2011 Catersource - Creating Win Win Relationships With Your Suppliers

Presented by: Warren Dietel, President & Owner Orlando, FL

How to Create Win-Win Relationships with Your Suppliers

Housekeeping •  Questions welcomed •  Spend time on what’s important to YOU! •  Discuss the WHY behind creating a great relationship

with your suppliers •  Leverage your purchasing power •  Learn about Master Distribution Agreements •  Group Purchasing Organizations •  Twitter: @pscatering, #catersource •  Facebook.com/puffnstuffcatering •  Presentation will be available online:

http://www.slideshare.net/WarrenDietel

About the Speaker

•  Entrepreneurial from the start

•  Professional Experience –  Car Detailing, Puff ‘n Stuff

Catering, Disney Weddings, Disney Institute, Scott Kay, back Home!

•  Industry Involvement –  ICA Board Member, Regular

Speaker for Catersource, The Special Event, American Rental Association, and NACE

The Puff Story •  Opened in Central Florida in 1980 as a family-owned business •  Purchased in 2003, annual sales of $1.8 million, at operational limit •  Antiquated infrastructure with inefficient space & poor equipment •  Tremendous potential + aggressive growth plan = 267% growth in 3 years •  Opened new commissary in 2006

•  40+ Full-Time Team Members and 200+ On-Call •  Diversified business segments and multiple markets – Orlando & Tampa •  3 Exclusive Venues and over 100 Preferred Status

It’s All About People & Culture

“When employees think, act and feel like owners… everybody wins.” - Jack Stack

Building the Case for Win Win

•  Buy-sell context: both parties never want the same thing

•  Complimentary motivations introduce opportunities for mutual satisfaction

•  Win-win approach = long-term, mutually beneficial buy-sell relationships when… both sides’ needs are well served

Developing an Effective Purchasing Plan

•  Transition from: –  Low value, transactional/administrative focuses to –  High value, strategically focused initiatives that add

competitive advantage

•  Competitive advantages achieved by applying the best practices of world-class purchasing operations

•  Best procurement practices = significant tactical and strategic value to your organization

•  Vendor & distributor relationships

•  Orders are placed •  Orders arrive •  Invoices are processed •  Operations team takes over •  Product evolves

The Norm

How Does Effective Purchasing Impact My Bottom Line?

•  Reduces your overall delivered cost •  Produces 5%-15% savings on annual

purchases

Remember the 80/20 Rule! 20% of Costs - impacted by smart purchasing

Remaining 80% - managed by operational controls

“What you do once products arrive at your backdoor”

The Players

Start by defining and understanding the world of product distribution

1. Manufacturers 2. Freight 3. Distributors 4. YOUR TEAM!

Develop/produce products for sale •  National branding, spec, quality and price

affects your buying decision

Pricing •  Varies by product category (Dry food, fresh meats,

frozen seafood, plastic packaging, chemicals, health care, equipment, etc.)

•  Affected by demand, market conditions, time of year, acts of God, etc.

Manufacturers

•  Utilize multiple sales and marketing channels –  Company-paid sales teams –  Food brokers –  Distributors

•  “Bury” money in each channel –  Incentives paid to whoever moves product –  Large advances frequently paid to

distributors –  Marketing costs

Manufacturers

•  Focus on your high volume purchases •  Leverage descending order reports •  Negotiate directly with manufacturers –

ASK to meet and Food Shows •  Understand what is important to them •  Help them understand your organization •  Ultimately, committing to purchasing

volume with manufacturers = deviated pricing and/or volume discounts.

•  Understand available rebates

Manufacturers

Are essentially “freight” companies • Very low margins = focus on volume • Distributors vary in all shapes & sizes • An efficient distributor is always effective

Efficiency Higher volume

Purchasing power/buying leverage

Attention Lower volume

Limited buying leverage

Distributors

Large vs. Small Distributors

Why is Freight Important? Products travel to distributors by train, ship, tractor trailer, and airplane • Multiple variables affect costs/calculations

–  National published freight vs. actual –  Box size vs. weight –  Full truck, rail car, container advantages

• Partnering with right distributer is critical!

Do you have a dedicated Profit Management Department? Most Distributors do…

• Markup/margin on all products • Freight • Buried case monies • Upfront payments • Distributor branded items • Large purchase volumes • Internal cost controls • Product loss • Sales!

How Distributors Make Money

Who gets paid on every case sold? Sales person to CEO, share holders and everyone in between…

•  Street accounts = the “sweet spot” –  Typically 15%-25% Margin –  High volume accounts – 10-15% Margin

•  GPOs, Multi-unit, & national chains –  Average 6-9% Margin

•  The Role of a Distributor’s Sales Person –  Process orders, service customers, protect the business and profitability –  Paid on commission

•  Consider online ordering

How Distributors Make Money

How is your delivered price calculated? Pricing based on:

• Annual sales, drop sizes • Delivery frequency • Payment terms • Business type • Items ordered • Agreement length or terms

Calculating Margin

Group Purchasing Organizations

•  Goal is simple: Contribute to the bottom line of the members while increasing sales for participating suppliers

•  Analyze your organization and specific purchasing history, needs, and future requirements

•  Develop unique purchasing strategies •  Leverage the combined purchasing power with

Distributers and Manufacturers •  Negotiate Master Distribution Agreement with

Distributers and Manufacturer Agreements

Group Purchasing Organizations

•  Reduce your time “chasing the deal” •  Track and manage your refunds •  Identify manufacturer opportunities •  Piggy back on others •  Typical Fee Structure

– 1% - 2% of Annual Purchases – Percentage of Rebates – Manufacturer

Distribution Agreement Points •  Financial

–  Annual sales/commitments –  Growth incentives –  Deviated pricing –  % of overall broad line business, 70% + –  Audit privileges –  Terms – payment and length (typically 1, 3 and 5 years)

•  Logistics –  Delivery $$$ or drop size, $1,500+ –  Delivery frequency, delivery day & time

•  Product –  Number of proprietary items stocked –  Distributor branded items

Negotiating

•  Online ordering –  If appropriate for your business model –  Exclude the sales person (and commission) from your program –  Empower a trusted person to managed the process in-house

•  Delivery savings –  Key drops –  Off-day delivery

•  Take advantage of quick-pay incentives •  Pay on-time!

–  Poor credit history and slow payments = credit risk and higher margins

Orders/Payments

•  Receiving product •  Invoice price •  Product handling •  Portioning/menu item costs •  Waste •  Theft (Industry average = 3%)

•  Appropriate pricing •  Implementing systems and controls

Your Role

1.  Build and leverage relationships 2.  Negotiate 3.  Manage ordering/payments 4.  Manage in-house processes

Effective Purchasing Strategies

•  Leverage your volume with a select few •  Create win-win relationships with distributors by

clearly explaining your “definition of success” •  Listen to distributors’ challenges and needs •  Remember – loyal and educated customers receive

better pricing

The Cardinal Rule “Don’t chase the lowest price”

Buying from multiple distributors dilutes your purchasing power

Relationships

In the end, successful implementation is up to YOU!

Devise a purchasing plan that best fits your operation

Everyone in this room can improve their delivered price with a little effort!

It’s a Wrap!

ICA Membership Benefits

Come learn more at the Inspiration Zone/Attendee Lounge or Tradeshow Booth #1918

•  Professional Recognition •  Education: Culinary Learning Journeys, Regional Education Days, CaterArts

& Monthly Free Webinars •  Amazing Networking •  Your chef enjoys membership in the Culinary Council •  Work & Learn Program •  Membership Show Special: ONLY for Catersource Conference 2011

•  New Members: $250 vs. $290 (must be paid in full) •  First 250 new members get Inspiration CD FREE!

Thank You!

Warren G. Dietel | warren@puffnstuff.com | 407.398.6306

To download a copy of today’s presentation, go to: http://www.slideshare.net/WarrenDietel