News Archives: December-August 2018

Looking for transparency in the purchasing process

How do food service operators know they are getting value and a fair price on their food purchases? Can there be transparency in the pricing process?

Published 3/26/12
By Al Slickers 
Director of Hospitality Services, Shell Point Retirement Community (Fort Myers, Fla.)

 

As the economic environment changes so does the very way that business is done with food service vendors and suppliers. In the past, the norm was to call every purveyor in town to get the best price on a list of items, searching for the best price of each individual item. This method of cherry picking was deemed to be the most effective price monitoring and food cost-saving approach. But as this process was analyzed it was determined that this method of purchasing was less than efficient and wasteful as the time and energy spent was better utilized managing issues of greater significance. Hence, the market basket approach was considered the way to access necessary products and supplies. This may have been done with an array of vendors by item category but for larger organizations it became apparent that opportunity for greater savings arose from using a broadline distributor, which provides numerous products and services to a variety of clients.

 

In addition to selecting a broadline distributor, the purchasing process becomes a little more complicated with the options of group purchasing organizations (GPOs) and the additional benefits they provide. GPOs can partner with different or several broadline distributors, creating a matrix of options for the purchaser. GPOs also partner with or access major brands or specific product lines with the intention of increasing savings by passing the power of negotiated price to the food service operation. The advantage for the GPO is its share received from the manufacturer is sometimes a fee from the end user depending on the financial arrangement. Bottom line, the intended result is to benefit the food service operator through synergy in purchasing.

 

When selecting a broadline distributor and/or GPO it is important to understand the relationship between these two entities. What is the relationship between the distributor and the GPO, who oversees who? How is this defined and stated? Who has the ultimate responsibility and accountability for delivering the service and price?

 

Deciding which broadline distributor/GPO agreement is best for the food service operation is based on the collective ability and willingness to understand the nature of the particular food service operation’s requirements and the nature of its core business. But just as importantly, the broadline distributor in conjunction with the GPO should demonstrate transparency in the way business is conducted by sharing information of contracts, pricing structure, financial incentives and the method of selecting and accessing particular brands and products. The GPO should provide audits of distributor and manufacturer contracts and pricing to demonstrate compliance. The GPO should also share the terms of potential rebates and monitor how they are paid along with tracking of invoices.

 

Deciding whether a prime broadline distributor and GPO arrangement is the right choice for your community will depend on the specific needs of your food service operation. Where the real potential savings will be derived long term is through process improvement, ways to recommend efficiencies through the ordering process, product identification and potential alternatives through menu analysis and market awareness. The broadline distributor and the GPO have the knowledge and capability to act as educators and teach the subjects the real cost of distribution and purchasing. These entities can assist the food service operator with providing two-way accountability in the planning, procuring and managing of costs in today’s dynamic purchasing environment with the appropriate transparency.

 

Al Slickers
Shell Point Retirement Community (Fort Myers, Fla.)
Director of Hospitality Services
(239) 454-2151
AlSlickers@shellpoint.org