Dump The 'GPO' To Gain The Food Buyers Edge
Yes you can - “buy better than market price” and minimize food spend by using commodity markets, product specifications, and strategic sourcing techniques to reduce cost and improve supply efficiencies.
If you have managed procurement for a major foodservice chain, then read no further. However, if your chain joined a Group Purchasing Organization (GPO) or member alliance or rewards program provider and you are not satisfied with the slow results and meager 3% financial return, then this article is for you.
To the new breed of multi-taking foodservice executives, know this; “you will never reduce your base acquisition cost of goods and sustain ongoing savings” unless you equip your organization with the resources and tools required to do the job.
Your best alternative is to outsource the process or hire a qualified purchasing supply-chain manager. If your food spend is greater than $5 million annually, you MUST maintain a self-directed buying program to survive against your competition.
Start with these basic tools; purchase a seasonal buying calendar, Wenzel’s Menu Maker and Meat Buyers Guide (NAMP) as they will provide industry standard specifications, and commodity information. Then, bookmark U.S.D.A. websites for beef, pork, seafood, poultry and dairy, for quick access to commodity price quotes. (Link at: www.strategicpurchasingservies.com).
You will find commodity price services such as, David Maloni’s, American Restaurant Association’s, “Weekly Commodity Report” or the more expensive, “Urner Barry Reports” to be valuable trade sources.
You’re Savings Plan
1. Develop product specification sheets; include the cut, grade, score, and origin of the product with accurate case yield values. Then you are ready to compare brand and price quotes. You may be finding that lower specification products are better for certain menu applications. For example; #2 tomatoes & limes for back of the house prepared products; sometime paying is actually paying less; switch Cisco Professional or Mel-Fry from clear soy based fry oils; you will consume less each month and save money.
Check yields on basic items like pickle chips, where distributor labels are often less expensive but have lower case yields. With high beef trimmings prices, consider changing your fat to lean speciation from 80/20 to 78/22 to gain an immediate savings of $.07 per pound. Learn as much as you can about price-value relationships as it relates to specific menu applications.
2. Create a seasonal price book for your top 20 purchased items that represent 80% of your food spend. List high volume item in one column and the low price / high price months in columns to the right. Now you have a quick reference market price sheet.
3. Track commodity item prices to gain a better understanding of the relationship between the products published raw material cost and your final purchase price. This ”farm to table” costing approach is the single most important building block of supply-chain management.
For example; assume that the USDA published price for green pork bellies on 6/2/2012 $1.44 lb. and your delivered distributor price for 18/22 layout bacon is $2.40 lb. Using this raw material: Landed Cost of Goods relationship as a price “basis”, you can now monitor changes and project the impact of future price on your cost of goods. A change of $.01 lb. in the belly market will impact your price by $.015
4. Buy foods in bulk to reduce the per unit costs from your distributor. If you have a Master Distributor Agreement that calculates your selling price by using case fees, increase the case weight of burgers or bacon can save as much as $.08 per pound. If you are on a margin or cost-plus pricing schedule be sure to do the math before you make a change.
Tip: First, talk to the local broker or manufacturer representative about the case change; obtain product data sheets with order code numbers. Then, advise your distribution that you want to make a product change.
Perhaps one of the most critical responsibilities of food buyers is to understand how product specifications and commodity markets impact the final cost of the food and the quality of products they purchase. If the price offered by a new supplier seems too good to be true, then its Caveat emptor – “let the buyer beware”.
Your applied knowledge about product specifications and raw material markets is guaranteed to impact the purchasing performance of your organization.
To Higher Profits!
Fred Favole is Founder & President of Strategic Purchasing Services (SPS), a firm specializing in procurement outsourcing and cost-reduction services. His contact information: P: 912.634.0030, e-Mail: Favole@Gate.Net. View Fred’s profile www.linkedin.com/in/strategicpurchasing
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Posted by Brian Carrick on 6/30/12 at 1:25 AM EST
“For once, I have to admit that an article at Foodservice.com is above my pay grade and that I do indeed have a lot to learn after having spent a lifetime working in the foodservice industry of the United States. I want to thank you for the quality of your article and how much it betters those of us who are avid readers of this website. . Thanks as always, Chef Brian Carrick, ACF Member, and WSCA, worked in California, Hawaii, and Washington State and briefly in Arizona. I commenced my career in the late 1960s as a busboy at age 12 and apprenticed to become a chef at age 17 in 1973. I’ve been in the industry for more than 40 years with another 10-15 to go. Publisher of the American Institute of Culinary Politics Online.” http://elementalnewsoftheday.blogspot.com/.