Proactive Procurement in the New Supply-Chain

Today’s discussion tackles the question of whether a food service organization can change the new supply-chain enough to reduce food costs and thereby increase profits.

The answer depends on whether or not you can distinguish between a “distributor managed pricing program” from a true-cost of goods model which correlates production costs, commodity markets with finished goods pricing.

Most emerging restaurant chains pay less attention to true costs than they do pressing the distributor for lower delivery margins and suppliers for rebates.  From my 20 years consulting with more than 60 restaurant and hotel chains, I guarantee that any direct cost associated retaining a purchasing professional is an extremely sound investment.

What’s wrong with the new food service supply chain?

Traditionally, chains worked hard to move away from distributor managed purchases; managed product sourcing and structured pricing agreements with limited outside influences, and developed manufacturer sales advocates. 

Pre-2000, the transport of contracted products was handled by the supplier directly with the foodservice chain or co-managed with freight carriers.  While there was never was "true" pricing transparency; in past years supply partners discussed freight, production costs, overhead, sales overages, and distributor discussed financials.  

Today's new food service supply model or should I say, the“multi-income stream approach” that is taken by many distributors. This splits costing areas into watertight distributor profit centers.  All this is happening even as chains rush to reduce their purchasing staff  or delegate responsibility to non-procurement managers. You can bet the tremendous growth of group purchasing organizations (GPO's) can be traced to staff reduction.  However, this comes at considerable bottom line cost to the food service operator.   

Where the essence of procurement supply chain management has been transparency, and management of the cost components to the purchase there are two drivers changing this model, the are;  manufacturer segment specialization (ie: designated as a local chain, regional, national or broker /distributor managed program) and distributor category management. 

Both systems limit the chains ability to source the best product available at the best price. Making the task harder is direct collaboration between the manufacturer and distributor operating the single source system. 

Consider the 100-unit chain buying 15,000 lbs. per month of a standard breaded chicken tender under the distributors private label, for $2.55 per pound.  The chain opens a restaurant 500 miles away and discovers the same product under the manufacturer label sells for $2.40 per pound.  At the NRA show the buyer meets with the supplier directly and they reach an agreement for a private label program for only $2.25 per pound!  

Lets look at this example from the product sourcing perspective.  The distributor’s single-source buying system offers chicken tender for $2.55 lb. and they do not inventory a competitive product. The chain buyer asks the supplier for a special price based a volume purchase commitment, and the supplier refuses, stating "this is not allowable under the agreement we have with your distributor".

Every seasoned buyers reading this blog is shouting "foul" and will be quick to point our there are laws against price-fixing, The “Robinson-Patman Act”  or Interstate Commerce regulations; ...inside the ropes, however, they lament about how earned income,  single sourcing, and greed have distorted  the "true" cost of goods in the new age supply-chain.  

Is our buyer daunted by these obstacles?  Never!

Not wanting the chains' purchasing power to go down the drain and wishing to use his strategic buying plan for 2015, a lower cost supplier is sourced from outside the controlled supply system.  The new price is only $2.30 per pound and the supplier offers firm pricing.  Now the bad news!  The potential program is derailed because the new supplier does not have a financial relationship with the distributor resulting in higher inbound freight

Purchasing managers must develop missionary zeal in making the right distributor and vendor selections, and implement proactive procurement programs that allow the chain to take back the management of their supply-chain. It's the key to improved purchasing, higher profits, future cost-controls, and culinary independence.

To Higher Profits,   Fred                                                                                                   

Fred Favole is Founder/CEO of Strategic Purchasing Services (SPS), America's most experience foodservice consulting firm specializing in staff outsourcing and cost reduction management. Contact SPS for a free spend assessment or purchasing consultation: Office: (912) 634-0030, Email: ffavole@hotmail.com

Lessons from The Olympics

Is your foodservice organization ready to annihilate the competition leading to the total destruction of their most profitable menu offerings?  

Creating the proper “supersport” attitude with advanced culinary-purchasing-operations teamwork the rocket science blackboard schematics of the New England Patriots.  

However, it does require the shot-out guts of USA Hockey star TJ Oshie and attention to 4 management areas that impact cost. 

Foreplay To Success    

Increase Supplier Performance – make sure your suppliers are meeting your objectives, don’t merely maintain the relationship – build it.

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.

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’.

Reduce Maverick Purchasing and Increase Control – increases spend management and control purchases - you will need to maximize every purchase dollar. 

Whose chain menu will reign supreme?

From the Sochi Olympic Stadium to Kitchen Stadium - Iron Chef, the lesson is the same...challenge your Gastronutritional and creative Team to gain the People's ovation and make your culinary-purchasing ROCK.  

Here are artistic creations spotted on slopes on the way to Russia!                                      

PRETZEL EVERYTHING	Breads, twists, wraps, nuggets
MIS-MASH	Haute Jewish Deli (amped up chicken liver, peppered pastrami; other - Beef potato chips, marshmallows & macadamia nuts, Asian-American comfort food (hand held)
The NEW COBB SALAD	Trendy ingredients (jerk, ABF chicken, Italian ham, fried avocados
More BROCCOLI	Frittata, broccoli slaw, roasted, as pizza topping, and Pizza oven-roasted cauliflower with whipped goat feta
Wraps With an Attitude   TO-GO "car cups"	Street food in a great wrap, taking it to the Food Court competition Actually fits both Yugo & Mercedes cup holders, how about that:  holds finger foods from fried fish to whiskey butterscotch parfaits.

To Higher Profits!

Fred

Fred Favole is the Founder/President of Strategic Purchasing Services (SPS) and Chain-Link Culinary Services (CLCS); America’s most experienced consulting service for foodservice chains.  Contact information:  P: 912-634-0030 e-mail:fred@strategicpurchasingservices.com

Things To Come: Food Service 2014

2014 the year that consumers will be spending more, which translates to more posteriors in more restaurant seats. Are you fully prepared to handle this new business. 

Depending on your industry segment and region of the country; changes in products or service style can be subtle or you you may need a major renovation.  Here are a few insights to consider.  

As industry consultants we're lucky enough to work with exciting chains all over the country.  We've seen some trends popping up on menus that is sure to move mainstream in 2014.  You need to reach new customer through their senses, both intellectual (ie: healthy eating or great value) and olfactory.

Fast Casual concepts with continue to fight each other for market share as innovators like Modmarket Farm Fresh Eateries, Great Wraps and Garbanzo Mediterranean Grill  focus on fresh & healthy, while delivering taste sensations that consumer’s translate into dining value. 

Multi-concept casual dining giants serving up more of the same seafood and Italian dishes will continue to struggle with declining sales, but they can look forward to improvements in 2014.  However, real growth in this segment does not come easily because the faster moving and clearer thinking emerging chain innovators keep introducing spot-on trendy products. 

Savvy executives have discovered that re-imagining the menu is far cheaper and faster than “re-branding.”   They are looking to add new seasonings, sides, toppings, and specialty breads...the nitro that has fueled the segment since early 2011.  Ask whether or not you have been providing what your customer needs – or want he wants?  

The “hot chain” concepts that we support have added culinary support to develop or refine new taste experiences. Take time to tell customers why they are using quality products ABF poultry, ZTF oils, red tomato, chia and Quinoa seeds, and roasted veggie toppings. As Chef Paul Ladouceur, SPS-Culinary Services says, “try to add texture to products and discover how intelligent ingredients are not only trendy, nourishing and taste good, but they can produce a healthy bottom-line.”.” 

QSR (fast food) restaurants will outpace all segments in increased profits, partly because the Affordable Heath Care Act forces foodservice organizations to move hourly-workers to 30 hours per week (leaving them to toil without a health safety net).  This unfortunate situation does offer operators an opportunity to invest this political cash gift (they don't have to pay insurance) in equipment upgrades and profit producing promotions.

Thoughts on Distribution 

Not even the Wall Street Journal knows how Sysco’s purchase (merger) of U.S. Foods will impact the marketplace. Lets just accept the fact that it's hard to turn the Queen Mary even in calm waters, but they will find a safe harbor, even as they improve their Machiavellian category management program.

Look for the continued growth of regional distributors and groups like, DMA and Uni-Pro (Mug-Group) that are sure to capture market share during the next 18 months. You can also bet that the super-cube will emerge leaner and more profitable. To the average chain operator differences between distribution services will become even more obvious later in the New Year. 

Food Trends – Eat This List

PRETZEL EVERYTHING	Breads, twists, wraps, nuggets
MIS-MASH	Haute Jewish Deli (amped up chicken liver, peppered pastrami; other - Beef potato chips, marshmallows & macadamia nuts, Asian-American comfort food (hand held)
The NEW COBB SALAD	Trendy ingredients (jerk, ABF chicken, Italian ham, fried avocados
More BROCCOLI	Frittata, broccoli slaw, roasted, as pizza topping, and Pizza oven-roasted cauliflower with whipped goat feta
TO-GO "car cups"	Actually fit cup holders & not just for drive-thru's to hold finger foods from fried fish to whiskey-butterscotch parfaits

Make a New Year's resolution to stay current with your industry, attend a trade show, improve your product knowledge and remember to share your experiences by mentoring the next generation of foodservice professionals.

To Your Success!

Fred

Fred Favole, is Founder & President of Strategic Purchasing Services (SPS), America’s most experienced firm specializing in chain purchasing & supply-chain management support. Ask Fred about a solution for your business; P: 912-634-0030 e-mail Fred@StrategicPurchasingServices.com

Riding Purchasing Off the Rails

You would be surprised (unless you get to see as many procurement departments as I do) just how many companies today are not able to identify savings opportunities

Many of these companies will tell you they know where the cost savings are and they have vendor “deals” in place, but they don’t really. They roll the dice on profits by allowing manufacturers and distributors to control the true cost of goods much like a reverse auction.

I recently started learning to play the drums, which means that I currently suck out loud in neighbor-terrorizing fashion. On the way to my lesson today, I psyched myself up by repeating the simple trick for learning anything: embrace failure.

We can't be good at something until we've first spent a lot of time being really bad at it.  Why should foodservice purchasing be different?

So in the spirit of embracing failure, I am sharing with you how 75 % of the chains we've consulted with over the past 18 years have mastered the process of giving money away to their so called “supply-partners”. 

For many emerging chains, advanced product contracting and spend management control is out of reach unless they turn to professional outsourcing services.  The legendary mistakes made by untrained staff can take years to repair.  

After a few minutes of fumbling, the new Director of Purchasing for a 100 unit chain, just promoted from training director, and with zero purchasing experience, calls his primary cheese supplier and asks if there is a contract in place and demands a price decrease.  Or the new manager rolls-over past contracts walking past immediate savings opportunities available through forward buying programs.

Chain executives that hire inexperienced staff should not be asking why they come up with dry holes again and again in drilling for cost savings. Why? Because they haven't done the due diligence needed to really understand that chains complete by having high performance procurement management. Many chain organizations do value supply executives. For example, McDonald's has always raised purchasing to a "C-Staff" level of importance, right up there with marketing and operations. 

I spent a few minutes here working on the premise that experience drives performance and that if you invest in hiring or retaining a professional to manage procurement you will be more profitable.

Sifting the rubble after the purchasing guy departs

It’s easier to blaze a new trail after you've already been hiking for a while and every time our firm takes over for those smart multi-tasking COO's or Chef's or the guy promoted from training, we are reminded just how much it really costs to be out-of-touch or “cheap”.  

At some point you're going to run out of time and money as the competition devours business in your home market or stops your expansion plans.  The reason is you don't control the supply-chain, manage markets or have the systems, controls and procedures in place to support profitable growth.

You will find that one of the neat things about taking back your purchasing process from distributors, buying groups, and brokers is how, maybe after three months, out of nowhere, bam!   An amazing string of savings opportunities will just burst onto your bottom-line.

Trying to explain to emerging chain organization executives why they should invest in professional management can be a lot like trying to put an octopus to bed.  I can always come back to it later, but for now, I am turning my attention on completing a spend analysis for restaurant chain that will lead to a $1 million savings next year.

To Higher Profits!                                                                                                           
Fred


Fred Favole is Founder & President of Strategic Purchasing Services (SPS), America’s most experience culinary-purchasing firm specializing in department outsourcing and cost-reduction management.  Contact email: fred@strategicpurchasingservices.com Office: 912-634-0030

Wing Crunch Time

Restaurant chains driven by wing sales should consider switching to a wing portioning program to bring menu profits more in line with acquisition cost. Supply of the highly desirable jumbo cut wing size is limited and pricing is under siege year-round - not just for the Holiday's and the Super-Bowl. The situation will not be getting better anytime soon. 

We are advising clients to adjust their portioning policy to make wing count size issues less critical. An obvious strategy is to adjust the count range requirement and move to a smaller or larger wing. Some of our favorite joints (they all have WINGS in their name) made this move in 2012).  We favor a variation of this approach;  instead of serving a set number of pieces, factor the size (wt) of the wings in each portion, more than the wing count. 

Consider what the a portioning program can bring to your business. Customers instead of ordering with the expectation of receiving a certain number of pieces, will have a choice of ordering by weight;  ¼ lb., ½ pound and 1 pound or family & friend platter servings. 

Despite the wing count, the customer gets the same volume of meat, and the new serving policy improves the chances of keeping supplied at somewhat discounted prices. Right now, because of low production and high product demand, it's " Wing Crunch Time - All The Time" for fresh small bird cut wings. 

You already know that no poultry company actually counts the wings they pack in a 40# case. The wing count is 100% determined by the size of the live bird and there aren't many 5-6# birds being grown. Just asking leading poultry companies like; Tyson, Wayne Farms, Pilgrims, Mountaire, Simmons, Perdue, Sanderson, OMP, Koch and Keystone about availability....by the time these nice folks get around to returning your telephone call, you can finish reading Wenzel's "Menu Maker".

To Higher Profits,

Fred

Fred Favole is President of Strategic Purchasing Services (SPS), America's most experienced foodservice purchasing services firm. Services: spend assessments, bid & GPO management & menu ideation & outsourcing. Contact Info:  (912) 634-0030 e-mail: Fred@StrategicPurchasingServices.com