High-performance food procurement conducted in the face of rising commodity prices, and limited supplies requires the awesome daring of Indiana Jones with the bid strategies and systems that would be the envy of margin day traders.
However, you can use different approaches to offset the coming price increases and strategies that your distributor, broker or favorite supplier won’t talk about. Start by paying attention to commodity markets and developing new sources of supply and you can outsmart the competition for better prices!
Know where you stand in the pecking order. You can quickly determine that you are not in cue for great prices for your high volume items if the broker offers a rebate or if you can only secure month-to-month pricing.
Avoid awarding bids to the lowest bidder - if the price term is the shortest. The critical end-of-year contracting period establishes your price base for next year. Think in terms of cost-avoidance more than immediate savings and you’ll be ahead of the pack.
If you bundle purchases (ex: single source poultry) you must gain a price concession to save even with the market – make sure if you add more products to the program that you receive an immediate price concession or extended pricing terms.
If the supplier thinks he owns your business, deconstruct those bundles/consolidated deals and reduce costs for the individual items. You may have to add a few suppliers to your program, but on the other hand, that may benefit your program next year.
Don’t freak out if your current supplier jumps your price. Do check the price history for the product and really prepare for you next meeting with the supplier. Remember, it’s typical for suppliers in tough markets to lean on current customers for increases, but don’t give in too quickly. Slow the negotiating process and start of bid frenzy —the broker/salesmen community will quickly get word to your current supplier, who I guarantee will ask for a meeting.
Discover how you can switch from distributor label products to national brands and save money. SPS clients quickly find out how much money they leave on the table when we conduct a distribution assessment or complete a bid. The idea is to work around the sheltered income programs that manufacturer’s offer sellers. This can be accomplished by taking bids and comparing “like-to-like” items on a spreadsheet or take direct action and negotiate directly with the manufacturer for your own private label program. The savings can be significant; for grocery items is 5%, up to $.30 lb. for proteins!
To jump-start your power-buying program, I recommend extend pricing terms with current suppliers through Q1-2013 as a quick way to edge out the competition for better prices. Then, during the next few months conduct strategic searches for new suppliers with significant retail presence willing to sell to food service.
To Higher Profits!
Fred Favole is Founder & President of Strategic Purchasing Services (SPS), America’s most experienced foodservice purchasing outsourcing firm, offers limited and long-term cost-reduction services, external distributor audits and product development services. Contact information: P: 912.634.0030, e-mail: firstname.lastname@example.org or connect on LinkedIn.