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