Dive Brief:

• Shake Shack is zeroing in on procure-to-pay and supplier management tools in a digital upgrade for the growing business that spent all of 2019 implementing a new enterprise resource planning system, executives said on the company's fourth-quarter earnings call.
• The company projects the entire back-of-house digital transformation including the ERP and supplier tools will cost $3.5 million, $2.1 million of which was spent in 2019. The implementation work will conclude midyear 2020.
• Tech-enabled inventory and supplier management will give Shake Shack a more granular picture of its procurement operations and free up in-restaurant teams from administrative tasks, CFO Tara Comonte said on the call. "We've been very focused on how to optimize our labor model, continuing to drive more efficient operations through increased use of technology so that precious labor hours are well spent," Comonte said.

Dive Insight:

A lack of transparency in procurement systems doesn't just take labor hours away from the core business of cooking and selling food — it's a liability. Manual processes can breed opacity and risk, according to recent study by Harvard Business Review Analytic Services for Basware, a procure-to-pay and e-invoicing solution provider. Transparency also often brings cost savings.

Shake Shack hasn't shared a dollar amount for expected savings, but The Hackett Group estimates procurement organizations that implement automated technologies can save 17%, and ground-up digital transformations can bring the cost savings in the range of 45%.

"Digital transformation" are buzzwords in modern procurement as legacy companies begin the arduous process of updating outdated manual processes and streamlining procurement staff. 130-year-old McCormick will spend $350 million on a similar transformation, but on a grander scale and with decades of old systems to untangle in the process. Newer companies have the opportunity to get the procurement tech stack right the first time.

Shake Shack was founded in 2004 in New York City, where its restaurants remain at the highest concentration. The business went public five years ago and since has upped the pace of growth, gaining restaurants and complexity owing to a growing number of licensees and international locations. A local network with relatively simple sourcing thanks to a famously streamlined menu quickly grew into an international operation in just a few years.

Before going public the chain had fewer than 70 locations and today has 275 — 49 of which opened in 2019. Shake Shack has unique pressure on its supplier management since the company has exacting standards for ingredients, especially meat. These standards combined with a growing and complicating network of restaurants begs the kind of transparency that procure-to-pay software provides.