|
As
the foodservice industry experiences change so does the
foodservice supply chain. My
intention is twofold, first, that this article might serve to
help the independent foodservice operator identify how he/she
might modify behavioral patterns to deal with the ever-changing
task of procurement. Secondly,
it is also my intention to help the independent operator
identify how he can position himself for the best buying program
available.
Sixteen years of my thirty-four years of foodservice industry
experience has been spent in foodservice operations as employee,
manager, and owner. During
my time in the trenches I purchased large amounts of food and
non-food products from more vendors than I care to remember.
The last twenty years, with the exception of a couple of
years of departure from the industry, I have had the opportunity
to work in foodservice distribution sales and sales management
positions including a period of chain account management.
Over the past fifteen years I’ve also had the
opportunity to perform a considerable amount of foodservice
consulting work so as not to lose the feel of the business. In
the most recent past, I have been asked to serve on the Board of
Directors of a purchasing company (food cooperative) that
negotiates on behalf of many independent foodservice operators.
I have composed this article based on all of the above
“real life” experiences and of the valuable lessons learned
from the same.
“Creatures of
Habit”
My
ideas about procurement practices have changed with experience.
I have found that most independent foodservice operators
don’t take the time to refine and enhance their procurement
practices. The
manner in which they approach the art of procurement becomes
relaxed and redundant over time.
Soon, the art becomes nothing more than habit.
Any veteran salesperson, or sales manager, can assess a
situation like this in very short order. Once the behavioral
pattern is determined they may take full advantage of the
situation. By
allowing yourself to settle into a type of stasis you eliminate
the edge that you should have over your vendors.
Successful procurement results are obtained and
maintained from good technique and methodology leaving little
room for habit or complacency.
Restaurant chains and management companies have been able to
substantially reduce the procurement tasks of their unit
managers by negotiating purchasing programs with their
distributors. The
manager becomes an order giver, not a genuine buyer.
Independent operators have the ability to minimize the
need for “shopping” their distributors.
They will not, however, be able to break away from being
a genuine buyer as long as they are at the helm.
“Trust Me,
I’ll Take Care Of You”
These
great words, or phrases with similar meaning, have been spoken
by sales people all over the world for hundreds of years.
How many innocent buyers have fallen victim to these
often-empty verbal commitments and statements?
How many buyers have later discovered that there best
buddy just made off with their money and he is living quite well
in paradise? I
would hate to venture a guess.
I am a trusting person to a point.
But to what point are you willing to trust a person or a
company with your
money?
It is highly unlikely that a small to medium sized independent
restaurant will ever be given a written contract by a
foodservice distributor. Many
times he will be told that he is getting the best pricing, or
that he is on a cost-plus program, or that the sales person will
be killed if his margin gets too high. But people trust the
spoken word far too many times than not.
Even large independent operators are sometimes hard
pressed to find distributors that will guarantee markups and
give audit privileges to them.
High volume independents are generally provided with
better pricing programs only because the competition within
those accounts dictate such action.
It is a known fact that the “street business” plays a very
important role in foodservice distributors profit margins.
“Street business”, also known as the independent
foodservice operator, is the vital component of profitability
that distributors rely on to balance their low margin multi-unit
or contracted business segment.
This scenario is not normally the case with “systems”
distributors whose volume is comprised of strictly high volume,
low margin accounts. Systems
distribution is another article in itself so we won’t cross
that bridge today. So
if you are a “street” account then you need to take a look
at how to position yourself in the supply chain.
Knowledge is
Power
This
has become my own personal buzz phrase.
It has also
become my own personal challenge.
Knowledge is one attribute that no one can rob from you.
You can chose to expand your knowledge or limit it.
You can give it away or you can sell it.
You can broaden the base or
focus on a primary target.
With knowledge you can lead the way rather than follow
the pack!
Combined with knowledge, and equally powerful, is resource. If you know what to ask,
where to find, how to get, when to execute, who to
contact, etc., then
you have the resources necessary to back up your knowledge.
Typically, the foodservice industry has been a low earnings
industry that provides opportunities to those persons who may
not be able to succeed in other businesses or trades.
The industry has always provided jobs for those who lack
formal training or skill. The
business of foodservice has helped many people find their place
in life. Over the
last twenty years things have changed.
HRI degrees are more commonplace.
Culinary institutions have trained more chefs. The industry has taken on a new complexion.
But even to this day there are many individuals in
foodservice that have little to no formal schooling or training.
I have found, in my experiences, that few foodservice managers
really know how to solicit bids, do market basket comparisons,
evaluate distributors fairly and extensively, or tailor primary
and secondary vendor programs correctly within their operations.
The knowledge and resources of the typical independent
operator are limited in scope.
This procurement knowledge has never been a focal point
in our industry like it has in so many others.
The future of the independent operator is strongly
dependent upon the need to learn how to negotiate and survive in
the world of the giants.
Breaking The
Mold
My advice to the independent operator; BREAK
THE MOLD! Immediately
quit buying the way you have been buying.
Change from your habit.
Keep everyone guessing.
Create controlled turmoil.
Then when everyone believes that you have lost your mind
layout your plan. Now
this may seem a bit farfetched but it is really rather
uncomplicated. You
know what you’ve been doing and you know that better things
can come your way. Regain
your edge by eliminating the status quo.
Two weeks of turmoil with your vendors and you’ll be
half way there. Add
another company or eliminate a weak link.
Dare to make them uneasy.
But beware, don’t
implement this program until you’ve made your plan.
Your Plan
There
are basic criteria that every foodservice distributor utilizes
to assess your merit as a customer or potential customer.
Every distributor depending on their specific desires at
the time that you initiate your plan can view these criteria in
different ways. Some
vendors are sales growth driven, others are margin growth
driven, and still others are fairly happy just having a nice
blend of both. The
desires of each vendor will determine their approach to your
business.
The other element of this scenario is the goal of your
distributor sales representative at the point in time that you
initiate your plan. Does
he/she need sales growth or margin enhancement?
Is he/she commissioned or salaried?
Do you have a working relationship with the person or is
this person new to you. Does/will
your rep. go the extra distance for you?
Start
your plan by asking questions of your current sales people and
gain knowledge about the direction of their company.
Interview new salespeople and gain knowledge about their
company. Build your
database on as many companies and sales people as possible.
Don’t ask other friends in the business for their
impressions at this time. Just
do your homework first, draw your conclusions and then seek
outside input. You
should make judgments regarding companies and personalities
first prior to obtaining the opinions of others.
Select the best companies of the bunch and then go to the
next aspect of your plan.
The Self
Analysis
This
is the tough part of the planning process.
What kind of person are you?
What are you going to change about your buying habits
that will make you a better, more knowledgeable, buyer?
Remember, knowledge is power!
How will you improve your knowledge?
Do you pay your distributors on time?
Do you beat up sales people or are you the person that
can’t say no? How
are you going to break the mold?
Without an understanding of the type of buyer that you currently
are, and the way that your vendors view you, it will be
difficult to make changes to your method.
Once you believe that you have completed a good
self-analysis you will have the necessary insight to proceed and
to change your habits and weak points.
The Terms
Your
primary concern is to toughen up on procurement practices and to
leverage for better a better pricing program.
You have a certain number of dollars that you spend each
week.. Your
business requires a certain number of deliveries.
Know approximately what you spend per week and the minimum
number of deliveries that you can live with.
Based on the fact that you’ve studied your distributor
options, and have selected those that you feel will give you the
most, set appointments to meet with each of these companies.
Make sure that other individuals from the company are
involved in the meeting so that you can get a “feel” for the
attitudes of others. Then
layout your offering to them.
Say, for example, “I will give you $4,000.00 per week
of my business and with only two deliveries”. Or, “I will be
sure that you will receive at least $1,000.00 per week with one
delivery”. What you are doing with statements of this type is
allowing the distributor to analyze his drop size and potential
volume. They may
ask you to consider awarding them the largest share of the
business or enough volume to give you good secondary service.
Even if they can’t be your primary vendor for one reason or
another they may still wish to be a strong secondary.
Find out if they work with any food cooperatives in the
area and ask for membership information and contact names.
Food cooperatives/buying groups can really help you to
solidify a program and gain extra benefits that are normally not
available to individual operators.
The reason for this exercise is to posture your company for the
best program available. The
last thing a distributor wants is small orders with frequent
delivery. But you
have just told them what you will do to eliminate, or minimize,
this situation and give them volume that will allow them
profitability. Listen
to what the distributor says at this point.
They will tell you what they expect and why they need it.
Ask about guaranteed pricing and how they will show you
that they aren’t raising prices as time goes on.
Ask for a partnership that is open and honest and
mutually beneficial. Don’t expect an answer on the spot. Tell them to get back with you in a few days with a written
proposal for your review.
Upon receiving all vendor proposals perform a market basket bid
in which each vendor applies his price program to various food
products that you buy. Compare
the results and determine the top contenders.
Remember, prices tell the story, not markup percentage
points. Have a good
mix of items in your market basket including paper products,
beverages, chemicals and small wares.
If you are not convinced after the first comparison ask
for additional comparisons.
Tell the distributors what your concerns are after
viewing their pricing.
After evaluation of at least three or four vendors then it
becomes decision time. Who
will be the most fair? Who
will provide the best service and the best products for your
money? Who is
willing to partner with you to help you to grow and profit? Be sure to have all of your questions answered and as much as
possible in writing from each distributor.
You’re Not
Quite Done Yet
After
you have awarded your business to the companies that you
selected, as primary and secondary vendors, you must now have an
action plan to benchmark their performance.
Keep a constant eye on pricing of the infrequently
purchased items as well as the core group.
Noticeable increases should not occur very often and they
should be questioned immediately. Naturally, commodity based products can be tracked by paying
attention to what is happening in the markets.
If you get the feeling that price increases are occurring
at too great a rate, and that the trust factor has been
compromised, then it is time to start the process all over again
by “Breaking The Mold”.
Please
do not hesitate to contact me regarding your individual needs.
Thanks for reading my article. I hope that I can be of
assistance to you.
Best
Regards,
Ed Norman
|
