Introduction

A few years ago, many restaurant owners believed that rising food prices were only temporary. Then came the pandemic, global shipping delays, labor shortages, and inflation. Suddenly, the cost of running a restaurant became far more unpredictable than anyone expected.

Imagine operating a busy restaurant where meat prices rise every month, delivery expenses keep increasing, and utility bills quietly consume profits in the background. On paper, the business may still appear profitable. But underneath the surface, hidden costs slowly erode financial stability.

This is exactly the challenge explored in a recent research study focused on supply chain cost management in the food production and service industry. Using the case of Sangyeopsal Express restaurant in Ulaanbaatar, Mongolia, the researchers investigated how restaurants can better understand their real costs and make smarter operational decisions.

Rather than relying on traditional accounting methods, the study combined three analytical approaches: Activity-Based Costing (ABC), the Analytic Hierarchy Process (AHP), and the Sphere Packing Approach (SPA). Together, these tools created a clearer picture of where money was truly being spent and how those costs could be optimized.

The result was not just an accounting exercise. It became a practical roadmap for helping restaurants survive in an era of supply chain instability and food inflation.

Understanding the Problem Behind Restaurant Costs

Restaurants are part of a much larger supply chain ecosystem. Food ingredients move from farms to suppliers, then to warehouses, kitchens, delivery services, and finally to customers. Every stage adds costs.

The researchers explain that many businesses still use traditional costing systems, which mainly focus on direct expenses like ingredient purchases or employee salaries. However, this approach often ignores hidden operational costs such as:

• Inventory handling
• Storage losses
• Delivery inefficiencies
• Marketing expenses
• Energy consumption
• Administrative support

The study compares this issue to an iceberg. Only a small portion of the real cost is visible above the surface, while most expenses remain hidden underneath.

This becomes especially dangerous during periods of inflation. Restaurants may think they are controlling costs simply by negotiating lower ingredient prices, while unnoticed inefficiencies elsewhere continue draining profits.

The researchers argue that modern supply chain management requires a broader and more integrated perspective. Instead of treating departments separately, businesses should examine the entire operational chain as one connected system.

Discussion of the Study

Why Sangyeopsal Express Was Chosen

To explore this issue in practice, the researchers selected Sangyeopsal Express, a restaurant operating in Mongolia’s capital city. The restaurant served as a real-world case study for analyzing supply chain expenses across procurement, storage, food preparation, logistics, and customer delivery.

The research team collected data from:

• Financial reports
• Procurement documents
• Inventory records
• Internal operational policies
• Interviews with managers and staff

This combination of numerical data and practical experience allowed the researchers to build a highly detailed understanding of the restaurant’s cost structure.

The Three Main Methods Used in the Research

1. Activity-Based Costing (ABC)

The first method, Activity-Based Costing, was designed to uncover the “hidden” costs ignored by traditional accounting systems.

Instead of simply asking, “How much did ingredients cost?” the ABC method asks deeper questions:

• How much labor was involved in handling ingredients?
• How much electricity was used during food preparation?
• How much warehouse space was required?
• Which activities consumed the most resources?

By assigning costs to actual business activities, the researchers could identify where money was truly being spent.

This revealed that supply chain costs extended far beyond raw material purchases.

2. Analytic Hierarchy Process (AHP)

Next, the researchers used the Analytic Hierarchy Process, or AHP, to determine which costs mattered most.

Five industry experts participated in the evaluation process. Through structured comparisons and group discussions, they ranked the importance of different expense categories.

The analysis showed strong statistical reliability, meaning the experts largely agreed on which cost factors were most critical.

This method helped prioritize managerial attention instead of treating every expense equally.

3. Sphere Packing Approach (SPA)

The most unusual part of the study was the use of the Sphere Packing Approach.

Originally associated with mathematical optimization problems, SPA was adapted here to identify the safest and most efficient cost ranges for restaurant operations.

In simple terms, the model tried to answer this question:

“What is the most stable way to distribute operational costs without exceeding the restaurant’s financial limits?”

The system calculated optimal spending ranges for:

• Food ingredients
• Beverage ingredients
• Production staff salaries
• Support staff salaries
• Utility and operational expenses

Rather than focusing on extreme cost-cutting, the model aimed for balance and sustainability.

Supply Chain Financing Explained in Simple English (With a Real BYD Case Study)

Key Findings of the Research

Raw Materials, Labor, and Utilities Were the Biggest Cost Drivers

One of the clearest findings was that three areas consumed most of the restaurant’s supply chain budget:

1. Raw material procurement
2. Labor costs
3. Utility expenses

This may sound obvious at first, but the ABC system revealed how significantly these costs affected profitability once indirect expenses were included.

The researchers discovered that labor costs in food production were especially high compared to industry benchmarks.

Traditional Costing Was Incomplete

The study strongly criticized traditional accounting methods for oversimplifying restaurant operations.

By relying only on direct costs, businesses risk missing critical inefficiencies hidden within logistics, inventory management, and support operations.

ABC provided a much more transparent cost structure.

For managers, this visibility is crucial because poor cost awareness often leads to weak decision-making.

The Restaurant Was Spending Beyond the Optimal Range

Using the SPA optimization model, the researchers estimated that Sangyeopsal Express should ideally operate within a total annual cost range of approximately 1.19 to 1.21 billion Mongolian tugriks.

However, actual expenses exceeded the maximum recommended threshold.

The primary reason was excessive labor spending during food production.

This finding gave management a measurable target for improving efficiency without harming service quality.

Better Supply Chain Management Improves Business Resilience

The study also reinforced a broader lesson learned globally after COVID-19: restaurants with stronger supply chain systems tend to perform better during crises.

Efficient inventory management, supplier coordination, and cost monitoring help businesses absorb economic shocks more effectively.

In periods of inflation, these advantages become even more important.

How to Streamline Supply Chain Processes to Create Value

Real-World Importance of the Study

What makes this research particularly valuable is its practicality.

Many academic studies discuss supply chain theories without demonstrating how they work in real businesses. This paper took a different approach by testing advanced cost management tools inside an operating restaurant.

The implications extend beyond Mongolia.

Restaurants worldwide face similar pressures:

• Food inflation
• Rising labor expenses
• Delivery platform fees
• Supply shortages
• Energy price volatility

The study suggests that restaurants can improve profitability not only by increasing sales, but also by understanding their operational structure more intelligently.

For smaller businesses, this can mean the difference between survival and closure.

Limitations of the Research

Although the study provides useful insights, it also has limitations.

First, the research focused on a single restaurant. Different restaurant types, locations, or business scales may produce different cost structures.

Second, some of the optimization techniques, especially SPA, require mathematical expertise that smaller businesses may struggle to implement independently.

Third, external factors such as sudden inflation spikes, political instability, or changing consumer behavior could still disrupt even the most optimized supply chain.

The researchers acknowledge that while the methodology is adaptable, successful implementation depends heavily on management capability and data accuracy.

Conclusion

This study offers an important reminder that modern restaurant management is no longer just about serving good food. It is equally about understanding the invisible network of costs operating behind every meal.

By combining Activity-Based Costing, AHP analysis, and Sphere Packing optimization, the researchers created a clearer and more realistic picture of restaurant supply chain expenses.

Their findings showed that hidden operational costs — especially labor, materials, and utilities — can significantly impact profitability if left unmanaged.

More importantly, the research demonstrated that smarter cost management does not simply mean cutting expenses aggressively. Instead, it involves building a balanced, data-driven system that supports long-term sustainability.

As supply chains continue to face uncertainty around the world, studies like this provide valuable guidance for restaurant owners searching for stability in an increasingly unpredictable industry.

References

1. Anklesaria (2008) authored a book titled Supply Chain Cost Management—The AIM & Drive Process for Achieving Extraordinary Results, published by Amacom, which presents a structured methodology for cost reduction across supply networks.
2. Arshinder, Kanda, and Deshmukh (2008) examined supply chain coordination through multiple perspectives, including empirical studies, and outlined future research directions in an article published in the International Journal of Production Economics (Volume 115, pages 316-335).
3. Bailey and colleagues (2015) wrote Procurement, Principles & Management (Pearson), a comprehensive textbook covering fundamental procurement concepts and their application within supply chain management.
4. Boute, Bruggeman, and Vereecke (2014) proposed an integrated approach to cost management across the supply chain, publishing their framework in the Journal of Cost Management (Volume 28, pages 11-15).
5. Bragg (2010) authored Cost Reduction Analysis: Tools and Strategies (Wiley), a resource detailing practical tools and analytical methods for identifying and implementing cost reduction opportunities.
6. Brandenburg (2018) examined supply network configuration as a benchmarking problem, publishing his findings in Chaos: An Interdisciplinary Journal of Nonlinear Science (Volume 28, Article ID 033121).
7. Christopher (1992) wrote the foundational text Logistics and Supply Chain Management (Pitman Publishing), which helped establish logistics as a strategic function within organizations.
8. Cooper, Ellram, Gardner, and Albart (1997) studied how companies manage multiple alliances simultaneously, publishing their insights in the Journal of Business Logistics (Volume 18, pages 67-89).
9. Cooper, Lambert, and Pagh (1997) argued that supply chain management represents more than a new label for logistics, presenting their case in The International Journal of Logistics Management (Volume 8, pages 1-14).
10. Do (2023) examined supply chain management practices specifically within the restaurant industry, publishing a focused analysis (pages 1-10).
11. Ellram and Cooper (1990) investigated the dynamics of supply chain management partnerships, specifically examining relationships between shippers and third-party providers, in The International Journal of Logistics Management (Volume 1, pages 1-10).
12. Estampe (2014) wrote Supply Chain Performance and Evaluation Models (Wiley), a book that presents frameworks for assessing and improving supply chain performance.
13. Fabian, Uchechukwu, Okoye, and Okeke (2023) studied how corporate outsourcing affects organizational performance within Nigerian investment banks, publishing in Scholars Journal of Economics, Business and Management (Volume 10, pages 46-57).
14. Falks (2018) completed a doctoral dissertation at Walden University examining supply chain management strategies used in the manufacturing industry.
15. Foster (2016) authored Managing Quality: Integrating the Supply Chain (Pearson), a textbook that connects quality management principles with supply chain integration strategies.
16. Frohlich and Westbrook (2001) conducted an international study identifying different “arcs of integration” in supply chain strategies, publishing in the Journal of Operations Management (Volume 19, pages 185-200).
17. Guinn (2024) wrote an industry report analyzing restaurant supply chain dynamics and forecasting price trends for 2024, published on the Toast POS blog platform.
18. Gunasekaran, Patel, and Tirtiroglu (2001) developed performance measures and metrics specifically designed for supply chain environments, publishing in the International Journal of Operations & Production Management (Volume 21, pages 71-87).
19. Handfield, Graham, and Burns (2020) examined how the coronavirus pandemic, tariffs, and trade wars have forced evolutionary changes in supply chain design, publishing in the International Journal of Operations & Production Management (Volume 40, pages 1649-1660).
20. Ho, Zheng, Yildiz, and Talluri (2015) conducted a comprehensive literature review on supply chain risk management, publishing their findings in the International Journal of Production Research (Volume 53, pages 5031-5069).
21. Ihle and colleagues (2020) analyzed how imperfect food markets respond during crises, examining the economic consequences of supply chain disruptions and fragmentation for local market power and urban vulnerability, in Food Security (Volume 12, pages 727-734).
22. Ivanov and Dolgui (2021) explored operations research methods for managing the ripple effect in supply chains during the COVID-19 pandemic, offering managerial insights and research implications in the International Journal of Production Economics (Volume 232, Article ID 107921).
23. Jüttner and Maklan (2011) conducted an empirical study examining supply chain resilience during the global financial crisis, publishing in Supply Chain Management: An International Journal (Volume 16, pages 246-259).
24. Kenton (2020) wrote an explanatory article on activity-based costing (ABC) for the online financial education platform Investopedia.
25. Khalid (2010) authored Optimizing Back Office Operation—Best Practices to Maximize Profitability (Wiley), a guide to improving administrative efficiency and financial performance.
26. Kovács and Falagara Sigala (2021) identified lessons from humanitarian logistics that can help manage general supply chain disruptions, publishing in the Journal of Supply Chain Management (Volume 57, pages 41-49).
27. Kurowska and colleagues (2020) examined food security in relation to liquid biofuel production, publishing their research in Energies (Volume 13, Article No. 6247).
28. La Londe and Masters (1994) outlined emerging logistics strategies for the next century, publishing their forward-looking analysis in the International Journal of Physical Distribution & Logistics Management (Volume 24, pages 35-47).
29. Lambert, Stock, and Ellram (1998) co-authored Fundamentals of Logistics Management (Irwin/McGraw-Hill), a foundational textbook covering core logistics principles and practices.
30. Langley and Holcomb (1992) explored how companies create customer value through logistics activities, publishing their findings in the Journal of Business Logistics (Volume 13, pages 1-27).
31. Leon (2016) authored Financial Intelligence for Supply Chain Managers—Understand the Link Between (Pearson), a book bridging financial concepts and supply chain decision-making.
32. Liu and colleagues (2013) investigated how supply chain integration and market orientation affect firm performance, using evidence from Chinese companies, in the International Journal of Operations & Production Management (Volume 33, pages 322-346).
33. MacCarthy, Ahmed, and Demirel (2022) addressed the why, what, and how of supply chain mapping, publishing their analysis in the International Journal of Production Economics (Volume 250, Article ID 108688).
34. Martin (2018) authored Warehousing and Transportation Logistics (Kogan Page), a resource covering the operational aspects of moving and storing goods within supply chains.
35. Masters (2018) developed a cost model specifically for estimating supply chain expenses, publishing in Cost Management (Volume 32, pages 27-35).
36. McLennan and the World Economic Forum team (2022) wrote the preface and executive summary for The Global Risks Report 2022, published by the World Economic Forum.
37. Mentzer and colleagues (2001) offered a formal definition of supply chain management, clarifying the concept in the Journal of Business Logistics (Volume 22, pages 1-25).
38. Mio, Costantini, and Panfilo (2022) conducted a systematic literature review on the use of the sustainability balanced scorecard as a performance measurement tool for sustainable business, publishing in Corporate Social Responsibility and Environmental Management (Volume 29, pages 367-384).
39. Moseley and Battersby (2020) examined the vulnerability and resilience of African food systems, food security, and nutrition during the COVID-19 pandemic, publishing in African Studies Review (Volume 63, pages 449-461).
40. Neely (2002) edited Business Performance Measurement: Theory and Practice (Cambridge University Press), a collection of scholarly works on measuring organizational performance.
41. Nguyen (2021) conducted a case study on cost optimization in supply chain management, focusing specifically on a Finnish distributor of cosmetics (pages 1-60).
42. Pierce and Brown (2006) compared the perceived success of activity-based costing systems against traditional costing systems, publishing their findings in the Journal of Applied Accounting Research (Volume 8, pages 108-161).
43. Ross (2023) compiled statistics and trends on the state of supply chain management, publishing the report on the Invesp CRO blog platform.
44. Seuring and Müller (2008) conducted a literature review leading to the development of a conceptual framework for sustainable supply chain management, published in the Journal of Cleaner Production (Volume 16, pages 1699-1710).
45. Sharma and colleagues (2022) examined how blockchain technology can help build resilient food supply chains during disruptions caused by the COVID-19 outbreak, publishing in Operations Management Research (Volume 15, pages 268-281).
46. Sjah and Zainuri (2020) contributed a chapter on agricultural supply chains and food security to the book Zero Hunger, edited by Filho and colleagues (Springer International Publishing, pages 79-88).
47. Sower and Sower (2012) wrote Better Business Decisions Using Cost Modeling—For Procurement, Operations and Supply Chain Professionals (Business Expert Press), a guide to using cost models for decision-making.
48. Stevenson (2005) authored Operations Management (McGraw-Hill), a standard textbook covering operations principles and their application in business settings.
49. Stock and Lambert (2001) published the fourth edition of Strategic Logistics Management (McGraw-Hill/Irwin), a comprehensive text on logistics strategy.
50. Tang and Nurmaya Musa (2011) identified key risk issues and research advances in supply chain risk management, publishing in the International Journal of Production Economics (Volume 133, pages 25-34).
51. Turban and King (2003) co-authored Introduction to E-Commerce (Prentice Hall), a textbook covering electronic commerce fundamentals and applications.
52. Tyndall, Christopher, Wolfgang, and John (1998) wrote Supercharging Supply Chains: New Ways to Increase Value through Global Operational Excellence (John Wiley & Sons), presenting strategies for enhancing supply chain value.
53. Um and Han (2021) examined the relationships between global supply chain risk and supply chain resilience, focusing on the role of mitigating strategies, in Supply Chain Management: An International Journal (Volume 26, pages 240-255).
54. Umar and Wilson (2021) explored how collaboration can enhance supply chain resilience in disaster management, publishing in Sustainability (Volume 13, Article No. 10573).
55. Uskert (2019) authored Winning in the Turns: A Supply Chain Action Guide, a practical guide available through an online document repository.
56. Wudil and colleagues (2022) conducted a review of the food security situation in Sub-Saharan Africa, identifying factors affecting food security in the region, published in the International Journal of Environmental Research and Public Health (Volume 19, Article No. 14836).
57. Yadav and colleagues (2022) performed a systematic literature review of the agro-food supply chain, examining challenges, network design, and performance measurement perspectives, in Sustainable Production and Consumption (Volume 29, pages 685-704).