Depth: to become the God of global supply chain, what is Sysco's winning classic?
The following article is from Lishi FMCG, written by Jin Mei
Source / lishikuaixiao (id:lishikuaixiao)
Author / Jin Mei
Haidilao, meituan, SF, Meicai and many other companies want to build a Chinese version of Sysco, but so far no one has been successful. As the largest supply chain company in the world, where is the moat of Sysco?
Zhang Yong, the founder of Haidilao, advocates two companies: McDonald's and Sysco. Benchmarking the former, he created Haidilao, and benchmarking the latter, he established Shuhai international. Although Haidilao has attracted Zhang Yong's attention, Shuhai international and its benchmarking Sysco (Chinese name; Sisco) have carried Zhang Yong's greater ambition.
Since fortune released the world's top 500 enterprises in 1995, Sysco has been on the list and has remained so far. It is regarded as the standard by the supply chain market. As the largest supply chain company in the world, its scale advantage is unmatched.
58000 employees, 14000 trucks (mostly cold chain cars, 86% owned), 4.83 million square meters of logistics center (78.1% owned), for 90 countries in North America and Europe, 650000 customers (restaurants, government medical and educational institutions, hotels, etc.) provide all the ingredients, tableware, restaurant kitchen facilities, cleaning supplies and other 400000 kinds of goods they need. This big Mac is Sysco.
After its establishment in 1969, after more than 50 years of development, it easily won a 17% share of the U.S. catering service market. In contrast, China's leading catering supply chain enterprises have an average annual turnover of only 400million yuan, accounting for only 0.03% of the market.
No Chinese supply chain enterprise doesn't want to become Sysco. Haidilao founded Shuhai international, meituan founded Kuailu, the first American dish for fresh supply, and SF acquired the business of havi China, a McDonald's cold chain service provider. But so far, no one can reproduce its myth in China.
What kind of rich history and broad moat does Sysco have?
01
Supply chain giant
In the United States, Sysco is a pioneer in the catering supply chain market. Its founder John F. Baugh started the quick-frozen food distribution business in 1940. After the end of World War II in 1945, the commercial use of war supply chain, coupled with the large-scale construction of interstate highways in the United States after 1956, made the logistics capacity develop by leaps and bounds, and large supermarkets and chain restaurants began to spring up. Wal Mart rose at that time.
John felt a strong crisis because of the developed transportation. After the convenient transportation, the catering company will drive to purchase goods by itself, so his quick-frozen food distribution market will inevitably be eroded. In order not to be eliminated by the market, he decided to set up a national food distribution company first to seize the U.S. catering supply chain market.
In 1969, John joined forces with small food suppliers from eight other agricultural continents to establish Sysco. Taking advantage of the strong demand of the supply chain caused by the rise of chain restaurants, the total sales of the company reached US $115million in the first year of its establishment. In order to expand rapidly to the whole country, the company was listed on the New York Stock Exchange in the second year. Following the spring breeze of the blowout in the catering industry, Sysco has opened a crazy road of expansion.
From acquiring small distribution companies to larger distribution companies, Sysco began to expand its territory in the United States. In the 1980s, it was no longer satisfied with horizontal mergers and acquisitions of distribution channels, but began to extend to the upper reaches of the industry, acquiring frozen food companies and vegetable planting farms that were not affected by the cycle. Before the 1990s, Sysco basically realized the national layout with 43 mergers and acquisitions.
In 1995, the growth rate of the U.S. catering supply chain market slowed down, and "prey" decreased, and Sysco stopped its acquisition strategy of "catching all at once". It has formulated the "fold out" expansion strategy, that is, in the market far away from the existing operation system, establish new companies, establish sales bases, distribution centers, and allocate personnel, continue to expand the coverage network in the most scientific way, and reduce the marginal cost of distribution.
After entering the millennium, Sysco has stepped into a "diversified" development stage. It began to extend to high-end food and niche categories, such as the acquisition of Asian food, the largest Asian food distributor in North America, for Asian restaurants. It also extends from food business to non food business, such as the acquisition of Texas eat purveyors, which supplies high-end restaurants, and guest supply Inc., which provides housekeeping services for hotels.
Finally, the company's supply system covers 12 categories, including fresh / frozen meat, canned and dry goods, frozen goods (fruits, vegetables, bread, etc.), poultry, dairy products, fresh agricultural products, seafood, beverages, paper and disposable products, cleaning supplies, medical supplies, catering equipment and groceries.
After the stability of the status of the United States, Sysco began to globalize its layout. In 2009, it acquired Pallas foods, Ireland's largest food distributor. In 2016, it successfully acquired the British peer giant brakes, quickly entered the European market and gradually became a market giant.
Sysco's growth path looks brutal and has no gold content. Just buy it, but that's not the case.
Agricultural products and fresh food are highly regional products. The flooding of vegetables after a rainstorm may cause sharp fluctuations in the price of local products, so the group simply has no way to "unify" the management of all warehouses. How to manage the numerous enterprises acquired by the company?
They are all potatoes, but the subtle differences in origin, climate and variety will bring different tastes. How can Sysco standardize and ensure to provide customers with stable quality products? How can it avoid buyers not passing off inferior goods, not corruption and kickbacks?
The company has more than 270 branches in the United States, Canada, Panama and Europe, and provides users with the choice of 400000 kinds of goods. How to ensure that these products are delivered to consumers accurately?
These products have an accounting period of about one month. Sysco's total sales in fiscal 2021 exceeded $51billion. How can it ensure that it is not overwhelmed by the huge cost of capital? Sysco's net profit is only about 2%. If it accidentally leads to bad debts or product damage, it will eat up these profits. How can it deal with these problems to ensure corporate profitability?
02
Flexible supply chain
In such a low profit industry, Sysco also ranks 57th in the global top 500, and its unique business model and operation details are indeed commendable.
The first is to pay attention to product safety and standardization. In order to control the purchasing quality of food materials and prevent personnel corruption, Sysco's purchasing department has set up a two-level separation system to separate the purchasing decision-making process from supplier management.
The company has set up expediters, purchasers, quality controllers and other positions to be responsible for procurement, and feed back the situation of the procurement site to the management through information technology. Supplier engineers and managers of the management level evaluate suppliers through data, and formulate procurement plans according to the cost orientation of food materials, average market price and data over the years. This model can effectively weaken the rights of buyers and avoid favoritism. Haidilao also draws on this practice.
Since Sysco needs to purchase from thousands of domestic and international suppliers, formulating a "procurement plan" will also help the company optimize its supply chain network, reduce the expansion demand of logistics sites, and improve its profitability by reducing operating costs and total inventory levels. Moreover, in order to reduce risks, the company will not allow any supplier to account for more than 10% of the purchase volume alone in the purchase plan
In order to ensure the stability of product quality, the company has also fully extended the upstream of the industrial chain. Sysco guides farmers to widely use intensive management and mechanized planting technology in the planting stage, so that agricultural products, vegetables and fruits are standardized at the source. After these products are mature, they are directly packed and monitored on the farm, and can be transported to the nearby central warehouse within 1.5 hours.
In order to ensure safety, Sysco also established a quality inspection team of more than 200 people to monitor the collection, storage, processing, transportation and other links of food materials. The company has also established a sound food safety assessment, production process, employee health, quality management system, and product traceability mechanism to implement quality control.
The second is to focus on the efficiency of shipment. Sysco has more than 10000 trucks departing from the warehouse every day and distributes more than 1.8 billion orders every year. Each warehouse can deliver up to 50000 orders to customers every day. These orders rely on the company's powerful IT system, which can process a large amount of information in a short time, accurately match the goods, trucks, warehouses, distribution points, etc., and ensure that these large trucks leave on time without delay.
Because every minute of waiting means that the circulation of the warehouse will be affected (if the products in the warehouse cannot go out, the new products cannot come in), and a few minutes of delay will affect the logistics operation. This will not only delay the receiving time of users, but also lead to increased product consumption.
In order to improve the efficiency of warehousing and shipping, the incoming goods of all suppliers of the company, even fresh ones, are standardized products packed in cartons, packed board by board, and directly moved in batches by forklift without manual handling. During the day, these products are sent to the warehouse from an area with a radius of more than 160 kilometers. After stacking according to the precise location assigned by the system, the staff scan the code of goods and location to ensure their one-to-one correspondence.
After the customer submits the order before 4:00 p.m. (the order requires an amount of more than $500), the warehouse will sort the products in the three temperature zones of dry goods, cold storage and freezing according to the system allocation in the evening. The warehouse staff only need to transport the designated goods to the designated location in the truck container one by one according to the system assignment, and scan the code to match and return the data.
Customers usually deliver the store keys to Sysco, and the truck driver directly delivers the goods to the store according to the customer's requirements in the early morning, and takes them back for return. With the support of strong it system, all orders of the company are completed within 24 hours, and the error is within 2 hours.
Sysco's IT system also makes sales forecasts and inventory turnover forecasts to ensure that all products (400000 SKU, including medical devices, restaurant and hotel consumables and even auto parts) will not be stored for too long, and even goods with low turnover rate will realize inventory circulation every week.
However, in the face of such a large number of orders, server failure and downtime are always inevitable. In 2015, Sysco became the first company in the world to use intelligent systems to solve this problem. The application of automation technology enables the system to automatically handle tens of thousands of server failures every month, reducing the accident rate of the company by 89%. The monthly server downtime of the company has been reduced by 40000 hours, and the repair time of serious faults has changed from 19 hours to 18 minutes. Therefore, Sysco has become a leading enterprise in the field of automation and artificial intelligence.
Third, improve profits and stabilize price advantages. The powerful it hub enables each warehouse to make only 2-3 errors per month, and the product loss rate is less than 0.5%, thus improving the profit margin. As the net profit rate of the company is only about 2%, once the warehouse rent fluctuates, it will eat up the profits, so the company chooses to operate with heavy assets and fix the costs.
The company owns the property right of 3.77 million m2 warehouse, which can not only avoid rent changes and eat profits, but also make the company profitable due to land appreciation. Moreover, the early investment makes the land cost of Sysco relatively low, which makes it have a cost advantage and firmly occupy the leading position in the market.
With such a large number of orders every year, one month's account period in the downstream means a huge amount of capital occupation. Why does Sysco still have the money to expand its territory?
Unlike the scattered and vulnerable farmers in China, the upstream of Sysco is mainly connected with super farmers, who have relatively strong funds and loan support to fill the downstream accounting period. This is also the natural "barrier" for domestic enterprises to learn from the Sysco model. Once the upstream capital cost advanced is included, it will not only restrict the expansion of enterprises, but also eat up meager profits.
Reducing management costs is also Sysco's secret to saving money. Due to the large number of branches, the company regards the sub warehouses everywhere as an independent operating company. Except for finance, procurement and other background operations, the company manages them uniformly. The front-end operations and personnel deployment are completely delegated to these operating companies, and they are responsible for their own profits and losses.
The flexible mechanism enables the warehouse to better adapt to the business model of "localization + acquaintance", and provide professional and seasonal products for small and medium-sized manufacturers to reduce costs and increase efficiency. Sysco has also established a knowledge base of BBP (best business practices) to help subsidiaries share and find experience to solve a problem. Sysco has done a good job in cost control, but low prices are not its only moat. In order to compete with Sysco, US food, the second in the U.S. supply chain, often offers a price 30% lower than it to compete with it. But Sysco didn't want to enter vicious price competition, so it decided to find another way.
03
The brain of the company: the ability of consulting and personalized services
Sysco believes that products have two dimensions of price and value, so it believes that a comprehensive consideration of the two will make the company more competitive than a rapid price response. "You don't need to be the one with the most favorable price. As long as you can ensure the quality and quantity of products every day and deliver them to customers on time, then the price has become a secondary choice." The staff of the company said.
It's better to give customers a better future than to give users a low price. The food service industry pushes through the old and brings forth the new quickly, but manufacturers do not know what consumers want, and are blind in the research and development of products. They do not know what ingredients the restaurant needs and how to make cost-effective dishes. Even if the restaurant has demand, it is difficult for manufacturers to have the ability to deliver special orders in a short time.
However, Sysco can know the needs of restaurants and customers at any time through sales, marketing representatives and other personnel and the digital system it provides for restaurants, and provide more products and services based on this. 80% of the products of the company are self owned brands. They are equipped with excellent senior consultant team, chef team and kitchen. They regularly research and develop new products with customers, and then they are mass produced by the acquired factories. As a result, it is difficult for ordinary suppliers in the market to compete with them.
What they provide customers is not just products, but integrated solutions. In addition to products, the company also provides customers with third-party services such as business evaluation, menu analysis, menu planning advice, food safety training and inventory control. For example, Sysco has specially developed a cake cash register system for the restaurant to record the dining records of the restaurant from time to time, so as to help the restaurant better conduct inventory and stock taking and improve the menu.
Sysco is also improving its website, pricing system and customer relationship management (CRM) platform, and investing in creating a customer "personalization engine" to provide personalized services to each customer. In the future, they will also provide supply chain services that do not require a minimum order amount.
Many enterprises avoid "high investment and low net profit", but it constitutes a competitive barrier for Sysco, making its industry position unassailable. What's more commendable is that Sysco has not become a fat man because of its scale advantage, but is constantly growing.
From a logistics distribution company to a full industry chain service company, Sysco is changing from a customer's "logistics support" company to a "future leading" company, making itself impossible to surpass. In contrast, China's supply chain development still has a long way to go.
Source / lishikuaixiao (id:lishikuaixiao)
Author / Jin Mei