The old school buying philosophy was to select the lowest bidder and make sure the restaurants received the right product on time. Because the buying function was undervalued, there was no chair for the purchasing guy at the board-room table. More often than not, buyers were isolated and had little interaction with the chain's culinary, operations and marketing departments.
Then, progressive companies like; Marriott, T.G.I. Friday's and Howard Johnson's, driven by the force of strong purchasing executive personalities helped to change the balance of pricing power between the chain customer, program distributor and manufacturer.
Today, for the most part, this approach has given way to “team” decisions regarding vendor selections and forward buying strategies, in what I call the era of soft purchasing. Who really manages your foodservice purchasing depends on your supply-system and ability to identify true cost. In recent years the balance of buying power has shifted back to the distributor, aided by willing manufacturers. The exceptions are emerging chains like Modmarket Fresh Eateries (CO) PDQ (FL) and Chickpea International (NY), who focus on executing unique menus, while fighting to maximize of every dollar of spend.
Often overlooked in the overall buying process is the importance of vendor selection. The selection of new suppliers is often restricted in "One-Stop" delivery programs. Strategic Purchasing (SPS) specializes in supporting emerging chains by building cost-effective purchasing supply-chain systems. Our innovative category buying and specialized re-distribution system is changing the vendor selection process.
The challenges of developing and maintaining an efficient supply-chain are many, especially when true costs are not transparent to the operator and hidden profit centers (distributor) prevail. The avenue of dishonesty (transparency is a more politically correct term) in foodservice distribution and manufacturer programs is a winding road paved with temptation.
There is no excuse for distributor or suppliers to raise prices counter to changes in commodity markets or overhead costs but that happens every day. This practice, along with participation in earned-income programs often add 7-9% to the operators' true delivered costs. The operators response is to private label products and forward contract prices.
Our great industry is faced with an ethical challenge of continuing under the economically false assumption that a $1.65 distributor fee or 6.5 % blended delivery margin can actually generate the $185. gross profit per delivery most distributor require to be profitable.
Are restaurant operators willing to continue buying national brands that offer deep discounts and long-term pricing to the major chains or buying third party buying groups, while loyal but smaller chain customers pay more for the same products? There are numerous, more subtle forms of food cost theft, but you get the picture.
Show Me the Money!
Every proactive procurement program starts a buying strategy, a long-range plan, and a systematic approach that advances menu profit objectives. If your process has a disconnect anywhere in the supply-chain, you are losing money.
For now, think again about who is really managing your purchasing process. Is delegating spend management to a non-professional within your organization the best way to assure high-performance and profitable growth?
To Higher Profits!
Fred
Fred Favole is Founder / CEO of Strategic Purchasing Services (SPS), America's most experienced foodservice consulting firm specializing department outsourcing and COP cost reduction. Ask us about a free consultation or spend assessment today! Contact (912) 634-0030, e-mail: ffavole@hotmail.com
