CFO’s are on the frontline of managing cash flow and 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, understanding of products,  with access to robust spend management technology. 

If these resources are not available in-house,  there are still steps that you can take to impact the bottom-line.

7-steps to economic (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%

Tip: Don't single source an item if the fixed price term is less than 4 months.

2  Manage Gap Pricing - if you operate in multiple markets close the gap between your highest and lowest prices. Most SPS clients save 2% on gap items, lead by the often-overlooked area of produce and fresh 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 $125. for independents and between $165-$175. for the largest broadline distributors.

4  Specialization - bring in cost-reduction and bid specialists like to develop cost containment strategies, chart commodities futures  and review product specifications. This "fresh eyes appraoch" can save you thousands.

Tip: Negotiate directly with national or regional supply representatives, instead of local sales associates, distributors and brokers.

5  Promote Profitable Products - develop LTO’s (limited time offers) using the most economical product that meets your brand's quality requirements;  for example; poultry is a great value for the next few month, and you'll want to hold off on that bacon burger promotion. 

Tip:  opportunity products; sold as overruns or high-quality  #2's can be purchased at discounts of 30%-40%.

6  Transparency - assess how you are doing financially, isolate key products that are hurting your profit margins; then make sure that purchasing, operations and marketing can access to the 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!  A better solution is achievable through direct negotiations with qualified beef, pork and chicken suppliers.  CFO checkpoint:  if  you are receiving rebates on proteins cost has been added to the product and your are leaving money on the table that is greater than the value of the rebate.

Assess how well your team (extended to your master distributor and key suppliers) are able to make changes, integrate solutions into your purchasing plan.

Procurement business process outsourcing is an overhead reduction option and can quickly reduce acquistion and distribution cost, but only if your company can align with the new relationship.

For CFO’s that are determined to manage a self-directed program with no organizational changes, we recommend establishing buying teams that committ to aggressive performance objectives and spend-management strategies.

The outcome of the 7-step  process will be reduced spend and realistic cost managment objectives and will contribute to your economic survival.

To Higher Profits!
Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS) a procurement supply-chain services firm specializing in department outsourcing, commodity price management and distribution program (MDA) audits. His contact information: Office 912.634.0030  E-mail: SPS@Gate.Net ,  Fred's Blog: https://purchasinginsights.blogspot.com