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 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.