High food cost is one of the problems restaurant operators struggle to manage. Besides theft, waste, understanding product mix, and setting the correct sell price, operators must watch the suppliers’ product pricing, as it directly affects the bottom line. The question is what does affect supplier pricing? In this post, we will discuss how to best manage supplier prices, and how to keep it down through better planning and negotiation.
Manufacturer pricing and freight create the basis of a supplier’s cost. Then they add markup. These are the components of a supplier’s price. Supplier’s costs are typically controlled by the supplier themselves. However, operators can influence supplier’s markup, thus negotiate better product prices for themselves.
There are three things that affect a supplier’s markup: how well invoices are paid, average drop size, and overall monthly or annual spend. In other words, if the invoices are not paid on time, orders are small, or ordering mistakes are made that result in additional deliveries and returns, then there is no substance for negotiation. With that said, supplier markup is often the proactive response to the restaurant’s own disorganization.
So, how can you be organized and have a substance for negotiations?
- Pay invoices on time.
- Consolidate suppliers to increase drop size and overall spend with fewer companies.
- Consider reducing ordering days, and order on time. Use a list to eliminate “I forgot”. This all decreases number of deliveries and increases drop size.
All of these are the solid foundation for the effective negation with suppliers. However, it is difficult to achieve without a proper process and a system in place, computer system! Yes, technology helps a lot! From ordering to invoices reconciliation, recipe costing, analytics, and reports. The system should be able to do it all. Additionally, the system should be integrated with suppliers, at least with the larger ones, for product list and price updates, order processing, and invoices, eliminating manual work on both supplier and restaurant side.
Look for these important system features.
- Integrated order processing eliminates manual order entry on the supplier side and prevents manual order entry mistakes, which, in turns, reduces returns and additional deliveries.
- Receiving updated product list and the prices helps to know what each supplier is selling and their best deals, so well directed purchasing decisions can be made at the time of ordering.
- Receiving invoices and automated reconciliation against Purchase Order helps pay invoices on time and guard against pricing errors.
- Being able to see and analyze purchasing history as well as knowing suppliers’ deadlines and minimums helps with consolidating, eliminate “I forgot”, and produce quality order on time.
All of these help operators to know the numbers in near real time and to negotiate with suppliers effectively.
Technology for BOH management is a foundation for a successful operator, but very often not in place, creating a lot of inefficiencies in restaurants that negatively affect business bottom line. However, do not run to buy or subscribe for any online software. Find a service that comes with the system and processes in place; but this is a topic for another post.
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