Monday, December 31, 2012

Knowing How to Buy Wine Without Falling Down, Part 1

Only in the last ten years have I appreciated what the legend of Creighton Churchill ("The World of Wines" and " A Notebook For the Wines of France") has meant to the foodservice industry in the selection and enjoyment of selling fine wines and alcoholic beverages.

During my brief encounters with Creighton during the heyday of the airline industry (Jumbo 747s, piano bars, and deadhead flights from Puerto Rico to JFK)) we were both always high; I worked for American Airlines and traveled, and he was our wine consultant. Creighton was on a mission to bring quality wine to the masses in a New York elitist sort of way, and I was a rookie F&B purchasing agent.

Experience has told us that potholes, or in my case “air-pockets”are to be avoided when buying and selling alcoholic beverages. While this blog is not a story about airway causalities, before suggesting how to select a new wine for your table, I wanted to share a few axioms (and warnings) that your humble blogger has formed from years of experience:
  1. Foodservice purchasing agents should not buy everything they sample.
  2. Never play golf for money with liquor salesmen
  3. Deny that you have extra keys to the liquor storeroom
  4. Do subscribe to Food & Wine Magazine and The Wine Spectator
  5. Attend the “ Pune Wine Tasting Festival ” at least once in your life.
  6. Read The Noble Grape by Andre L. Simone, before your visa to India is stamped.
  7. Surprise your employees with Hydrometer tests for alcohol contents
  8. Never buy anything but quality brands of liquors and wines (regardless of price)
  9. Respect liquor controls from the Feds down through the state, county, police, health department and from your wife.
I have always respected C-level executives like Don Stanczak (Interstate Hotels & Resorts) and Kevin Garvin (Neiman Marcus), and our firm has had long-standing relationships with both companies. Their leadership and savvy regarding the selection of fine wines and spirits leaves a lasting impression.

Just like my first mentor, Creighton, they used to say they could tell their managers “how to buy liquor and wine in five minutes – but teaching them what to buy would take five years.”

The art of tasting, however, can be leaned more quickly than selection, and can be enjoyable when combined with varieties of food. The basic art of wine tasting is as follows:
  • Look           (bright, clear, free of sediment, color),
  • Smell           (bouquet, aroma, identify grape, nuttiness),
  • Taste           (dry, sweet, fortified, “pluckiness” [tannin], and enjoy!)
If you are new to wine selection and spirits purchasing, take a few years to watch and listen to the experts, and try not to fall down.

Happy New Year!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS), America's most experienced purchasing firm specializing in service to emerging foodservice brands. Contact Information: p: 912-634-0030, email: Fred@ StrategicPurchasingServices.com, Connect on LinkedIN.

Thursday, December 20, 2012

Foodservice Purchasing Survival Teams


Purchasing is not an isolated function and to succeed it must operate in cooperation with the food and beverage operation. At the same time, the relationship between buyers and sellers is key to protecting prices and assuring supply. To accomplish your organizations purchasing goals you need a purchasing support system.

The business of food purchasing in the foodservice industry is dominated by major chains, systems of international agriculture, government involement in fishing, farming and the major food distributors.
SPS’ processes include our purchasing team members working with our clients staff with the goal of a knowledge transfer, utilizing our expertise, resources and tools to enable the group or emerging chain to conduct effective purchasing far into the future.
 
You know that you are ready to start the purchasing support program solo if your staff understands spend managment, commodity markets, trade agreements (ex: NAFTA), import/exports, logistics-distribution, production contracting, food specifications and has a wide variety of foodservice business experience.

Getting started planning chart for your support system

The implementation of the purchasing support team system will help you streamline your procurement process savings 5%-10% annualy; you will be a more profitable and a more efficient operator. Don’t be left behind next year as your competitors battle to contain-costs and maintain a continuity of supply.

To Higher Profits!
Fred

Fred Favole is President of Strategic Purchasing Services (SPS), America's most experienced and trusted firm specializing in commodity contracting, staff outsourcing and supply-chain managnement. Contact: fred@strategicpurchasingservices.com, connect on LinkedIN or call (912) 634-0030.

Thursday, December 13, 2012

Things To Come - Foodservice Purchasing 2013

In the event that the world does not end with the Mayan calendar this month, here is a quick guide to preparing your organization for the coming higher commodity prices, product allocations and forced foodservice job reductions.  

Try to tackle the spend management challenge you need all the puzzle pieces, even if the boss is saying, “we’re already behind on this year’s goals and our infrastructure needs work before we can go ahead with any changes.”

Many times team members also will want to keep doing it the way “we’ve always done it", thinking that no change provides job security!

Is your foodservice structure ready to support new products and  changes in purchasing strategies? Creating the proper attitude concerning these 4 management areas will improve your bottom-line. 
  1. Increase Supplier Performance – make sure your suppliers are meeting your objectives, don’t merely maintain the relationship – build it.
  2. Reduce The Buying Cycle -- most suppliers no longer offer long-term pricing unless you take the risk, so streamline your bid process and focus on quarterly bids that generate even modest savings or cost-avoidance.
  3. Cut Purchasing Costs and Overhead – lower operating costs by outsourcing where you don’t have on-staff staff expertise. If company buying responsibility rests with the multi-tasking executive in the corner office who does many things “adequately”, ask your distributor if your prices are comparable with your competitors’.
  4. Reduce Maverick Purchasing and Increase Control – increases spend management and control purchases - you will need to maximize every purchase dollar. 
While your company may not be ready to more forward with the “risk-reward” buying strategy of buying commodity futures, you can take the first steps to protect prices. Try developing a short-term action plan; we help our foodservice chain clients address the more immediate savings opportunities while outlining the steps to meet long-term goals. 

Determining the right solution for your company requires doing what works for the most profitable brands in foodservice: commodity market price management. Using the markets will catapult your purchasing forward quickly and it’s the only solution that I know of that can satisfy your present and future food cost needs.
With both soybeans and corn at near record low stocks watch the cost-index soar and push protein prices higher even as supply is consolidating.   

While most foodies think 2012 pricing was one for the record books, purchasing pro's know that in the coming year we will see more volatility and wide price swings. 

It you don’t have the buying expertise required to manage the markets, get help. It’s Your Money! 

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS), America's most experienced and trusted purchasing firm specializing the product contracting and post-purchase income recovery. Contact: (912) 634-0030 Email: Fred@StrategicPurchasingServices.com Connect on LinkedIN.

Thursday, November 22, 2012

Going "Green and Healthy" Impacts Purchase Decisions


Speculation has been confirmed: the foodservice executive chef and purchasing manager role in product purchase decisions is having an effect on the way farms, ranches and packers use hormones, pesticides and processing additives like "meat glue" and "pink slime" despite pressure to contain prices.

As we enter 2013, the environment’s predictability seems to be decreasing as concerns about the healthful and green quality of foods we serve to the public increases. A requisite for restaurant chain economic survival requires organizations to manage the coming food inflation, follow menu trends and yet keep menu prices affordable.

On the other hand, as the culinary and procurement staff in restaurant and hotel chains becomes more knowledable about the products they purchase; they are connecting the cause and effect relationship between product specifications and  buying "green and healthy foods." This influences suppliers who must respond to the bid requirements (specifications) or risk losing business.
  
5 Factors Influencing Your Ability to Buy Green & Healthy (G&H)

SUPPLIERS - competition forces a continued use of chemicals and additives, clean feed, and hormones. And, broad line food distributors resist using warehouse slots for slow-moving green, healthy, natural products, although this attitude is changing.
                                                                   
SUPPLY/DEMAND – foodservice chains develop new local resources for natural products; consequently, there is a low level of centralization, and greater variance in product standards. At the same time, the demand for “green” and heathly products is growing.  In the West exciting emerging chains like Garbanzo Mediterranean Grill and Costa Vita Fresh Mexican Grill continue to push the “healthy-green” food envelope. The Millennium generation can anticipate a new age in institutional G & H food purchasing without the economic and logistics challenges of today's CPO's.
                                                                                    
GOVERNMENT - think worldwide: laws, regulations, international farming conglomerates with Agency 21 product shortages and allocations. The motto, “feed them first, then turn them green! (See my previous blog “Local Suppliers and U.S. Food Crunch https://purchasinginsights.blogspot.com)

TECHNOLOGY - the chemical influences of food continue (example: enzyme-modified cheese, artificial flavors). Despite the lack of funding, research in food technology continues and many Argo-farming companies are using less “Roundup” and other nasty chemicals to kill bugs and weeds.

CONSUMERS - the average restaurant customer can’t afford to eat out at the “G & H" restaurant most of the time, and others continue to make poor food decisions. Overall, the socio-political component plus consumer attitude will force more environmentally friendly, echo-green and healthier products to market.

Food service buyers have always grappled with the challenge of buying the right product at the right price. Now that many foodservice executives have embraced the "G & H" supply chain as critical to their success, the purchasing-culinary team will be able to make better purchase decisions.

To "G & H" Foods & Higher Profits!
Fred

Fred Favole is President of Strategic Purchasing Services (SPS) is America's most experienced firm specializing in foodservice chain outsourcing, cost-reduction and green & healthy (G & H ) supply-plan programs. Contact: Fred@StrategicPurchasingServices.com, P: 912-634-0030 or Connect on LinkedIn.

Sunday, October 28, 2012

Local Suppliers Can Help You Avoid The Coming U.S. Supply Crunch

Foodservice operators are able to improve the quality and value of food products by sourcing local vendors, and giving preferences to green initiatives. This is an important sourcing strategy that also supports an even more important initiative.
The world’s food growing limitations and coming inflation will politicize the production and distribution of many transported food products and commodities. We have already seen legislation controlling farming land development, cattle and poultry processing. These are only a few of the components that will change the face of the food supply-chain.

Unless the foodservice industry reforms the menu and purchasing process by supporting local and regional suppliers, America’s golden age of food product variety at reasonable cost will give way to product shortages and allocation programs.    

In our purchasing consulting practice and my previous experience with Fortune 50 restaurant chains, there has always been a battle for a share of the world’s food supplies. The independent restaurant operator,and many emerging chains do not understand that we compete against international conglomerate farm/packers, both domestic and foreign.   

Will your foodservice organization be forced to change menu offerings because of world-food management solutions? Did you realize that the largest food organizations already utilize closed buying systems for the purpose of expanding control over food supplies. 

My consulting firm specializes in protecting foodservice clients from price increases and supply shortages. However, we still come across too many operators that try to match the popular menu items promoted by the major brands, which means they make less profit and risk out-of-stocks. Other restaurants depend on distributors to manage supply relationships,  without realizing the that are not protected without a formal supply agreement.  

What can be done? 

We are a creative and talented industry, isn't it time we made changes to how products are selected for the menu?  Why create “false” markets and elevate common products like the Kiwi fruit to high-cost exotic food status?  Many restaurants promote bone-in chicken wings, once a cheap throw away item, now high priced and hard to buy. Does every casual dining, sports bar, pizza and sandwich joint have to offer chicken wings?  

In my openion, foodservice has always been a "follow-the-leader" industry when it comes to new products. Not only are “me-too” menu offerings boring, but they inflate acquisition costs and lower profits for everyone! (btw.. chicken tenders’ prices are falling now that the BK promotion has ended)

When will product development managers and chefs follow the lead of procurement professionals who can identify best buys based on product seasonality and availability. Why not use more pork and turkey for greater and actually give the customer a break by discounting the menu price! 

The process can be managed in the cloud with purchasing and vendor postings of based seasoning buying calendars,protein production cycles and local products available for immediate purchase.  This new menu management process starts with Purchasing providing the Culinary team with the product list for developing new products. 
   
Independent restaurants can do more to support local and regional supply sources and  jump start this process, by developing a local supplier database that includes green suppliers, independent farms, growers, packers, processors and re-distribution centers (ie: DOT Foods, Mega-Warehouses). Send your  local supplier data base to the State Restaurant Association and SPS (fred@strategicpurchasingservices.com) so we can share the information online.   

I am confident that local suppliers and smarter product selections can help us prevent a supply-crisis.  The industry will  be forced to "do more with less" and we will pay higher prices for the products that are available. That's why we must develop and support food sources closer to home and change the menu management process.

The Foodservice community, more than any government program, can and will lead the way in preserving our food self-sufficiency. And, in doing so,assure food supplies for the talented professionals that feed America.

A final suggestion: whenever your foodservice distributor or purchasing agent seeks a new source of supply, takes a competitive bid, grant a 5% cost preference to locally qualified suppliers and consider it a business investment.
                                                                                                                                                                       To Sustainability,
Fred

Fred Favole is President of Strategic Purchasing Services (SPS), America’s most experienced foodservice firm specializing the outsourcing, rebate recovery,  staff support, and commodity contracting. His contract information: P: 912.634.0030, email: Favole@gate.net.  Profile: linkedIN.com/in/strategicpurchasing

Wednesday, October 17, 2012

Foodservice Struggle To Cut-Costs As Chain Compete for Better Prices

 
In order to be competitive, emerging foodservice organizations are re-examining the way they perform activities such as; menu-management, strategic product sourcing, contracting, vendor price-compliance and other routine C-staff functions.

Despite the clear advantages of outsourcing these non-core business processes, many organizations fail to do so because of established attitudes, limited knowledge of the purchasing supply-chain, fear of high retainer costs or long standing distributor and supplier relationships.

DOES ATTITUDE AND COMPANY CULTURE IMPACT THE ABILITY OF YOUR COMPANY TO UTILIZE THE NEW PURCHASING DYNAMIC AVAILABLE THROUGH SPECIALIZED PURCHASING FIRMS?

Consider your strategic supply-chain plan for 2013 and how well you managed the 2.1% food inflation since May 2012.   Did you know that Q1-2013 is projected to be the highest food cost-quarter in 30 years!

You still have time to unlease the tremendous benefits of utilizing the skills and resources  available from SPS and other industry leading companies; consider the following:

More than a trend - there is a need for hotel and restaurant brands to focus on critical / core business functions, downsize staff and upgrade the purchasing process. Outsourcing programs managed by the top 4 companies in the foodservice industry now manage $2.65 billion in food and supply purchasing for clients through "direct-to-supplier" contracting. 

Gain Leverage - leading consulting companies are managed by senior level procurement executives with a tremendous network of alliances / partnerships which allows them to operate much more efficiently that your purchasing department.

Experience Drives Performance - product costs are driven by commodity price managment and you really do need an ally with experience and experience to conduct business in this tough foodservice environment that demands excellence in everything your do.

Best ROI On The Planet -- the value proposition for outsourcing is much larger than simply cost reduction. Outsourcing also allows organizations to be more effective and flexible.  To start, ask SPS to complete a 1-time department and spend assessment,  it's really worth your time and investment.

Ranking the best purchasing outsourcing services by critical performance categories:

#1 Strategic Purchasing Services (fields the most sr. level purchasing & distribution management,)   acheives the highest acquistion cost-impact / savings, offers outsourcing package and a stand-alone 100% performance based commodity contracting service. 

#2 Spend Difference (most $ spend under managment and growing, solid service, features "vendor paid fees" that offsets the cost-of-service, service leader operating is the Western states.

#3 Empad - provides proven service, middle management provided support to a variety of chains, leadership is knowledgable, steady but not dynamic.

#4 Restaurant Partners - an emerging service for casual and fine dining operators; service works best when combined with RP's restauarnt managment program; lacks advanced spend-management software. Part of the Foodbuy program re-seller family, with a focus on rebates.
                     
SPS, on average, achieves savings or cost-avoidance of  5% to 15% of total food and supply spend; with overhead cost reductions as much as 60%,  when the full department outsourcing option is selected. 

To Higher Profits!
Fred


Fred Favole, President of Strategic Purchasing Services (SPS) along with Ron Bay, Managing Partner, direct America's most experienced firm specializing in purchasing dept. outsourcing and cost-reduction contracting.   Contact: HQ Office. 912.634.0030, email ffavole@hotmail.com. Fred's Bio: linkedIN.com/in/strategicpurchasing

Thursday, September 27, 2012

Real-Deal Price or Vendor Discussion

 
Discussions with suppliers about pricing helps food service executives understand changing markets, protect menu profits and consider alternative buying tactics and options. However, until a written pricing agreement has been completed, do not assume that you have secured a protected price.

Leading food service chain buyers, as well as our consulting team follow these simple rules for distinguishing between pricing discussions, program negotiations and committed vendor agreements.

#1 Just because you made a purchase decision don’t confuse this with an agreement. Confirm all verbal pricing discussions.

#2 Pricing issues or misunderstandings about product and price commitments are best resolved in writing, as this formality serves to clear the air for the future.

#3 Formal vendor negotiations should be part of your contracting plan. This places all parties on record, allows you to involve the “next higher level” of supplier management, and for emerging chains, your brand will receive higher visibility back at the manufacturers or distributors corporate office.                             (hint: not all suppliers follow the commercial pricing rules of Sarbanes-Oxley or Robinson Patman)  #4 Stand Your Ground during formal price negotiations, if the supplier expects you to accept a price prior to the meeting or with the boss in the room, do not!   Feel free to question the pricing and be prepared to negotiate at a later time.

Here is a buying tactic that works great to achieve better prices and will save money when markets are increasing;  look directly at the most senior manager from the supplier's side and ask for a 30 day price extension. 

When food service owners/managers or your boss thinks they are negotiating when they are not, the consequences can be detrimental to your bottom-line.

To Higher Profits,
Fred

Fred Favole is Founder & President and Ronald Bay, Managing Partner, direct the  Strategic Purchasing Services (SPS) consulting firm specializing in department outsourcing, and the "Get Deals Now - 100% performance based contracting services for emerging hospitality and restaurant chains.   Connect via phone: 912.634.0030 or email:  SP_Services@Bellsouth.Net

Friday, September 21, 2012

How Much For CH Butt Steaks?

Foodservice purchasing specialists have learned that a majority of food and supply costs for products purchased over a 12-month period can be determined in advance with reasonable accuracy.

The planning approach to purchasing starts with a menu mix analysis and usage forecast, which usually consists of a descending dollar report from the distributor and 2-year menu and product price history.

The unstable markets of 2011/2012 exhibited short-run fluctuations for many commodities, moved prices for items like bacon and ground beef off the “charts” in terms of costs predictability. However, cost can be managed through tactical actions taken by the buyer with support from suppliers.

Now is the time!
The timing is perfect (Sept-Oct 2012) for you to secure long-term prices for ground beef, poultry, ribs, pork butts and other commodities to avoid the coming price increases projected from December '12 through Q1-2013. When booking product (securing a firm price for future purchase) is not possible, base your volume purchase and timing decisions on short-term market projections, seasonal trends, and look for buy-in opportunities. Establish atarget purchase price using the type of costing formula shown below.

With some experience, you can assure your food service organization receives an adequate supply at an optimal price even in a tough market. For example, our consulting firm and most established restaurant chains try to anticipate general price increases, project commodity prices and other production and transportation costs prior to negotiating the final price.

The foundation for any contracting commitment is an understanding of the total-cost-of-goods pricing model. This knowledge also allows you to identify cost-reduction possibilities.

Develop formula based pricing information for high-volume purchases, then project the final selling price from “farm to table”!  Keep in mind, the “formula” is not always used as the method of purchase.  Many times a firm price is a much better buying choice. The total cost method is solid resource to compare bids, used by everyone from Wal-Mart and Brinker to Avendra and Strategic Purchasing (SPS), to negotiate  reductions based on production efficiencies and component costs.

This approach will also assist you in developing savings possibilities even in tough buying markets.

Here is an example of a pricing calculation for a portion steak:
Raw Material: Beef Loin, Top Sirloin Butt Steak, Semi Center-Cut, and Boneless U.S.. CH Steer/Heifer Finished Product: 10 oz, CH Top Butt Steak, NAMP #1184A

Pricing Formula

Raw Product Cost:              2.25 FOB

By-Product Credit   :           - .28

Divided by Yield:                 + 50%

Raw Steak Cost: =              3.94

Profit /Markup Factor          + .65

Total FOB Sell Price: =        4.59

Freight to Distributor:           + .30 
Distributor Delivery:             +.35
Restaurant Price:               $5.24 lb.

To Higher Profits!

Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS) America’s most experienced foodservice purchasing firm, providing outsourcing and support services to emerging chains and human-services organizations.  Contact: (912) 634-0030 email: Favole@Gate.Net
Professional Bio / Client Recommendation:   www.linkedIn/in/strategicpurchasing

Saturday, August 11, 2012

Food Power-Buying for Tough Times

High-performance food procurement conducted in the face of rising commodity prices and limited supplies, requires the awesome daring of Indiana Jones with bid strategies and analysis that would be the envy of margin day traders.

You can use different approaches to offset the coming Q4-2012 price increases and try buy strategies that your distributor, broker or supplier won’t talk about.

-Start by paying attention to commodity markets (example: corn prices drive feed cost for chicken and cattle resulting in higher grow-out costs)  

-Develop new sources of supply so you have options; and can outsmart the competition for better prices!

Know where you stand in the pecking order.
You can quickly determine that you are not in cue for great prices if the broker offers a rebate only program. You are after a price discount not a grocery coupon!  Demand a discounted price (also called a deviated price; in other words, the price quoted to you in return for committed volume is lower than the suppliers published price and distributors landed cost.

Avoid awarding bids to the lowest bidder.
If the price term is the shortest, move on to the next lowest bidder.  The critical end-of-year pricing or contracting period establishes your price base for 2013. Start thinking in terms of cost-avoidance versus immediate savings for the next 12-18 months and you’ll be ahead of the pack.

If you bundle purchases you must gain a price concession.
To stay even with the market (avoid price increases) make sure that if you add more products to the single source program, that you receive an immediate price concession or extend price term.     

If the supplier that has all of your poultry, produce, beef business thinks he owns your business, deconstruct those purchase bundles and focus on reducing cost of the individual items to drive savings; then return to the best single source supplier in 6 months and ask for a long-term price to avoid the coming increases.

Don’t freak out if your current supplier jumps your price.
Do check the price history for the product and prepare for you next meeting with the supplier. 

Remember, it’s typical for suppliers in tough markets to lean on current customers for price increases, while signing up new customers are "lower prices". Don't accept the increase too quickly, work to slow the negotiating process. 

If time permits, schedule a "vendor day" and invite your distributor, specialty brokers and salesmen to present product;  the supply community will quickly get word to your current supplier, who I guarantee will ask for a meeting.  

Discover how you can switch from distributor label products to national brands to save money! 
SPS clients quickly find out how much money they leave on the table when we conduct a distribution price assessment or complete a formal program bid.        

Your objective is to work around the sheltered income programs that manufacturer’s offer to sellers.  This can be accomplished by taking bids and comparing “like-to-like” items on a spreadsheet and by negotiating directly with the manufacturer for your own private label program. The savings will range from 5% on groceries to $.25 per pound on proteins. 

To jump-start your power-buying program, I recommend extending  pricing terms with current suppliers through Q1-2013.  Then, during the next few months of the new year conduct strategic searches for new local suppliers with a significant retail presence willing to sell to food service.

To Higher Profits!

Fred

Fred M. Favole is Founder & President of Strategic Purchasing Services (SPS), America’s most experienced foodservice purchasing firm. Together with Ronald Bay, Managing Parnter, SPS services include: dept outsourcing, supplier & distribution bids, warehouse program audits and new product development. Fred's contact information: 912.634.0030, e-mail: favole@gate.net  Ron can be reached at; R.Bay@SBCglobal.net, 636.527.3167

Friday, August 3, 2012

How To Feast On The Import Boom!

For all of the professional buyer “food fanatics” out there, you can now buy a symphony of favors from worldwide sources that deliver exciting products to your foodservice organization.  U.S. food imports soared to a record $108 billion last year; most of these products were purchased online, from gourmet groceries or specialty foodservice distributors.

Despite the fabulous market potential and variety of products available to today’s foodservice buyer, the great majority of restaurants chains do not import products or stretch their food imagination to find interesting foods and ingredients. Fortunately, you can shop the world markets online, or attend fancy food shows (San Francisco and New York shows are the best!) to globalize your recipes, sides and menu offerings.

Our firm imports products from the Middle East, Italy and Asia, for exciting new emerging chain clients that have a mission of bringing the delicious flavors of “home” to America. When you next visit Denver, stop by Alon Mor’s, “ Garbanzo Mediterranean Grill "  You gotta love these guys!

In addition to making sure that your cafĂ©, bistro, hotel, cafeteria or food truck is the epitome of culinary hospitality, you will also be cash proofing your menu for future profits by offering authentic tasty cuisines such as; Lebanese, Indian, Greek, Korean, Japanese, and my all-time favorites, Mexican, Thai, and Italian.

One of the most important overlooked duties of the modern foodservice buyer has is to research markets for new products and develop strategic sourcing initiatives to support the success of their foodservice organizations. 

Most restaurants feature menu cycles, promotional items, daily specials or the layout of the menu allows for the insertion of a new item.  A curious buyer looks beyond the horizon of current menu items – this makes the work satisfying and challenging.

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services, America’s most experienced purchasing firm, specializing in outsourcing, commodity management and new product development.  His contact information:  P: 912.634.0030, e-mail: ffavole@gmail.com  or connect on Linked IN.


Saturday, July 21, 2012

Do You Value What You Buy?

Buying is a highly specialized job. Not just anyone can do it, many try.

Today's foodservice buyer must know not only a lot about the products he purchases, he must know the commodity markets, bid procedures, negotiating techniques, how proteins are processed, and the seasonal availability of all products (determines both price and quality).

The job involves planning, forecasting, organizing, and a good buyer never stops learning, always seeking to understand menu applications and to update knowledge. The lost technique of value analysis can improve your product selections and bottom-line profits.

The idea is to precisely define menu and purchasing needs and buy products that best satisfy them. Value is based on quality and price and is often expressed in a business formula dating back to when I started in foodservice. (btw-fresh Dino wings were my favorite, usually ordered 14DN Choice Avisaurus!)

It's Your Money - Here's the Formula!
V = Q/P.    If the price (P) increases but quality (Q) doesn’t, value (V) is less. Of course, if Q increases but P does not, then V increases. The idea is that it’s important to judge value and you can’t do that if you don’t recognize value. You can learn to judge value by keeping records, checking the dumpster, consulting with peers, actually talking to waite staff and of course consulting with the operations and culinary group.

Value analysis can be product yield or case pack weight; for example, maybe you are not selling enough chili to warrant buying a #10 can, which means changing to a #303 at a slightly higher price, represents a better value.

Do you always require #1 tomatoes for back of the house prep/recipe items? Have you compared pickle slice counts (yield) from distributor label and brand products?  Are you paying off your juice machine, custard maker, waffle irons, roll-towels dispensers and coffee equipment by adding to the price of the product?. Do the math and you may find that a one-time capital investment in equipment makes more sense.

Our consulting work with the non-appropriate funds, shared services  military group in San Antonio proved there is a distinct savings advantage when buying proteins to eliminate bulk, weight, and waste.We moved from carcass and wholesale beef cuts (sub-primal) to boneless, well-trimmed meat, separated to meet specific cooking needs. Remember to neogitate bi-product credits for your purchase with the supplier.

The lost art of using value analysis and technical purchasing can improve product selections and back-of-the house efficiency. It’s true that the process can really occupy more time than operations or culinary staff can devout.  That’s why you should allow your purchasing staff the time to bring a systematic "value" approach to your business.

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services, a firm specializing in chain & group purchasing outsourcing, staff support, distribution bids and strategic product development. He can be reached at: P: 912.634.0030, email: favole@gate.net or Follow Fred's Blog at: htts://purchasinginsights.blogspot.com

Sunday, July 8, 2012

Take The "Farm to Fork" Truth Pledge

Restaurant customers are interested in knowing where their food comes from, with an emphasis on allergens, product purity and origin tracking. They ask your staff everyday,

What’s in your food ? ”

SPS' mission is to become the leader in purchasing outsourcing and support to emerging chains by going beyond the typical savings and supply efficiency model.

We pledge a “farm to fork” food transparency for the products and ingredients that we purchase throughout the global supply-chain.

I believe that my profession (foodservice purchasing) is responsible to the culinary team, investors, owners, management and to the customer. That we are called to do more than manage food safety scares and chase distributor case credits for defective products.

Join us by declaring that everyone in the supply-chain must respond to the customers desire to know what they are being served. Take the "farm to fork" pledge today and pass it along!

To Truth in Food & Ingredients !

Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS) a firm specializing in purchasing department outsourcing, product development and distribution program audits. Contact: P: 912-634-0030, email: ffavole@gmail.com

Sunday, July 1, 2012

Fight The Court Ruling - add foodservice purchasing skills

When working in foodservice chain procurement there are a few different skills that you should have to survive amidst the changing work environment. There’s nothing simple when it comes to change that affects you, and now that times are harder, your failure to secure new skills, on your own, can be taxing and without appeal, 'cause you may have to leave the industry after going before the courts.

- negotiation skills you need to expand your card scan file with new vendor contacts and improve your negotiation skills with business units within your organization. Remember, when the next wave of downsizing hits, every Concept Development Officer, VP of F&B and tenured Executive Chef will think they can take over the purchasing function by "multi-tasking" to greatness!

Your playing field is the court of superintendence, where accomplishments can only be second guessed, if they are not documented.

- communication skills you need to know how to build and manage relationships and be clear in your communications, or the articulation bug will stop "buck-naked" on your desk. The new foodservice work environment, in my opinion, seems to be about people taking credit for others accomplishments.

If you can actually get an executive to make a decision, you cover your tail, because if anything does go wrong, you will face the court of presupposition (aka "second guessing")

-organizational skills – you already need to follow food commodity markets, contract expiration dates, and critical product inventory. Now you must expand your skills and track distributor price-compliance, the price change impact on line item profits, and remember to keep a cost savings log!

The plain fact is you set the boss’s expectation bar too high by doing a great job, while others who contribute nothing have more face time and more influence. This forces you to prove your worth in the vulgar court of opinion.

If you are not strong in all of these areas go out and strengthen your individual skills so you don’t get blind sided by court decisions that tax your ability to work on skills, while subordinating your right to deliver great performance. .

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS), America's most experienced consulting firm specializing in purchasing department outsourcing and cost-reduction services for foodservice organizations. Contact Information: P. 912.634.0030 email: favole@gate.net

Saturday, May 26, 2012

Questionable Foodservice Buyer-Seller Practices

Foodservice business relationships change over time as the executive chef or buyer gets to know the foodservice distributor and suppliers' sales representatives. This leads to a better understanding of expectations and performance capabilities.

One difficulty, from an ethical standpoint, is taking favors or gifts, starting with an exchange of pricing information about a competitor's product to more egregious and illegal practices. Nearly any favor carried to an extreme will create dependence between the buyer and seller, raising ethical concerns.

On the other hand, there are certain practices the buyer must avoid or they will wind up abusing their responsibility to their employer and profession.

Caveat Emptor (let the “buyer” beware!)
  • Expensive trips paid by the distributor or seller
  • Lavish entertainment at the expense of the vendor
  • Cash or frequent gifts valued at more than $50 from suppliers
  • Misuse of the exchange of information
  • Conflicts of interest
  • Unfair buying decisions or bids
  • Misuse of the foodservice organization's buying power
  • Disclosure of company confidential information
Every Buyer Is Tested

From the junior buyer to corporate CPO (Chief Procurement Officer), being offered gifts is the most common and most troublesome aspect of my profession. During my time managing food purchasing and distribution for Fortune 200 companies we always had a strict no-gift policy because it prevents most salesmen's attempts to influence the buyers.

I can still vividly recall my first week as an assistant buyer for American Airlines in NYC. I had just been promoted into purchasing, and moved from the Long Island offices to the company’s headquarters. But the longer commute and job promotion wasn't to be my only new experience. I was about to face a decision that would forever impact my foodservice-purchasing career.

Ted, the print salesman, had been “working” the account for years. It turns out that he had invited every new buyer to lunch at the infamous Gaslight Club on the upper-east side. During my own inaugural luncheon, the dining room was very dim (or maybe it was the atmosphere of the club's speakeasy heritage), and the all-female wait staff served just about everything rare.

Somewhere between my first drink and the last of my veal osso-bucco Milanese, I went to the restroom. Upon my return, I found placed neatly under a fresh Bucardi and Coke four crisp C-Notes. In a way, my buying career flashed before my eyes: “Will this place me under obligation? Do I have to return this favor, and if so, how am I supposed to do it?” I sat silently with these thoughts for a moment, and then slowly pushed the hundred dollar bills to the middle of the table. Ted appeared almost as bewildered as I felt, hesitated but finally took the money off the table. Lunch was finished cordially.

My solitary cab ride back to the office in the Continental Can Building on Third Avenue seemed longer and slower than usual. But as I stepped onto the elevator, I checked my wallet - just the $14 that was supposed to stretch until payday.

After sitting at my desk for about 40 minutes trying to analyze what happened at lunch, I made the decision to discuss it with my boss. "Jack, Ted took me to lunch today. He offered me cash. What should I do?" Slightly to my surprise, Jack's response was calm and casual. "Nothing to do," he shrugged. “He offers everyone money.”

So I was introduced to this “business as usual” practice, but how I decided to handle it influenced the rest of my 35-year career. Past rookies had kept silent; some perhaps even kept the money. I had mentioned this dark practice and by bringing it into the light, was given recognition and respect for doing so.

I never did make it back to the Gaslight Club, which is too bad … the food was pretty good.

To Higher Profits!

Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS), a firm specializing in purchasing supply-chain management outsourcing, product development and distribution program warehouse audits. His contact info: p: 912.634.0030 email: favole@gate.net. Connect on LinkedIN & Follow Fred's blog at https://purchasinginsights.blogspot.com

Thursday, May 10, 2012

Is "MEAT GLUE" The New Pink Slime?

First,  I had to take the LFBT (pink slime) out of my Angus burger, now "they" are after my MEAT GLUE. All this erroneous food press is leaving a really bad taste in my wallet. 

Food procurement experts and every foodie reading this blog will know about that powdery substance "transglutaminase" that binds the smaller cuts of protein together. You know, a structured and formed patty served at every public school and institution in the U.S.A.  The foodservice community is not fooled into thinking these products are solid muscle prime cuts!  And, depending on your level of foodservice (QSR, School Feeding, Cafeteria) these products meet both nutritional and menu food cost requirements.

You just watch, the food police will say these fabricated products are  cheap scraps of beef (or chicken) produced by an industry trying to fool the public, or they will label "meat glue" as just another food trick like professional chefs substituting chicken for veal in the cutlets.

To these non-gassed bunch of bananas in the press, I say, "Balderdash"!

To Higher Profits!
Fred

Fred Favole, is Founder & President of Strategic Purchasing Services (SPS), a firm specializing in procurement outsourcing, product development, commodity management and distribution warehouse audits. He can be reached at 912.634.0030 or via email: favole@gate.net

Thursday, May 3, 2012

Foodservice Purchasing Raises "SUM" Concerns

Preparing to start a food & supply cost reduction initiative can be a real challenge for multi-tasking executives working 60+ hours each week. You know who you are; CFO’s / COO’s / Owner-Chefs of emerging chains that manage finance, culinary, operations, purchasing, and risk management for their food service organizations.

My advise to these multi-tasking managers seeking to take on yet another project is to proceed as follows:
  1. Take a day off and spend it with your family
  2. Properly value your time and resources
  3. Complete suggestions #1-2 before reading the rest of this article.
The SPS cost-reduction model has proven that increasing the amount of spend under management (SUM) to a minimum of 70% is critical to improving a food service organizations contribution to profits. Yet most emerging chains and even a few Fortune 500 brands achieve less than one-third of this target.

Perhaps they have not initiated a self-directed procurement program or joined a rebate driven G.P.O. Both have the same devastating and irreversible affect on center-of-the-plate spend, as allowing your teen-age baby sitter to raise your twin 5 year-old daughters.

One of the financial strengths of leading brands is the control they gain by having a large percentage of food and supply spend under management. This allows the executive team to make more informed product and menu decisions and reign in maverick spending when compared to chains without SUM controls.

Why Companies Outsource
Through interviews with former “multi-taking” executives, we discovered companies want 3 chief benefits from outsourcing procurement activities.

1. Fast road to improved pricing
2. Lower overhead cost
3. Access to spend expertise

Why Companies Won’t Outsource
We found 5 main reasons food service companies reject hiring non-traditional purchasing staff:

1. A perceived loss of spend control
2. Believe that “we do it best”, it’s a core competency
3. Spending money for resources is not available
4. Prior investment in procurement staff or
5. Inability to measure savings and improvements

It’s Your Money, Outsourcing Can Get It For You Now!
The food purchasing supply-chain area is a place to make money! To do the job right takes expert experience, talent, time and money. On average a traditional purchasing department for a 100 unit chain, costs 4 times the investment than hiring a outsourcing service, yet returns only two-thirds the ROI.

A properly staffed and professionally managed purchasing supply-chain is an essential part of the modern food service organization and should be part of your business plan.

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS) a firm specializing in purchasing outsourcing, commodity price management and distribution program warehouse audit.  His contact information:  @gatefavole.net, Office: 912.634.0030, Follow Fred's Blog:  https://purchasinginsights.blogspot.com and connect on LinkeIN.

Wednesday, April 25, 2012

Ode to a Food Purchasing Agent

The Food Purchasing Agent stood at the Golden Gate,
                         -His head was bending low. 
He merely asked the man of fate,
                         -Which way he ought to go.

“What have you done", St. Peter said,
                         -To seek admittance here?”
“ I was a Food Purchasing Agent down on earth,
                         -For many and many a year.” 

My bids were sharp, the record clear.,   
                         - the burger had no "slime". 
St. Peter opened wide the gate,
                         -And gently pressed the bell.

“Come in,” he said, “and choose your harp".
                         - You’ve had your share of hell. !

                                                       Author (Somewhat) Unknown



Read more: http://www.strategicpurchasingservices.com/

Friday, April 6, 2012

Simple Tips To Buy Food "CHEAP"

Simple ways to “buy cheap” and minimize food spend for any large independent operator or emerging chain starts with timing purchases to the seasonal commodity markets, and using applied product specifications and improving delivery and receiving efficiencies

If you have managed procurement for a Fortune 500 foodservice chain, then read no further. However, if you are a first-timer to the spend management process, you must equip yourself with the tools required for the job.

Start with these basic tools; purchase a seasonal buying calendar, Wenzel’s Menu Maker or Meat Buyers Guide; as they will provide you with industry standard specifications, and crop information. Then, bookmark U.S.D.A. websites for beef, pork, seafood, poultry and dairy, for quick access to commodity price quotes. (These links are listed on our website http://www.strategicpurchasingservies.com/).

You will also find commodity prices free on our Foodservice. Com community website, or for few bucks, you can subscribe to pay services like American Restaurant Association’s “Weekly Commodity Report” or the more expensive, “Urner Barry Reports”; both leading trade sources.

You’re Savings Plan

1
. Develop product specification sheets; include the cut, grade, score, origin of the product and document accurate case yields.   Now you are ready to compare brands and evaluate price offers. You may find that lower specification products are better for certain menu applications. For example; #2 tomatoes & limes for back of the house prepared products; paying more per case can  actually save money; switch Crisco Professional or Mel-Fry from a clear a soy based fry oil for reduced consumption.

Check yields on basic items like pickle chips, where distributor labels are often less expensive but have lower case yields. With high beef trimming prices , consider changing the fat to lean specification for burgers  from 80/20 to 78/22 to gain an immediate savings of $.07 per pound. Learn as much as you can about price-value relationships as it relates to specific menu applications.

2. Create a seasonal price book for your top 20 purchased items that represent 80% of your food spend. List high volume item in one column and the low price / high price months in columns to the right. Now you have a quick reference market price sheet.

3. Track commodity item prices to gain a better understanding of the relationship between the products published raw material cost and your final purchase price. This ”farm to table” costing approach is the single most important building block of supply-chain management.

For example; assume that the U.S.D.A published price for green pork bellies on 5/2/2012 is $1.44 lb. and your delivered distributor price for 18/22 layout bacon is $2.40 lb. Using this raw material to finished goods relationship as the “basis”, you can monitor changes and project the impact of future price changes.  A change of $.01 lb. in the belly market will impact your price by $.015

4. Buy foods in bulk to reduce the per unit costs from your distributor. If you have a Master Distributor Agreement that calculates selling pricea by using case fees, increasing the case weight of burgers or bacon can save as much as $.08 per pound. If you are on a margin or cost-plus pricing schedule, be sure to do the math before you make a change.

Tip: Talk to the local broker or manufacturer representative about the proposed case change, obtain product data sheets with order code numbers. Then, when you are  ready, advise your distribution that you want to make a product change.

Perhaps one of the most critical responsibilities of food buyers is to understand how product specifications and commodity markets impact the final cost of the food and supplies they purchase. If a "hot" price offered by a new supplier seems too good, then its Caveat emptor – “let the buyer beware”.

Your applied knowledge about product specifications and raw material markets is guaranteed to impact the purchasing performance of your organization.

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS), a firm specializing in procurement outsourcing, cost-reduction management and distribution program warehouse audits. His contact information: P: 912.634.0030, e-Mail: Favole@Gate.Net.   View Fred’s profile on  www.linkedin.com/in/strategicpurchasing and Follow his blog at https://purchasinginsights.blogspot.com








Friday, March 30, 2012

How Foodservice Buyers Reduce "KOPI LUWAK" Costs

In your foodservice business, it is unlikely that you want to enter into spending wars for the
worlds most expensive bean to support your civet coffee habit. On the other hand, you want
to take advantage of the best prices offered in the supply community by working to
create competitive bids and cost savings opportunities.

Part of the solution is to reduce  or contain distributor landed costs and preparing for product
bids. Start by establishing target  prices for purchases based on commodity market knowledge,
purchase history and seasonal markets.  Understand how product specifications impact your
final  cost. It can be a challenge for GPO members and emerging chains to identify low-cost
suppliers and to determine what price they should be paying for high-volume purchases.

Leave your comfort zone and stop making these 4 fatal mistakes:  

1.Taking bids from the same distributors or suppliers, "over and over again"

2. Allowing  distributors or brokers to be your sole source for finding products and quoting prices.         (tip: work directly with suppliers on key item purchases

3. Accepting  rebates instead of negotiating deviated pricing agreements.

4. Failing to understand commodity markets and seasonal price changes.

The process of reclaiming spend control for your foodservice business requires the appropriate
purchasing skills starting  with an analysis of your descending dollar purchases  and basic
spend metrics profile.  Take action to protect your bottom-line by retaining a capable purchasing
firm to implement a Supplier Performance Management & Contracting Program or
hire an experienced procurement supply-chain manager to accomplish the job. The ROI for your investment to upgrade procurement will be repaid 10 times --- try getting that type of cash return
on Wall Street !

Yes you can successfully implement a self-directed purchasing and cost-reduction program
and improve your company’s buying process. Challenge yourself by establishing a goal of
improving the cost of 20% of the items, representing 80% of spend by 3% over the next 90 days.
And, take time each week to develop supply relationships that support your long-term profitable
growth.

To Higher Profits ! 
Fred

services company specializing in purchasing department outsourcing, bid & commodity
price management and distribution program warehouse audits. His contact information:
Office 912.634.0030, E-Mail: Favole@Gate.Net     Follow Fred’s Blog at https//purchasinginsights.blogspot.com
Fred Favole is Founder & President of Strategic Purchasing Services (SPS) a leading 



Wednesday, March 7, 2012

Menu Price Management: Use Less Beef and More Horsetail

Gaining an advantage from commodity market price management can lead to profit boost for a limited time but does not address the long-term effects of food inflation and higher beef costs.

One way to get the most from a little beef is by using horsetail ”. Now this can be thoroughbred Angus, Arabian, Paint or even Appaloosa no-roll, just as long as you purchase chemically lean tail from a certified U.S.D.A. packer.  If you are looking for a low food cost percentage, serving “horse” is a marvelous way to make money from a little beef. 

The Meat Buyers Guide does not yet recognize "horsetail" as real beef, although there is a strong lobby group lead by “Chefs Cooking for Profit”, group based in Baltimore, MD pushing for this recognition.  They claim that any casual or fine dining restaurant can achieve a 26.5% food cost using the “horsetail” menu. 

Purchasing consultants are always looking for new cost reduction methods, but this  horsetail” jargon has really thrown me a curveball, so I sought the council of friend and Master Chef working at the Palmetto in New York City.  I said to Chef Mykal Gruber, It doesn’t sound very appetizing Chef, what’s up?

Chef Mykal explained when he served "horsetail", he was talking about the tasty foods that accompany meat entrees, and that this was a pre-90’s CIA term for reducing the amount of meat needed per serving. Then he gave me some examples: the rice pilaf served with stir fry beef, the celery-onion stuffing mounded under thin slices of roast beef for a roast beef diner; the slices of bread and the scoop of mashed potatoes and all that good, rich gravy poured over everything (this bogglers personal favorite, the All-American, hot roast beef sandwich)

Our firm has several client chains upgrading steak and burger toppings or developing special sides to utilize this “plate-filler” concept. Now that this purchasing consultant has learned a new cost-management tactic, I realize there are horsetails everywhere!  

Not only will these high-quality fillers increase interest in your menu, but they will lower your food cost substantially.  In fact, it you offer top quality sides, customers may never miss the absence of larger portions.  Once you start thinking “horsetail”, you can cut beef portion size and plated cost.  You can also help keep your purchasing manager bonus in place, as he won’t have to buy as much $2.45 lb., 80/20 ground beef or high-price beef cuts.

How to make a lot of money from a little beef and “horsetail”:

Armed with this cost-cutting concept, I approached a successful emerging chain near Santa Anita, CA to test this menu engineering theory:  that less beef is more profitable. I agreed with the owner, Diane Crump, that the maximum beef utilization would be to use the top (inside) round.  Chefs will know how to cut the top round properly,  once the distinctive parts are separated, it’s very important that the beef be cooked with care. Now, the accompaniments, in the words of Auguste Escoffier, in cooking, care is half the battle.

The use of more high-quality healthy plate fillers makes a lower food cost possible and enhances your menu offerings.     

To Higher Profits!
Fred

Fred Favole, is Founder & President of Strategic Purchasing Services (SPS), a firm specializing in purchasing outsourcing, commodity price management and distribution program audits. His contact information: ph; 912.634.0030, e-mail: favole@gate.net Connect on Linked IN & follow Fred’s blog at  https://purchasinginsights.blogspot.com/


Tuesday, February 28, 2012

Foodservice Purchase Pro Measures Spend Performance

 
To measure the spend effectiveness of foodservice purchasing you must have a clear understanding of what the function is supposed to be doing in your organization.  A typical buyer for an emerging brand is required to perform basic tasks that cannot be measured financially.

If you are concerned about the rising cost of goods and don’t know how to survive these difficult economic times of declining sales and higher prices, then you need to quickly develop a purchasing plan or hire the resources (outsourcing) needed to do so.

Before we take a look at the 3 tiers of savings, I want you to consider how your current supply relationships can impact services and product acquisition costs.

Our firm interviews several foodservice chains each year that have not developed a self-directed purchasing-program.  Ronald Bay, Jeff Stine and I tell them to keep in mind “your purchases should not be linked to your sales person, distributor or brokers who profit from every supply-chain transaction.
If you cannot toss change your thinking concerning relationship buying, and you insist on allowing manufacturers and distributors to call you their supply “PARTNER”, then read no more: Let’s just stick a fork in you because - in terms of generating cost savings - you’re done.

The most basic foodservice purchasing program incorporates at least part of the SPS spend management system, the 3Tiers of Savings activities:

Identified
Strategic sourcing to align suppliers with the supply-system, point of production, negotiated pricing, when savings potential is attainable within the next buying cycle or contract term.

Implemented
(or realized)

Completed vendor qualifications reviewed the cost of freight and distribution, and ensured savings through billback, rebate, term pricing agreement or fixed quantity contract. Ask your buyer how many savings programs (ideas) are filed in bottom-desk drawers because purchasing never has a chance to present.

Booked
Savings realized can now be recognized in the operating budget and the overall cost-impact on profits reported. Advanced purchasing systems can also track weekly profitability by line item for even tighter control.

Typically, you can accumulate your own spend data and use the information to develop indicators of purchasing efficiency. If you require help in this area, the Wray Advisory Group  offers a unique purchasing department assessment service.  For less then ten-grand they will benchmark performance, compare your contracts with the leaders in the industry and quantitatively measure purchasing effectiveness. Reporting on purchasing activity is important since it reflects the general efficiency of the department in terms of achieving your major food and supply spend objectives.

Let’s take a look at indicators and objective measurements of a purchasing department.

Purchasing Efficiency (activity) includes:

1. Dollar purchases managed
2. Dollars per category as percent of spend
3. Purchases divided by sales percentage
4. Percentage of spend under contract
5. Number of contracts managed (by each employee)

Measurements of Purchasing 

1. Cost $avings / Cost Avoidance Developed
2. Percentage of off-spec deliveries
3. Departmental overhead expressed as expense per $1 million spend
4. Percentage of single source suppliers
5. Effective distributor price-compliance / internal audits

Cost savings are probably the most difficult to quantify in meaningful terms because of commodity markets, specifications and seasonal price changes. The base price you can use is the purchase price in effect at that time. Thereafter, the price of any subsequent purchases would be compared with the base price AND, for more advanced programs, you can compare the base to the forecasted cost of goods.

During times of food inflation (8% overall in 2011), the established performance standard for foodservice buyers shifts from cost savings to cost-avoidance, as a true measure of purchasing effectiveness.

Two cost-avoidance examples:

1. The buyer completes the annual RFP’s for X-long fancy, seasoned SS french fries, then negotiates a reduction in the requested increase from $.10 lb to $.07 lb., generating a cost-avoidance of $.03 lb.

2. The fresh shell egg market is advancing; however, the buyer is able to increase the purchase formula discount from $.09 behind the Urner Barry market quote for X-large eggs to $.12 per dozen

Both of these examples represent a contribution by purchasing to the foodservice organizations bottom-line profits!

To Higher Profits!
Fred


Fred Favole is Founder & President of Strategic Purchasing Services (SPS), a firm specializing in purchasing-outsourcing, staff mgt., risk assessments and distribution program audits. His contact Information: Office: 912.634.0030, e-mail:  SP_Services@bellsouth.net   Connect with Fred on Linked IN or follow his blog at https://purchasinginsights.blogspot.com/

Wednesday, February 15, 2012

Free Purchasing Advise For Foodservice Executives

In many foodservice organizations the Purchasing function is viewed as a routine low level activity. A couple of years ago our firm completed a survey of 15 emerging chain CEO's that revealed that 48% could not readily recall their annual total food spend or discuss the impact of recent commodity price increases on the cost of goods.  However, they had no problem listing sales growth, Q3 profits, salary and overhead costs! 

This approach is nuts in today's economy, and leads to what I call purpose-driven failure.   This type of executive needs to assess purchasing, R&D and distribution managements' role in their organization.  The lesson to be learned is that higher quality spend performance yields beneficial results. 

Here is a my free purchasing advise:

1.   Secure the support of your culinary and purchasing team by acknowledging their independence and accountability and by involving them in the product decision making process.

2.  Don't expect top bottom-line success if your budget doesn't include funding for travel to trade shows and visits to vendors.   Don't  expect world-class results if you are asking purchasing  to work without support staff or modern spend management systems.  Consider that without staff resources purchasing outsourcing may be your best option. 
.
3.  Do apply effective checks and balances between culinary and purchasing as both areas must work together to provide proper scrutiny of suppliers and  product specifications.  Allow purchasing to negotiate the final supply arrangements... and, please ask the chef to return to the test kitchen.

4.  Include time for purchasing updates at  staff meetings, remembering to allow extra time (when warranted) for procurement to explain the complexity of commodity markets or problems with distribution systems.   It will benefit the team. Start to value the skills and experience of procurement staff or  fire the buyer  and save the overhead expense.  

5.  Actually sign supplyagreements.  In this tough economy, with commodity shortages just around the corner,  the cost of supporting your business is increasing. If you pride yourself on never signing a supply-deal,  then I've got bad news. At some point your supply-chain will no longer absorb the cost of doing business with you, and there will be PAYBACK.   

6.  Subject every price increase, fuel sur-charge and extra delivery fee to a robust challenge!   Clear the way for your purchasing executive to succeed by ensuring suppliers and distributors know that you stand behind your purchasing team, then watch performance soar upwards.

To Higher Profits!
Fred

Fred M. Favole is Founder & President of Strategic Purchasing Services (SPS),  a firm specializing in purchasing department outsourcing, interim management, risk assessments and distribution program audits.  Contact information: 912.634.0030, e-mail: SP_Services@bellsouth. net   or  connect on LinkedIN.

Thursday, February 9, 2012

4 Reasons Why You Need A Foodservice Distribution Audit

The need for foodservice executives to be confident of the acquisition cost of goods remains one the keys to effective spend management.  The Sarbanes-Oxley Act of 2002  was an over-reaction to a number companies, including Foodservice Distributors’ accounting scandals which have cost every foodservice brand, supplier and distributor thousands of hours of dollars in compliance costs.  

Your foodservice organization decision to audit protects your company and investors and is the #1 reason why you need an independent distribution audit service.   The external auditor does not have any ties to your purchasing department, suppliers, shareholders or distributors. 

Reason #2: You are contractually entitled to audit distributor prices to assure compliance with contracts and pricing practices. The details of the audit are listed in your Master Distributor Agreement (MDA).  The process helps ensure that your priced order guides correct and that vendor are charging accurate pricing in compliance with contracts.  It’s trust but verify when it comes to pricing. To conduct a professional foodservice distributor audit requires expertise in purchasing, product specifications, vendor pricing methods & contracting, freight and re-distribution costs, and numerous distributor prices practices like inventory valuation. 

Reason #3: Improve spend visibility. An Independent audit empowers your supply-chain program, and provides solutions to operations and buying staff as the results can be reviewed and programs proved reliable.  Learn first hand how a "fresh-eyes" approach can be worth many times your investment in the audit service.  To achieve pricing assurance, foodservice auditors also need to perform some detection work to test if prices and charges are appropriately supported. 

Reason #4 Chain operators typically don’t examine all pricing details during a standard in-house audit. Concerns about profitability challenges the distributors the avoid pricing failures in times of severe market stress.  It is true that the audit process examines invoice details, contract prices and distribution margins and exceptions, however, this can be a giant step towards discovering cost-savings solutions. 

You already know that most accounting firms do not understand food service or have a working knowledge of products, designation categories, sheltered income, re-distribution costs, inventory valuation methods, and other distributor practices which can impact your delivered cost of goods.  

Foodservice brands are re-thinking audits and spend management programs, and you should too.  When you schedule an audit with our firm you gain the respect of the supply-distribution community, and you can use the information we provide to bring spend analytics to the next higher level of performance.  When you start thinking of the the supply-chain in terms of a series of linked-costs from farm to plate, you can better understand the value of an external audit.  

An Audit is a Decision as well as a Solution

Your company is responsible for contract compliance within you supply system to assure accuracy in pricing and distribution charges.  However, product pricing, transportation and distribution systems make spend transactions complex, and behond the skills of your accounting firm.  The most elaborate internal purchasing systems are not adequate, and mean nothing unless the base pricing and selling margins are verified through the audit examination and documentation process.  

Next Steps 

You are encourages to initiate a high quality professional internal and external audit and price-compliance program to assure that standard business practices are being followed. The role of our firm or any external audit service is to be sure, one of "assurance" and validation. However, you also want the service to be proactive in the dissemination of procurement-supply chain practices that can be incorporated into you  program to reduce acquistion costs. 

While an independment audit is not a replacement for a complete purchasing department assessment and spend profile, the audit report and information you receive will deliver a tremendous ROI for your investment in the service.

To Higher Profits! 
Fred
Fred M. Favole is Founder & President of Strategic Purchasing Services, a firm specializing in procurement supply-chain outsourcing, interim managment, risk assessments, and distribution program audits.  Fred's contact information:  p: 912.634.0030, e-mail: SP_Services@bellsouth.net. or connect on LinkedIN.