Common Issues & Your Ideas

April 02, 2012

Written by: Fred Favole

In your foodservice business, it is unlikely that you want to enter into spending wars for the worlds most expensive bean to support your civet coffee habit. On the other hand, you want to take advantage of the best prices offered in the supply community by working to create competitive markets and savings opportunities.

Part of the solution to reduce  or contain  costs is being prepared to take bids. Start by establishing target (purchase) prices based on market knowledge and understand how product specifications impact costs.  It can be a challenge for most GPO's, independent operators and emerging chains to identify low-cost suppliers and determine what price they should be paying for high-volume purchases.

Leave your comfort zone and stop making these 4 fatal cost management mistakes:  

1.Taking bids from the same distributors or suppliers, "over and over again"

2. Allowing  distributors or brokers to be your sole source for finding products and quoting prices. (instead of working directly with suppliers)

3. Accepting  rebates instead of negotiating deviated pricing agreements.

4. Failing to understand the basics of commodity markets and how to "profit" from seasonal price changes.

The process of reclaiming spend control for your foodservice business requires the appropriate purchasing skills; start  with an analysis of your descending dollar purchases and develop basic spend metrics.  Take the action step of retaining a capable purchasing firm to implement a Supplier Performance Management & Contracting Program or hire an experienced procurement supply-chain manager to accomplish the job. The ROI for your investment to upgrade procurement will be 10 times your cost --- try getting that type of return on Wall Street !

Yes you can successfully implement a self-directed purchasing and cost-reduction program to improve your company’s buying process. Challenge yourself to improve the cost of the 20% of the items, representing  80% of spend;  then please take the time to develop supply relationships that support your long-term profitable growth.

To Higher Profits.

Fred Favole is Founder & President of ?Strategic Purchasing Services ?(SPS) a leading procurement services company specializing in department outsourcing, commodity price management and distribution program warehouse audits. His contact information: Office 912.634.0030, E-Mail: Favole@Gate.Net, Follow Fred’s Blog at https//purchasinginsights.blogspot.com


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