Tuesday, February 11, 2014

Inventory Management and the Food Industry

Inventory management is extremely important in any industry and even more so in the food industry. With the items being perishable, the complexity of inventory management increases. Fast food restaurants face a tough challenge in deciding their inventory levels. If they stock too much, a lot of the items are going to go bad resulting in a loss. Similarly if the under stock, all customers can’t be served and hence they will move to other restaurants. So these restaurants should be extremely careful in managing their inventories.

Each fast food chains their own model to replenish their inventory. Typically items which are top sellers are replenished as and when the stock gets over and the other items are ordered periodically (every week, month, etc.). The restaurants have adopted new methods which take into consideration the consumption of items during specific times of the day and stock their inventories accordingly. For example: More sandwiches are sold during lunch time. So the store would stock more bread during the afternoon period and less during the other times.

The demand for food is really volatile as people don’t have the same food item every day. This makes it harder to forecast the demand. There are other challenges involved like quality, freshness and health concerns also to consider when stocking up. With menus being changed frequently the restaurants and suppliers face more challenges with inventory replenishment. Technology is being used increasingly to try and forecast the demand. Better data analysis tools are helping the fast food chains to forecast more accurately.  

With the industry growing at an alarming rate all the restaurants face tough competition and having an efficient inventory management system could make the difference between going out of business and becoming the leader in the industry. Chains like McDonald's, Subway, KFC and others are constantly improving their inventory management strategies to achieve the best performance.

As an example.....Considering McDonald's, these are some of their suppliers in India.

McDonald's has to coordinate and manage all these and decide their inventory management strategy based on these items. It is absolutely necessary that all the items are stocked regularly as even a small delay in the supply of one item can lead to major problems. So they have to carefully plan their inventories to accommodate all factors. There are several other challenges with inventory management. What do you think are the other challenges that a fast food chain faces with respect to inventory management?



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