Fred's Purchasing Insights

Menu Price Management: Use Less Beef and More Horsetail

2012-03-07T14:21:00.000-08:00

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/

Foodservice Purchase Pro Measures Spend Performance

2012-02-28T04:35:00.000-08:00

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/

Free Purchasing Advise For Foodservice Executives

2012-02-15T02:55:00.001-08:00

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.
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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.

4 Reasons Why You Need A Foodservice Distribution Audit

2012-02-09T03:10:00.000-08:00

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.

Is the Foodservice Supply-Chain Out to Get You?

2012-02-05T08:55:00.000-08:00

That might seem like a paranoid question, from a seasoned procurement executive, but if you take into consideration today's business environment, it doesn't seem so far off base.

Suppliers are fighting for economic survival, just like you are. Doesn't it make sense that Every one benefits in the long run from improving pricing practices and re-directing resources to the end user.

When will suppliers stop deep discounting prices and absorbing freight for the largest chains at the expense of the regional and emerging chains? How much does it cost for the supplier to slot new products at the leading broad line distributors? How much more do emerging brands pay because of distributor spiffs, sheltered income, freight adjustments, and no-show food shows?

Distributors can improve delivery and pricing practices, too. Why do they continue to pass along their buying mistakes (100% of all price increases, charge customers based on replacement cost and not inventory value? Will distributors continue the class pricing warfare against the independent operator and emerging chain? Why can't they get pricing for contacted items right month after month? Do they profit by substituting for proprietary products? Why is it that fresh eggs, cheese and bacon prices don't follow the market down, as quickly as they move prices up?

Will the distributors' "in-house" brokers and manufactures' representatives continue to keep prices higher for smaller restaurant brand. Prove it, you say! If you move just one level higher in the food sales chain, ask the manufacturer's regional chain sales manager to confirm that the local and regional chain is priced higher than large regional or national chains for the same item.

Why do distributors and manufacturers close-code products (those non-private label products brought into inventory but not make available to you) that could save you money? Why does the industry allow distributors and suppliers to pass along institutional, GPO and health care discount pricing to non-qualified restaurant customers?

When will actual freight cost be used to determine the landed cost of goods? Exactly when will distributors start calculating selling prices for margin and case fee accounts based on true tax cost. You get the idea!

Keep in mind that not all suppliers and distributors participate in these practices. We would not be a successful purchasing firm without the strong support of a great many honest distribution companies and quality manufacturers. These folks work as hard as any operator that I know.

As part of your financial survival plan, we recommend that you implement or improve the performance of 4 spend management programs:

4 pillars of food service procurement

strategic sourcing
commodity-price management
distribution price-compliance
percentage of spend under contract

If you are willing to use a systematic approach to managing the buying process you will be protecting your bottom-line and business interests.

To Higher Profits,

Fred

Fred M. Favole is Founder & President of Strategic Purchasing Services (SPS), a firm specializing the purchasing services such as department outsourcing, bid management, and distribution program audits. Wray Advisory Group (WAG) has selected SPS as service provider to foodservice organizations Fred's contact information: p: 912.634.0030, e-mail: SP_Services @ Bellsouth.Net

CFOs 7 Step Guide to Economic Survival

2012-01-18T11:50:00.000-08:00

CFOs and CDOs are on the frontline of developing highly effective financing and spend management strategies for today’s foodservice organizations.

The benefits of implementing a best practices process in procurement are considerable, but requires a deep and broad knowledge of the food supply-chain, an understanding of products, with access to spend management technology. If these resources are not available in-house, there are stil steps that you can take to impact the bottom-line by the start of Q-2.

7-steps to purchasing supply-chain survival:

1 Expect the Unexpected - volatile commodity markets and reduced supplier inventory make this a brave new supply world. Track food cost basis points monthly by line item and purchase category; poultry may be down 4%, with wings up .25 lb.. Don’t allow purchasing to single source an item if the fixed price term is less than 4 months.

2 Manage Gap Pricing - if you operate in multiple markets, try to close the pricing gap between your highest and lowest prices for the same or near-match item. Most SPS clients can save 2% in spend on these items; start with fresh bread, produce and eggs.

3 Distribution Agreements - develop an RFP for distribution. Margins and case fees are actually on the decline in this economy, so sub-10% margins are very common. Remember to negotiate based on dollar drops, keeping in mind the distributors GPM per delivery is between $125. for independents and $165-$170. for the industries largest broadline distributors.

4 Specialization - bring in cost-reduction and bid specialists like SPS to develop containment strategies, chart commodities futures and review product specifications. A  "fresh eyes appraoch" purchasing assessment can save thousands of dollars.

Tip: Direct purchasing to negotiate directly with national or regional supply representatives, instead of local sales associates, distributors and brokers.

5 Promote - develop LTO’s (limited time offers) using the most economical products that meet quality requirements; poultry is a great value in Feb.; overruns are available in many product categories with discounts of 30%-40%.

6 Transparency - assess how you are doing financially, isolate key products that are hurting your profit margins and make sure that purchasing, operations and marketing has ready access to this information.

7   Avoid Buying Groups (GPO’s) - for high volume center-of-the plate purchases. . Our experience with aggregated buying models for multi-unit operators is they don’t work for proteins! A better solution is achievable through direct negotiations with qualified beef, pork and chicken suppliers. If you are receiving rebates, then you have added to the acquisition cost of the product and are leaving money on the table.

Assess how well your team is able to integrate cost solutions into your 2012 plan.

Procurement business process outsourcing is an overhead reduction option and can work if you company culture can quickly align with the new relationship. For CFO’s that are determined to manage a self-directed program with current procurement staff we recommend establishing buying teams with aggressive performance objectives and spend-management strategies.

The outcome of the 7-step process will be reduced spend and more realistic cost managment objectives.

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS), a services firm specializing in outsourcing, interim mgt. and distribution program (MDA) audits. His contact information: Office 912.634.0030 E-mail: SPS@Gate.Net . SPS has been selected a service provider for Wray Executive Search's (the food service industries premier human resources consultancy) new finanical and supply-chain services program offered by the Wray Advisory Group.

Foodservice Purchasing Mess

2011-12-31T03:54:00.000-08:00

Clearly, outsourcing an operations, field management or brand development mess is never advisable. However, the nature of food purchasing is that you can quickly achieve something that you can’t afford to achieve internally.

It’s possible to develop and implement a spend management solution for an emerging chain in less than 18 months, with contributions to the bottom-line of 5% or more. If the organization operates in multiple markets and has never developed a high-performance procurement process, the savings will be even greater.

Focus on defining the areas you want to hand to a qualified consultant and really don’t do well in-house. Here are the top 5 functions that should be assigned to procurement that are typically assigned to (busy) multi-tasking executives:

Vendor Qualification & Strategic Sourcing (Chef/Culinary/Owner)
Distribution Warehouse Audits / Price-Compliance (VP Finance)
Freight / Logistics (COO or not assigned)
Bid Management / Commodity Contracting (Owner/ VP Ops / Chef)
Increase “spend-under-management” (COO or not assigned)

During the initial clean-up process, the outsourcing firm will uncover hidden savings and look at tactics to create power-buying opportunities for your organization where there is none at the moment.

Effective and successful procurement needs to be positioned at the heart of your foodservice business, as part of your senior executive team or with their full support - otherwise you run the risk of developing a purchasing mess with prices controlled by the local market and initiatives based only on broker, distributor and supplier relationships.

As top-line growth is hard to come by in the current economic climate, the opportunity to hold the line or reduce food acquisition cost through outsourcing is simply too good to ignore.

To Higher Profits!

Fred

Fred Favole is President of Strategic Purchasing Services (SPS), an industry leading consulting firm specializing in purchasing outsourcing, interim management and cost-reduction services. His contact information;e-mail: SPS@Gate.net Office:912.634.0030. Fred's Blog: https//purchasinginsights.blogspot.com

5 Rules to Eliminate Bad Behavior in Negotiations

2011-12-22T08:35:00.000-08:00

In these tough economic times, negotiations often break down because one person is acting like a child or making unreasonable demands. The multi-unit brand buyer or restaurant owner-operator wags his finger across the desk and says to the food sales person, “We’ve done business with your company for 10 years, you know we can’t change our menu and you continue to raise prices."

The manufacturer responds by saying, “Our company policy is to pass along raw material increases. Besides, Barry, you forgot about the offer I made in September that would have locked-in your price for the year."

"Maybe I’ll find another supplier", says the buyer / owner,” I’m through." As he speaks, he involuntarily stamps his foot, and quickly exits his office.

In this example, everybody loses. The buyer may not find another supplier at the quality and price required, and the sales person doesn’t want to lose a customer. Because both parties approached the final negotiation without having a backup plan, they were unable to keep their emotions in check.

We have learned in our consulting practice that rigid positions and role-playing are simply not productive. Here are 5 rules for improving communications during negotiations.

1. Don’t let your frustrations about food cost or sales profit margins show. Both sides gain by looking at the problem together.
2. If the buyer or sales person starts to play "the game”, or ignore your concerns, stay calm and keep your emotions under control. Acknowledge that your opponent has financial concerns too.
3. Buyers as well as the occasional sales person often make deliberate attempts to rattle you into closing the deal. Don’t take the bait.
4. A professional gets results, so watch how you say things and never close the door to future conversations. Advice to buyers: start sourcing alternative suppliers. Advice to sellers: never stop closing, but do make concessions.
5. Take a break if you are not making progress; arrange a time where the manufacturer’s executive management can review the situation. After all, the sales person may not want to give up margin to protect his commission.

Resume negotiations only when you have cooled down. Reevaluate your position and agree to an agenda for the next meeting. For example, review price history, changes in markets, evaluate comparable products, consider changes in product specifications or portion size, and work on both a short-term and long-term win-win strategy.

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services, a consulting firm specializing purchasing outsourcing, interim staff management and distribution program audits (MDA). He can be reached at (912) 634-0030 or SPS@Gate.net. Follow Fred’s Blog at, https//purchasinginsights@blogspot.com

Are Foodservice Buyers Smarter Than A 5th Graders? Part 2 – Math

2011-12-10T04:26:00.000-08:00

This is part 2 in our series comparing foodservice buyers with 5^th graders - Math!

Enthusiasm for learning foodservice relevant match is required if chefs and buyers are to work together to impact the bottom-line for restaurant operations. Mastering math is key for individuals wishing to manage purchasing priorities for the multi-unit brands.

For example, do you buy ribs by the rack or by the pound? Pickles by the case or count? Do you value wings (dummies to flapper ratio), case weight or case count? Buy fry oil il by the case price or cost per day fry life? Use the whole fish price, dressed fish or portion? Bacon by the slice, case weight or yield? French fries by portion cost and yield or per lb. ? The majority of mulit-unit brands we consult with have purchasing staff that can score 100% on this quiz; so yes-foodservice buyers are smarter than 5^th graders!

Today’s corporate F&B buyer also has to master the fundamentals of food cost, product yield (food preparation / production), and be capable of calculating the total-cost-of-goods “farm to plate” to succeed in negotiating below market prices with manufacturers. Let’s take time to review the foodservice math fundamental. What is food cost and how do we find its percentage?

Food cost percentage is the cost of the food as it relates to the dollars received in sales. For example, If Gruby’s New York Deli sells a pastrami sandwich for $5.00 and wants a food cost of 27% the cost of food must be $1.35.

Finding Food Cost Percentage to find the menu item food cost percent simply divide Gruby’s New York Deli’s menu price of the pastrami sandwich into the cost of goods used to prepare it. To find the food cost for the restaurant add the total cost of food and divide by the total sales, i.e.: Cost of Food / Total Sales = Food Cost Percent.

More advanced math is required to manage delta models, calculate the impact of price changes on the future cost-of-goods, and apply spend analytics to cost reduction initiatives. Our consulting firm and most Fortune 200 restaurants develop purchasing plans as part of the corporate budgeting process to refine the balance between income and expenses.

We are all reminded in tough economic times that manufacturers are risk adverse, which means shorter contract terms, longer lead-times and generally higher prices! There is more to managing a purchasing department than planning orders, checking the accuracy of invoices and signing up for food show specials. Do the math better than a 5^th grader and you will be promoted to the next higher level of purchasing performance.

To Higher Profits!

Fred

Fred Favole is Founder/President of Strategic Purchasing Services (SPS), a consulting firm specializing in purchasing department outsourcing, interim management and distributor program (MDA) warehouse audits. His contact information; e-mail SPS@Gate.Net phone 912.634.0030 Follow Fred’s Blog: https//purchasinginsights@blogspot.com

Kangaroo Spend Management

2011-11-30T02:33:00.000-08:00

It is no surprise that reducing costs and expenses has a positive effect on the bottom line, and can have an impact foodservice operator profits faster than increasing revenues. It is also a fact of business that it’s just easier to save money than to make money.

By directing efforts toward cost reduction and supply planning, chains can significantly impact profitability. Yet many companies operate without a senior procurement professional, or fail to see a clear relationship between cost reduction or cost avoidance and overall operating income growth! Their Kangaroo spend management style is to pocket any immediate savings, and then hop between suppliers seeking the next short term opportunity.

Most client companies that we consult with fall into this "bare bones" category. They are multi-unit organizations with low procurement staffing levels, that do not achieve even average savings because they have not developed a spend under management plan. This points out the need for greater balance between financial and culinary expectations to make a bottom-line impact.

Companies can improve effectiveness and achieve year-over-year savings through hard-dollar cost reductions without adding to staff by implementing strategic sourcing strategies, such as spend aggregation, and product rationalization to reach a balance between menu and financial objectives.

The leading chains have trimmed staff and achieve higher savings at the same time by raising the profile of purchasing, allowing other departments like culinary, marketing and operations to take advantage of the expertise of consultants or purchasing professionals. This approach allows emerging chains to level the playing field with the Fortune elite when they implement product selection practices more aligned with cutting-edge purchasing supply-chain management.

The companies that understand spend management have already transformed back-office purchasing functions into executive buying teams that not only hold the line on costs, but improve their organizations chances of staying profitable.

To Higher Profits!

Fred

Fred Favole is Founder / CEO of Strategic Purchasing Services (SPS), a consulting firm specializing in purchasing dept. outsourcing, interim management & distribution progam (MDA) audits. His contact information; 912.634.0030, e-mail:SPS@Gate.net Blog: http://www.purchasinginsights@blogspot.com

How An "Empty Suit" Can Spoil Your Day

2011-11-17T06:55:00.001-08:00

How An “Empty Suit” Can Spoil Your Day

In foodservice purchasing jargon, an “empty suit” is a restaurant owner or chain executive that has buying authority, without knowledge or substance, yet maintains a know-it-all attitude with suppliers. Nothing makes a new national account sales executive more wary or a purchasing director more nervous that sitting down with an empty suit to negotiate the annual steak/burger/oil/or fry contract.

Such a person will want to control the big deal, forcing suppliers to feel compelled to go forward because of past business or future opportunities. I’ve watched less-than-savvy suppliers try to reach this type of owner/executive with information, education, logic and, more commonly, entertainment. For nothing! And when the supplier finally goes to the wall for the account and meets the pricing demands, the next demand is revealed or worse, the great price is handed to the competitor who closes the deal.

If buyers and suppliers don’t work together to manage the growing number of “empty suits” in foodservice, they can spoil your day. Most of the time the solution rests with telling the empty suit in advance what the Company wants to accomplish in the negotiations. Use the "KISS" system because they don’t want to know how you know about egg sets or cattle on feed or commodity trends. Too many purchasing directors try to please the boss when they should be taking charge. Hey, if the executive changes the game plan, use your skills to make lemonade out of lemons.

Based on my 17 years in foodservice consulting, my advice to sales executives is to ask yourself two questions: Am I being intimidated or is this request just a habitual response from a powerful person? And, how will giving in to this guy affect my company over the next 6 months? To most sales executives' amazement, when faced with a ridiculous proposition then can win by blurting out loudly, “You’ve got to be kidding!" to be following by confirmation that “you have best deal on the table”; then go silent…and stick to your guns.

To Higher Profits!

Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS) a foodservice industry consulting firm specializing in purchasing department outsourcing and distribution program warehouse audits. He can be contacted at SPS@Gate.Net or 912.634.0030

Foodservice Distribution a Threat for Purchasing

2011-11-11T07:22:00.001-08:00

Today’s foodservice chain C.P.O. orVice President of Purchasing's role has changed and will continue to change asa reaction to spend management challenges and shipment problems that were onceconsidered the responsibility of broadline distributors. The new buzz in supply planning A.T.D. (advancedtransportation decisions) challenges the foodservice chain buying staff tooutthink the supplier’s limited L/TL delivery strategy and find work aroundsfor the distributors risk adverse philosophy of can't “go the extramile”.

The tactical decision to manage around or through these distributionroadblocks means more time must be spent managing the order fulfillment andtransportation process. The immediatebenefit is fewer hurried reactions when “ new products are approved, andpurchasing finds out during the screening of the new marketing ad” Sure,the F.O.B. price is great – the product rocks, but now purchasing is facedgetting the product produced and delivered.

In our consulting assignments, we often see the adverse effect on profits,when menu decisions are made and procurement is not involved. This happensquite often when purchasing reports to the culinary department or the ChiefDevelopment Officer, instead of the CFO or President. A recent example of the problem; many fastcasual burger and wing restaurant chains are changing from frozen to freshproducts without considering the readiness of their supply-chain. Manynon-purchasing executives actually think that all products are in stock at every broad liner warehouse! Theshelf life and handling requirements alone for fresh wings and burgers canbe a challenge, especially if the product is single sourced and ships from oneplant. The distribution system forcustom and fresh products requires faster reaction time, and bettercost-service efficiency levels; such as; smarter routes, plant (location)selection, carrier time-temp recording, and better receiving location inventorymanagement, not to mention educated operations managers.

Foodservice broadline distribution is a threat to procurement success whenprocurement sees logistics as the sole responsibility of the distributor. The coming 2012 transportation crisis,partially caused by high-fuel costs and the distributor limited resources, willimpact cost and availability of food and suppliers sourced and transported morethan a few hundred miles.

You have seen (or will shortly) the symptoms of the problem. Youare encouraged to seek non-traditional solutions, such as approving multiplesuppliers, local sourcing and the planned use of re-distribution services. Planning for the future of transportation infoodservice can start with tapping the knowledge of the distribution-logisticsteam that you already have on payroll; your primary distributor, suppliers andre-distribution company used by your distributor.

Why not schedule your own distribution-logistics forum to analyze currentand future warehouse and transportation configurations for your business. Developing the best vendor sourcing,transportation and warehousing scenarios may not be sexy, but it can beprofitable!

Fred Favole is Founder &President of the longest operating foodservice purchasing consulting firm inthe industry, Strategic Purchasing Services (SPS). Follow Fred’s Blog https://purchasinginsights@blogspot.com. His contact information: E-mail: SPS@Gate.net

WHAT TO DO WITH CONTRACT SURPRISES?

2011-10-26T10:25:00.000-07:00

This is the silly season of contracting for foodservice chains with nearly 65% of all vendor deals expiring between October and December! In today’s foodservice world you must be ready for surprises. You can’t assume the fry contract will be renewed automatically, (you didn’t accept the full $.07 lb. increase did you?) or that rib prices will remain attractive well into November (they won’t), but you can often turn a surprise into an asset.

When you are faced with a bid deadline or unreasonable price increase, and your simple strategy of asking for 30-60 day contract continuation has been rejected, here is a tactic to help you deal with the situation.

Ask for a face-to-face meeting with your sales representative and the next higher level of management and visit the supplier if you must. Let the supplier (now officially your opponent) think that you are trying to get the deal signed or the price increase approved by making statements like, “this is the best that I can do” or “to make this work, you’ll have to help me by. . .” The supplier will have the feeling of victory because you are on the run, which can make him careless, which often leads to concessions. If he offers something…take it!

When your priorities in negotiations are different than your suppliers and you don’t have the option change suppliers, then offer future concessions (planned increases, add new products to the next contract) waive a quarterly rebate or convention contribution) so you can finalize today’s deal and leave the game with some winnings. Never agree to a program which limits your future rights to walk away if business circumstances change.

To Greater Profits!

FRED

The Purchasing Puzzle - How Do I Get My Best Price??

2011-10-24T13:20:00.001-07:00

This blog will bring you my unique experiences and insights on successful foodservice purchasing, negotiating and buying strategies that have worked well for me in my consulting business and when managing the purchasing supply-chain priorities for Fortune 500 companies.

My goal is to deliver to you bankable savings ideas that you can use to lower the cost-of-goods for your business or improve your negotiation technique the next time you haggle with over the price of a used Porsche 911. The advise in this blog works regardless of your industry or the size of your purchase. One of the most important benefits you'll discover is that by practicing the strategies and tips offered, you'll become a more confident and more seasoned negotiator. One last thought about this initial post, if there is interest the beat goes on with new material posted weekly. Anyone who knows me will earnestly testify that I am not a writer and have zero interest in keeping a journal. I do have some interesting stories and occassional I may drop the name of a famous or infamous character that I've worked for or done business with over the years.

To solve the foodservice purchasing puzzle requires learning how to time your purchases to commodity markets by anticipating surprise situations and how your will react in ways that result in securing better prices than you competition. Not every account is a "A" account so you have to stake out your pricing turf to avoid the odds being stacked againt you if you expect to execute a winning appraoch. If you don't have the time or staff to follow the commodity markets, informally talk to sales represntative about what merchandizing managers are saying about future prices, and understand that taking 3-bids without benchmarketing the base cost-of-materials is a waste of time, then find one of the many experienced purchasing consultants in our industry and pay them a few grand per month to work with you.

What Fred's Purchasing Insights blog can do for you is provide you with the information tyour need to get the best deal available, which often means you need to travel around hidden profit centers or walk past the easy rebate or bill-back offered by manufactuers or group purchasing organizations. These guys fall into several catogories, deflectors (pushing you away from your best price) skimmers (don't add value to the transaction) or no-nothings that couldn't find the bottom-line or net/net cost if they were handling both sides of the negotiation.

I'll close this initial post with the title of an article that I wrote for Foodservice.com a few years ago, "WHY INTELLIGENT PEOPLE OFTEN BLOW IMPORTANT NEGOTIATIONS" before they call 911.

To Greater Profits,
Fred