Foodservice purchasing specialists have learned that a majority of food and supply  costs for products purchased over a 12-month period can be determined in advance with reasonable accuracy. 

The planning approach to purchasing starts with a menu mix analysis and usage forecast, which usually consists of a descending dollar report from the distributor and 2-year menu and product price history.   

The unstable markets of 2011/2012 exhibited short-run fluctuations for many commodities, moved prices for items like bacon and ground beef off the “charts” in terms of costs predicability.  However, cost can be managed through tactical actions taken by the buyer with support from suppliers. 

Now is the time!  The timing is perfect (9/2012) for you to secure long-term prices for ground beef, poultry, ribs, pork butts and other commodities to avoid the coming price increases in December and Q1-2013.  When booking product (securing a firm price for future purchase) is not possible, base your volume purchase and timing decisions on short-term market projections, seasonal trends, and look for buy-in opportunities.  Establish a “target purchase price” using the type of costing formula shown below.  With some experience, you can assure your foodservice organization receives an adequate supply at an optimal price even in a tough market.

For example, our consulting firm and most established restaurant chains try to anticipate general price increases, project commodity prices  and other production and transportation costs prior to negotiating the final price.  

The foundation for any contracting commitment is an understanding of the total-cost-of-goods pricing model. This knowledge also allows you to identify cost-reduction possibilities. 

Develop formula based pricing information for high-volume purchases, then project the final selling price from “farm to table”!  Keep in mind, the “formula” is not always used as the method of purchase, however, as many times a firm price is a much better buying choice.  The total cost method is solid resource to compare bids, used by everyone from Wal-Mart and Brinker  to Avendra and Strategic Purchasing Services (SPS), to negotiate reductions based on production efficiencies and component costs. 

This approach will assist you in developing savings possibilities even in tough buying markets.  

Here is an example of a pricing calculation for a portion steak: 

Raw Material: Beef Loin, Top Sirloin Butt Steak, Semi Center-Cut, and Boneless U.S. CH Steer/Heifer Finished Product:  10 oz, CH Top Butt Steak, NAMP #1184A

Pricing Formula

Raw Product Cost:                  2.25                             FOB Sell Price:              4.59

By-Product Credit:      -            .28                             Freight to Distributor   +.30

Divided by Yield:        +          50%                              Distributor Fee             +.35

Raw Steak Cost:          =         3.94

Profit/Markup Factor  +           .65                             Restaurant Price:         $5.34 lb.

Total FOB Sell Price:               4.59

To Higher Profits!

Fred

Fred Favole is Founder & President of Strategic Purchasing Services (SPS) America’s most experienced foodservice purchasing firm, providing outsourcing and product contracting services. Contact information (912) 634-0030 email: fred@strategicpurchasingservices.com Bio/Recommendation: www.linkedIn/in/strategicpurchasing