliable deliveries and early warning of potential price hikes. Some inventory management systems include online portals that enable restaurants and their suppliers to collaborate, communicate and stay connected more manageably, compared to disparate emailing, phoning and texting.

Building strong supplier relationships for a restaurant’s primary products can also facilitate negotiations on volume discounts and better payment and credit terms. That said, it may be wise to maintain two or three vendors for each of a restaurant’s most important food categories, like meat, dairy and produce, to avoid falling at the mercy of any one supplier’s pricing, delivery schedules and product availability.

2. Optimized Logistics and Distribution

A restaurant’s suppliers handle most logistics and distribution, but when things go wrong, it’s the restaurants that often suffer the consequences of delayed shipments and faulty food handling during transport. While many restaurants cannot access real-time tracking of their orders beyond basic “shipped” notifications, some restaurant distribution companies provide apps that detail delivery windows, truck locations and real-time status updates.

In-house, steps to help ensure that needed ingredients are always on hand include establishing standard operating procedures, such as rigorous vendor selection processes; using vendor scorecards built into inventory management systems; and ordering on a regular schedule.

3. Efficient Inventory Management

Inventory management software helps managers quickly identify and address costly inventory issues, such as overstocking or vendor mistakes. Digital capabilities range in sophistication, with more advanced operations installing scales and barcode scanners in storage facilities for automated data entry and alerts to reorder when inventory dips to preset thresholds.

About half of restaurant managers said they were investing in inventory management systems in 2024, according to the NRA. This makes sense because improving inventory tracking of key ingredients is a proven way to reduce the cost of goods sold.

4. Technology Integration

The proliferation of restaurant IT — POS systems, customer relationship management software, table management terminals and more — has created “technology bloat” at many restaurants. At this point, one in five restaurant managers said they are overwhelmed, according to NRN.

With so many systems, data often becomes fragmented, limiting the potential for cross-checking inventory management against, say, reservations into the foreseeable future. It’s now at the point that technology vendors are increasingly offering APIs and integrated platforms, which should ease restaurants’ evolution toward more streamlined operations and capabilities to run data analytics.

5. Sustainable and Ethical Sourcing

Strong supply chain management can facilitate the selection of ethical suppliers, trace the provenance of food items and enable partnering with local farmers to support the community and reduce transportation emissions due to long-haul shipments — all of which can be explicitly communicated to increasingly environmentally aware customers on the menu and in social media.

6. Risk Management and Contingency Planning

Addressing the many supply chain risks enumerated above takes collaborative risk management and contingency planning, built on strong relationships with key suppliers. Suppliers can provide early warnings of emerging issues, such as food shortages and major transportation bottlenecks, and collaborate with their restaurant customers on alternative sources or delivery options.

On their own, restaurant managers also have to monitor their suppliers for potential issues, such as financial instability or slipping quality. Contingency planning might include establishing backup suppliers, “just-in-case” stocks of nonperishable items and menu flexibility to allow creative substitutions during shortages. Some inventory management systems enable scorecards on suppliers’ performance, ranking on-time delivery, pricing, order accuracy and other attributes.

7. Regulatory Compliance

Restaurant managers prioritize regulatory compliance by establishing rigorous standards for food safety, quality and proper labeling. Training, internal inspections and supply chain management software are among the tools that can strengthen adherence to health department regulations. Examples in the supply chain include maintaining a repository of supplier certifications and safety audits, keeping inventory records that facilitate last-in, first-out use of perishable items and ensuring traceability of food sources in the event of contamination outbreaks.

8. Data-Driven Decision-Making

Restaurants that have purchased disparate technology tools are increasingly looking to integrate them to enable data-driven decision-making. For example, POS systems, which are used to take orders and process payments, also produce data useful for inventory management, identifying which items are selling and may need replenishment. Linking inventory and restaurant accounting systems can enable real-time inventory valuations to inform future purchasing decisions. Platforms integrating these and other systems, such as payroll, can provide managers with the complete picture of their business performance.

9. Collaboration and Networking

Collaboration can take many forms in the restaurant business, such as partnering on promotions with local artisan producers or inviting chefs from other restaurants to make pop-up appearances. One type of collaboration that is most relevant to supply chain management involves group purchasing organizations (GPOs). These organizations bring together independent restaurants and smaller restaurant groups to pool their purchasing and tap into volume discounts. Several large, established GPOs offer free membership, technology tools for spending reports and discounts or rebates on food and nonfood items.

10. Focus on Customer Satisfaction

Customers look for a combination of high-quality meals, consistency and competitive pricing when choosing their favorite restaurants, and it all starts with procurement and supply chain management. Attracting and retaining repeat diners also requires tapping into customer trends and preferences, seen in POS systems and social media, to evolve menus and sourcing to suit their tastes and phase out unpopular menu items.

Manage Supply Chain Fluctuations with NetSuite

Integrated digital tools enable timely decision-making for restaurants to manage supply chain fluctuations, tap into the most cost-effective options available and respond to new customer trends and preferences. NetSuite’s cloud-based offerings, such as its enterprise resource planning (ERP), vendor management, inventory and accounting software, can help restaurants integrate from the front of the house to the back, while enhancing supply chain operations in collaboration with their vendors. NetSuite delivers a modern, lightweight restaurant software for franchisors, restaurants and hospitality groups to drive revenue and reduce costs.

Dashboard options:

Amid pressures on business margins, restaurants are elevating their supply chain game with integrated digital tools that enable vendor collaboration, inventory control and menu flexibility. Linking inventory management software, POS systems and other tools, managers are gaining better access to the data and insights they need to shave costs, minimize disruptions and ensure high-quality, consistent dining experiences for their customers. The digitization of restaurant supply chains is a work in progress, but it’s a clear priority to deliver profitability.

Restaurant Supply Chain Management FAQs

What is the supply chain for restaurants?

To run a restaurant supply chain means managing the procurement of needed ingredients and other goods from many different sources, including:

• Direct suppliers, such as spice manufacturers, farmers, beverage companies and kitchen equipment makers.
• National, regional and specialty wholesalers of a range of food and nonfood products.
• Group purchasing organizations, in some cases, for membership benefits such as volume discounts.

What is supply chain management in the food industry?

Managing a supply chain in the food industry involves many of the requirements and challenges other types of businesses must address in overseeing the flow of goods they need from various sources. That includes high costs, transportation bottlenecks, shortages, siloed data from disconnected IT tools and limited visibility to monitor suppliers. On top of that, restaurants must manage challenges that are unique to the food industry, such as the sheer variety of ingredients and sources, seasonality, perishable goods, food safety regulations and more.

What are the 5 basic steps or components of supply chain management?

The five basic steps of supply chain management in restaurants are demand forecasting, procurement, supplier relationship management, inventory management and risk management.