A short while ago, we had a customer recover $12,000 in accidental vendor overcharges...on ketchup. As you can imagine, our customer, a large quick serve concept, was incredulous. The most exciting part of this revelation was that ketchup was only one of the hundreds of items in their vendor order guides, and many had price variances. There were still a lot more savings left for our customer to recover.
In the super-competitive world of restaurant food distribution, prices change constantly, and it's common for an invoice to show a price that's above or below the contracted price. In many cases restaurant costs can be driven down materially simply by comparing what the company SHOULD BE paying for products vs. what it ACTUALLY IS paying.
Restaurant chains typically use one of four strategies to deal with vendor product price management:
- Have their accounting team compare actual invoice prices to contracted prices
- Have their restaurant managers double-check invoice prices against a vendor price sheet
- Use a back office solution to automate the comparison, generate alerts and remediate the discrepancies
- Don't have a strategy: cross their fingers and hope for the best
The first option is fairly common when there's enough manpower in the office. It can work well, and though manpower can be expensive, the savings often make it worthwhile. More problematic is that this option leaves room for human error (it's a shame to make errors when trying to fix errors).
The second option puts a knowledgeable manager to work doing a purely mechanical task; his or her time may be better spent circulating through the restaurant improving food production operations, reducing waste and training people.
The third option is highly efficient, though it requires an expert implementation of a restaurant back office software system. While return on investment can be outstanding, typically adding 2-5 percent of food sales to bottom-line profits, this strategy requires a commitment to operational discipline from the entire restaurant chain, top-to-bottom.
Whichever method your company prefers (except #4!), it's important that it's executed for every order, every day. Because as with so many things, getting the basics right day after day is the key to better restaurant food cost management.
This post is sponsored by CrunchTime! Information Systems