By James R. Covart
What is purchasing? If you ask ten restaurant owners, you’ll get ten different answers. Webster’s defines purchasing as “to obtain by paying money or its equivalent.” I suppose that describes purchasing in a nutshell, but as someone who makes their living purchasing food and supplies, that doesn’t do it for me.
To me, the definition of purchasing is more intricate. The definition of purchasing needs to include development of product specifications, vendor evaluation and selection, bid solicitation, order computation (determining quantity), comparing prices, order placement, proper receiving, product evaluation, feedback and yes, payment. Now you know why I don’t work for Webster’s.
Without any one of these elements, the definition of purchasing loses something. It works the same way in real life too. Take away a step and your purchasing program looses something. In many independent operations that I have worked with, the purchasing program consists of a yellow pad, a Rolodex of phone numbers and a chef who spends about half an hour a day calling in orders. This method may have worked years ago, but not in today’s competitive environment. You can bet that the chains next door and across the street have a bunch of experts in their headquarters analyzing every item that goes into their operation. They put a lot of thought into the product specification, who brings it, how it is handled, what price they are paying for it and if there is a better or more cost effective product available. Every decision they make is a fully informed one. If you are going to be financially successful today you too need to make informed decisions. You can’t afford to make decisions by default.
Designing and implementing a successful purchasing program is not hard. It does however, take time. In future articles, we will take a look at each step along the way, but for now here are a few things you can do today to improve your purchasing program and start saving money:
Decide whether you are in business to make friends or money. It’s great to have strong professional relationships with your suppliers, but this is not the best place to make friends.
Don’t take relationships for granted. In the beginning, almost every client tells me, “I have been dealing with Joe/Jane Salesperson for years, he/she takes great care of me.” This is usually a telltale phrase that indicates that the buyer is too complacent. We would all like to believe that the people we choose to do business with have our best interests in mind. The truth is, everyone has his or her own best interests in mind. This is not a fault, just human nature.
Ask your supplier how much an item will cost before placing an order. You will be surprised how much this will accomplish. You will be sending them the message that you care about cost.
Have two acceptable suppliers for each item and request bids from both. Not only will this help you in terms of price, but will also help with availability if supply becomes tight on an item.
Make two phone calls to your suppliers. The first call should be for pricing, and the second, a few minutes later, to place an order. This lets your suppliers know that you are checking out your options.
Ask for prices on more items than you expect to buy at that time. This will keep your suppliers wondering if they are loosing items to another vendor with a lower price.
Know what your supplier or sales associate needs. With a large broadline distributor this is simple, your rep’s job is to sell you as much as he or she can for the highest possible price. Most sales reps are paid on commission and his or her income is based on profit not volume. With smaller suppliers, their needs might include product volume or cash flow (read fast payment.) If you can fill the suppliers need, you are in a strong position to have your needs met.
Keep your supplier’s costs in mind. If you can get two $600 deliveries per week instead of three $400 deliveries, this will save your supplier the cost of a delivery and enable him to charge you less. Don’t kid yourself, somewhere along the line you’ll pay for that special Friday night delivery!
Spot-check your deliveries. If it is sold by count, count it; if it is sold by weight weigh it. Any time you spend negotiating the best deal in town is wasted if you do not receive the right product at the price you agreed to. Even the honest mistakes cost you money.
No purchase is complete until it is paid for. “I give them all this business and now they are hassling me for a check!” No one “gives business.” You do business together. Vendor financing can be very costly. Understand that the price you pay and the quality and service you receive are effected by your willingness to pay within the terms you have agreed to.
Purchasing takes time but if the time is invested wisely, you will see the dividends. Money you save in purchasing tends to flow directly to the bottom line of your income statement. The biggest obstacle to a successful purchasing program is taking the first step