Transcript of "Global Sourcing and Transformation in the Restaurant Industry"
• Cognizant 20-20 Insights Setting the Table for Growth: Global Sourcing and Transformation in the Restaurant Industry Executive Summary Finance and accounting (F&A) processes make a particularly good place to begin the managed With the worst of the recession behind us and business services journey, especially for companies consumer spending showing signs of life, it’s that prefer to take a risk-averse approach to func- time for the restaurant business to look beyond tion-based BPO. With restaurants’ higher number cost-cutting and seek growth through process of vendors, accounts payable (A/P) is a top cost innovation. center, and the large volume of hourly and part-time Restaurants and hotels began many years ago to employees similarly pushes efficient payroll outsource their IT operations as a path to greater operations to a high point on the priority list. efficiency. Now, for the first time, they are looking As multi-unit restaurant chains begin to see the to globally source processes — benefits of managed business services, they Managed business also known as business process become more willing to venture into functional services can offer outsourcing (BPO), or managed areas such as restaurant operations support, business services — as a way tothe agility necessary achieve cost efficiencies while restaurant accounting, treasury, payroll, franchise support, fixed assets, project accounting, lease for a restaurant setting their tables for core accounting and gift-card accounting. As such, they business growth. chain to globalize seek an integrated global sourcing approach. Out- its operations Taking advantage of managed sourcing A/P to a cost-effective managed business services provider that can leverage scalable hori- — shrinking and business services is a way for res- zontal-function efficiencies across customers can taurants to contain the volume growing as dictated and diversity of cost center- be a quick and easy way to reduce costs, while by new markets and related operations and data. This preserving the human and technical infrastructure that will serve internally as a platform for revenue acquisitions. is important, as the restaurant growth. Managed business services can offer the industry has a much higher number of process stakeholders, including vendors, agility necessary for a restaurant chain to globalize hourly employees and contractors, compared with its operations — shrinking and growing as dictated companies of similar size. by new markets and acquisitions. cognizant 20-20 insights | february 2011
Industry-Focused Services industry understand nuances such as “restaurant accounting,” which involves tracking the cost The tough economy of the past two years has of a menu item based on the aggregate cost of altered the restaurant and hospitality landscape. each ingredient in that item. To make one plate Consumer confidence is slowly returning, but of salad, for instance, might require purchasing pre-recessionary growth levels will be harder to lettuce, vegetables, croutons and dressing from achieve as unemployment continues to affect dis- 10 or 15 different vendors. A managed business cretionary incomes. Expectations are being reset services provider understands how to track the quite dramatically in the restaurant industry, as plate cost of menu items appropriately, thus they are elsewhere in the economy, to reflect providing essential information for price setting. changed circumstances. Companies that thrive The provider can then share best practices across in this new environment will optimize costs while clients. nurturing growth. To get there, Restaurants restaurant companies can build Companies that globally source their F&A can achieve a platform of efficiency that will generate cash immediately processes retain key personnel — managers and subject matter experts. BPO frees these indi-greater flexibility and position businesses to leap viduals from their day-to-day responsibilities so and scalability ahead of competitors as the they can spend more time improving processes, economy continues to recover.without having to analyzing costs and providing best-in-class hospi- tality by driving initiatives that exceed customer choose between Interest in managed business expectations. cost reduction services is high and continues to grow because it offers solutions and process that don’t require compromise. Beyond F&A improvements. Restaurants can achieve greater F&A is indeed a good starting point for restau- flexibility and scalability without rants interested in managed business services. The having to choose between cost reduction and upfront investment is low, and start-up is usually process improvements. Through managed business straightforward due in large part to the availability of services, restaurants can generate the cash needed well-documented procedures. However, restaurant to invest in an efficiency platform that will support companies that stop at F&A will leave many benefits future growth, be it organic or through acquisition. and cost savings on the table. Beyond F&A, general ledger, restaurant operations support, restaurant Global Sourcing of F&A Processes: accounting, treasury, payroll and franchise support Quick Cost Savings are all fruitful areas for managed business services. For example, franchise companies can offer their Most companies begin their F&A global sourcing franchisees the option of paying one monthly fee to journey with either or both of the following the parent for such functions as payroll, accounting processes: and store operations support. Today, franchi- 1. Accounts payable: Once the invoice is sees tend to be small to medium-sized businesses submitted to the payment system, processing without access to sophisticated IT systems and thus occurs. Globally sourcing this aspect of A/P often accomplish these functions on their own. With offers a cost advantage because the services ad hoc processes and arcane systems, franchisees provider can process greater volume than any typically have little ability to invest in technology. individual company. A large franchise company can engage a managed 2. Payroll: Time and attendance is submitted business services provider to create a standard- to the system at each restaurant location ized set of business processes and systems for and later processed remotely by the services their franchisees. Otherwise, it would be difficult provider. Globally sourcing this process for a franchisee to identify and leverage estab- reduces the cost of performing this repeatable lished best practices. Propagating best practices process, in addition to exception-based items, throughout the system will reduce per-restaurant such as off-cycle checks, missing checks and and per-employee costs, enabling franchisees to garnishments. avoid the need to maintain their own back-end The client benefits from continual improvement, systems. At the same time, the parent company as the provider hones its processes for clientele benefits from the reduced cost of processing due in the same industry. For example, managed to the increased volume of consolidating multiple business services providers in the restaurant franchisees on one platform. cognizant 20-20 insights 2
Franchisees also benefit greatly from day-to-day Case Study: A Profitable Engagementoperational support. For example, if a customer’s for F&A Global Sourcingcoupon will not scan in the system, the cashier Beginning in 2008, we helped a leading U.S. casualcan invoke operational support for help in solving dining company achieve benefits with managedeverything from menu ingredients, to promotions, business services. This company began outsourc-to store technology. ing its IT operations a decade ago and becameThese services can be implemented for home- interested in F&A managed business services justgrown systems or through commercial-off-the- recently. Although corporate management wasshelf (COTS) products like ERP packages or enter- averse to taking on much risk, the downturn forcedprise point-of-sale (POS) systems. Corporate and the company to look more closely at costs.back-office operations can include master data This company pays out a high percentage of itsmaintenance, menu and restaurant lifecycle main- revenues in overhead expenses — more than atenance, menu price updates, above-store reports quarter of its annual expenditures. Its A/P depart-maintenance and treasury operations. Some oper- ment, therefore, was a major cost center. Seniorations might need more interaction and a longer management was convinced F&A managed busi-ramp-up to achieve a steady state of support due ness services could help the company reduce A/Pto the specifics and complexity of restaurant busi- costs significantly as a starting point. With thatness operations; however, efficiency, cost savings phase complete, it planned to globally sourceand process throughput increases. Other areas several other F&A processes, including payrollthat would benefit from managed business ser- management and restaurantvices include: accounting, for an expected total We have worked with• Restaurant operations support/help desk annual cost savings of 38%, the leader of casual• Franchise operations and administration resulting in millions of dollars in savings, productivity improve- dining in the U.S.,• Inventory/supply chain ments of 5% per year and accu- but we believe only• Marketing and promotions racy rates of 98% or higher. two or three major• Risk, audits and compliance The strategy: By entrusting us U.S. restaurantThe Business Case for to manage end-to-end back- companies haveManaged Services office operations to achieve cost efficiencies, more than 100,000 begun to leverageGlobally sourcing IT is common in the restaurantand hospitality industry. Managed business employees would be free to con- F&A managedservices, however, is in its earliest stages of centrate on core processes. The business services.adoption. We have worked with the leader of managed business services workcasual dining in the U.S., but we believe only was to be carried out by a joint team consistingtwo or three major U.S. restaurant companies of 100 internal employees handling front-officehave begun to leverage F&A managed business operations and nearly 100 of our employeesservices. Most are still evaluating the situation, located both on and off the client’s premises.although with every passing day, the risk of doing Phase 1 included managed business services fornothing grows. the following 12 A/P and Fixed Assets processes:In most cases, the services provider operates therestaurant’s financial systems remotely, as in the • Invoice processingclassic outsourcing model, rather than “renting” • Payment approval processthe application to the client and running it off- • Item/recipe maintenancepremises, as in a “cloud” model. Some restaurantcompanies do have interest in globally sourcing all • Electronic invoice processingof their IT operations so they won’t have to own • In-house transfer processingany hardware and software. In our experience, • Petty cash invoice processinghowever, most major restaurants do not currentlyfeel comfortable with cloud computing. The data • Reconciliationsthat resides on their systems can be sensitive, • Procurement administrationand they are not yet ready to surrender control oftheir data, and with managed business services, • Capital project set up and trackingthat is not necessary. • Asset capitalization and depreciation cognizant 20-20 insights 3
• Quarterly and annual audit schedules In addition, the company has achieved its secondary objective of installing a more scalable • Capitalization policy compliance support and flexible model to meet its staffing needs. For Nearly 50 full-time employees were required to run instance, when it recently sold off two restaurant the in-house A/P department. Globally sourcing chains, our arrangement made it easier to these processes would allow the restaurant chain right-size the staff while providing reliable back- to immediately reduce headcount. office accounting services during the transition. Our support of the restaurant The vice president of accounting for the restau- Two years into company goes beyond F&A. rant company feels the engagement has been a the multi-year As a trusted industry-based major success. The company has retained control managed business services and accountability for its F&A processes while engagement, the partner, we helped our working synergistically with the off-site team. restaurant chain client implement solutions “We are one, integrated team,” he says. is tracking well and process improvements to address industry-specific Exploring Other Globaltoward its objective challenges, including gift-card Sourcing Options to achieve 30% loyalty management, back- The restaurant industry is now moving toward to 40% savings of-house (BOH) applications, enterprise COTS product-based operations to labor-scheduling systems, in the delivery of online ordering and food reduce operational complexities and gradually sunset its maintenance-cost-intensive legacyaccounting services usage variance reports systems. These COTS products, encompassingto the organization. (especially for high-cost restaurant industry best practices and legacy inventory items). IT maintenance operations, can be entrusted to managed business services providers. The In subsequent phases, based on increased knowl- following are at the top of global sourcing lists: edge and performance achievements, the restau- rant company globally sourced these additional • Enterprise POS systems processes: > Restaurant lifecycle maintenance • Restaurant accounting > Field employee lifecycle and roles mainte- nance • Payroll processing • Lease property accounting > Restaurant-to-field employee alignment • Treasury reconciliation > Menu and condiment item lifecycle configu- ration maintenance • Account receivables > Menu item pricing updates • Gift card accounting > Inventory item lifecycle configuration main- • Financial system support and consulting tenance To smooth the communication between the > Data file movements between distribution teams, we created a workflow interface that center and enterprise POS system helps information flow seamlessly between the two teams and the client’s other third-party > Recipe management partners. Another of our teams was already in > Implementation of corporate master data place providing IT global sourcing services, and into the enterprise POS system the IT-managed business services synergy aided > Labor scheduling the transition and processes. • Business intelligence and above-store reporting Two years into the multi-year engagement, • Restaurant help desk the restaurant chain is tracking well toward its objective to achieve 30% to 40% savings in the For the last couple of years, some leading U.S. delivery of accounting services to the organiza- quick-service restaurants (QSR) and casual tion. The accounting group has seen higher levels restaurant organizations have undertaken of job satisfaction from retained employees as major initiatives to manage corporate opera- they are now able to work on more strategic ini- tions (including overseas operations) through tiatives and job functions. global sourcing. We have gained credentials cognizant 20-20 insights 4
in enterprise POS systems configuration main- based BPaaS (business process as a service) tenance operations through our work with a would be the right choice. They are the best leading global QSR brand based in the U.S. contenders in encompassing optimization of process, technology and people for a specific Picking the Right Provider industry sector. Providers in this category not Managed business services providers are prolifer- only have the flexibility of traditional managed ating as the benefits become clear. Though it may business services, but they can also employ indus- be tempting, it can be risky to try experience and domain expertise for specificUnderstanding the engage the lowest cost provider, customers, thereby reducing their own operation- al risks, as shown in Figure 1. dual short- and as providers that solely focuslong-term benefits on able to bring industry-based not cost reductions are often Restaurant organizations beginning their managed business services journey are advised of a managed best practices to bear. In the to partner with a mature service provider. This business services long run, this level of provider partner should start with legacy managed program in tough cannot offer the advantage of process improvements and services for departmental functions and then help the organization gradually transition totimes is one thing; reduced risk by applying best an integrated, standardized, configurable and choosing the best practices tailored to the restau- vertical managed business service. This approach rant and hospitality industry.partner is another. best enables the organization to be cost efficient Understanding the dual short- in a desired payback period and quickly synchro- and long-term benefits of a managed business nize with industry best practices. services program in tough times is one thing; Restaurant companies typically run on legacy choosing the best partner is another. fragmented enterprise applications, often with The major differentiator for restaurant managed suboptimal performance. By contrast, industry- business services is that these services require much based managed business services providers more specific knowledge that calls for expertise in focused on restaurants are better suited at mod- industry-standard best practices, deep knowledge ernizing legacy applications, thereby reducing of restaurant-specific operations and adeptness in operational costs in a predictable timeframe. handling related IT systems and processes. Key considerations for service provider selection Service providers with the process and knowl- are capabilities, track record, approach, price, edge maturity to transcend from horizontal- value and the quality of the client experience. function-oriented legacy managed business Make sure that consulting is part of the package services, to new-age vertical industry practice- and not an expensive add-on, and that it is prag- Case Study’s Risk Priority Number (RPN) Before and After Control Implementation 150 120 90 60 30 RPN After Control RPN Before Control 0 Mail Allocation Webex Check Duplicate Search Key Item & Follow Up Downtime Payment Invoice Number Duplicate Payments Eliminated Figure 1 cognizant 20-20 insights 5