Foodservice Purchasing Mess

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:

1. Vendor Qualification & Strategic Sourcing  (Chef/Culinary/Owner)
2. Distribution Warehouse Audits / Price-Compliance  (VP Finance)
3. Freight / Logistics  (COO or not assigned)
4. Bid Management / Commodity Contracting  (Owner/ VP Ops / Chef)
5. 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

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

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

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

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

Today’s foodservice chain C.P.O. or Vice President of Purchasing's role has changed and will continue to change as a reaction to spend management challenges and shipment problems that were once considered the responsibility of broadline distributors.  The new buzz in supply planning A.T.D. (advanced transportation decisions) challenges the foodservice chain buying staff to outthink the supplier’s limited L/TL delivery strategy and find work arounds for the distributors risk adverse philosophy of can't  “go the extra mile”.  

The tactical decision to manage around or through these distribution roadblocks means more time must be spent managing the order fulfillment and transportation process.  The immediate benefit is fewer hurried reactions when “ new products are approved, and purchasing 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 faced getting 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 happens quite often when purchasing reports to the culinary department or the Chief Development Officer, instead of the CFO or President.   A recent example of the problem; many fast casual burger and wing restaurant chains are changing from frozen to fresh products without considering the readiness of their supply-chain. Many non-purchasing executives actually think that all products are in stock at  every broad liner warehouse!  The shelf life and handling requirements alone for fresh wings and burgers can be a challenge, especially if the product is single sourced and ships from one plant.  The distribution system for custom and fresh products requires faster reaction time, and better cost-service efficiency levels; such as; smarter routes, plant (location) selection, carrier time-temp recording, and better receiving location inventory management, not to mention educated operations managers.  

Foodservice broadline distribution is a threat to procurement success when procurement 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, will impact cost and availability of food and suppliers sourced and transported more than a few hundred miles. 

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

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

Fred Favole is Founder & President of the longest operating foodservice purchasing consulting firm in the 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?

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??

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