By Darrell Osborne Food service 29th January 2018
Procurement in food service is all about food, drinks and packaging, right?
The categories of direct spend are the most exciting and important to the organisation and where the investment in resources should be made, right?
Whilst this is a common assumption, and something I experienced a lot in my career with large food service companies, increasingly organisations are waking up to the opportunity that a similar procurement focus on indirect spend can have on the bottom line.
A squeeze on food service margins is already being felt through:
- Increasing staff costs associated with national minimum and living wages, and pension costs.
- Rent and rates revaluations.
- Food and drink inflation driven by changing global demand, climatic effects on farming, commodity trading and exchange rates.
- Competition in the sector is restricting revenue generating menu price rises, as heavy voucher led discounting and increasing delivery commission fees eat into margins further.
Smarter organisations are turning to their indirect categories to find procurement savings to offset the margin squeeze. Once you start to add up how much the organisation is spending on utilities, equipment, consumables, uniforms, crockery, cutlery, print, point of sale and promotional materials, and chemicals and cleaning products, then the indirect category spend can scale up to a surprisingly large figure.
The challenge faced in these indirect categories is often that they are seen as complex and therefore, difficult to leverage. Complexity comes from:
- the size of the SKU range,
- the number of suppliers,
- the configuration of the products required to suit the needs of the restaurants or stores,
- manual ordering systems,
- multiple distribution routes to market.
Just how well does your procurement team understand the dynamics of these categories in your organisation? How many SKUs are actually being purchased? What is the ordering process? How are suppliers performing? Are outlets adhering to approved suppliers and contracts? Most procurement teams in food service don’t have the information to enable them to understand these things. Furthermore, the problem is often that the valuable procurement team get dragged into making sure the right products are being supplied from the right contracts to the right restaurants or stores. This is largely transactional activity, leaving them little time to add value to the procurement process further upstream.
Technology can be used to overcome these complexity challenges. Technology that allows restaurants or stores to transact directly with approved suppliers, for multiple products, all requiring a degree of configuration within a locked down group wide contract. Better still, if that technology can then inform the restaurant or store of real time stock level and delivery status (think Amazon at home), and report back to the procurement team the purchasing patterns and metrics by category and by supplier at the push of a button (with excel being an option not the default!).
That technology is exactly the proposition of Geneus, the cloud based procurement platform offered by the folks at ProProcure. Plenty of branded food and beverage companies have embraced Geneus already, using it to drive purchasing economies of scale, contract compliance, and simplified transactional activity between approved suppliers and organisation buyers both in head office and out in the field including franchisees. Geneus is cloud based, so no need for painful conversations with your IT department, and can integrate with an organisation’s ERP system, and a supplier’s warehouse management system. There is an easy to use Geneus web interface already accessible on any mobile device, and an app is in development, so no need to rely on the restaurant or store manager locking themselves away on the office computer.
How often have we heard that procurement in retail is years ahead of procurement in food service? Well, here is another example. Fortunately, the successes in the retail sector have provided ProProcure with the impetus to offer Geneus to food service. I have spent time getting to know the ProProcure team and the Geneus platform to see if there is any value to it in food service. I am sure food service will benefit from it, and Pizza Hut have got a slice of the action already. They are using Geneus to benefit franchisees with access to Pizza Hut global supplier contracts and best prices for indirect categories both back and front of house. The central procurement teams are enjoying visibility of franchisee expenditure by region by supplier in real time. Their suppliers are transacting simply with the outlets and achieving their agreed volumes.
If your organisation would like to achieve some of this, then give us a call today.
About the author:
Darrell Osborne has had an extensive career in the foodservice industry, including many years at Nando’s, Pizza Hut and Whitbread. Darrell now has his own consultancy, bca supply chain, specialising in procurement and supply chain.