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
Insights takes you inside the world of professional food-service purchasing. The author prepares you for negotiation success, offering tips, tactics and strategies that guarantee bankable savings for your food service business. Never overpay again!
