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Why you should have a restaurant GPO in your Supply Chain

Purchasing plays a critical, sometimes strategic, role in restaurant performance where it often has control over half or more of the restaurant’s total costs. Restaurants are pressured to streamline the purchasing processes in an attempt to lower costs and inventory and improve product quality. A GPO is a way of accomplishing this goal. GPO’s are primarily focused on buyer-to-buyer collaboration.

 

Broadly, cooperative purchasing relates to a relationship between two or more buyers that bring together aspects of the purchasing function.  Although collaborative purchasing has been around for many years and has been utilized heavily in industries such as healthcare, retailing, and the public sector, it has received relatively little attention in the foodservice industry.

 

GPO’s provides two primary types of benefits: 1) improving efficiency (through the ability to lower transaction costs and gain economies of scale), and 2) improving effectiveness (through the ability of the organization to understand their spend patterns. The primary purchasing efficiency-related benefit is cost reduction, which is an essential benefit as firms face the need to tighten operational budgets. Other benefits include efficiencies through the decreased workload, staff reductions, product standardization, and improved processes. The second benefit, purchasing effectiveness, provides for the sharing of expertise, skills, technology, and other resources available to one or more of the organizations, and can result in many benefits such as better negotiation, supplier information, and benchmarking.

 

GPO organizations facilitate collaboration through a primary focus on aggregating volume and providing purchasing services and other marketplace expertise that individual purchasing organizations may not be able to obtain on their own. GPOs play a very significant role, for instance, in the healthcare industry with 90% of the healthcare systems in the U.S. belonging to one.

 

The restaurant marketplace is attracted to GPO’s since the pricing disparities between large chains and smaller independent purchasers, is significant. In fact, the difference between large to smaller is as much as 40% delivered pricing. Additionally, manufacturer promotional sales activities are now 18% of every dollar spent (includes promotions, trade shows, deviated pricing, etc.) and this is about evenly shared: 50% on distributors and 50% on operators. Operators seeking / searching for savings in the “value-environment” have found GPOs can be a useful partner.

 

Street Account

National
Account

Premium to Street Accounts

Manufacturer Price to:

 $       28.00

 $       24.00

17%

Distributor Fee to:

 $         5.60

 $         2.40

133%

Operator Landed Cost

 $       33.60

 $       26.40

27%

Source: The Hale Group

     

National accounts can also benefit from these GPO programs. Most National Accounts contract from 60-85 percent of their annual spend. What happens with the remainder? In most cases, not much. These non-contracted purchases flow through the distribution system as either distributor label or a national brand label.  This is lost income for the National Account, not having a safety net in place to capture available savings on the non-contracted products.

 

So, wither if you are a one-location restaurant or a top 200 national chain, you can benefit from a solid GPO program. Let SC2 help you in positioning for GPO success. There is NO CHARGE for this service to the client. If you are ready to capture additional savings please contact me at, mark.hampton@comcast.net or 303-883-3355.

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