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.