How to improve supplier relationships and save money
How to improve supplier relationships and save money
You’re always looking for ways to improve your business. After all, saving money and time means reinvesting in your business and staff.
You face a myriad of challenges: Food costs are going up. Labor costs are going up. You’re being nickel and dimed for everything associated with running your restaurant. And as soon as you make a profit, it seems like most of it goes right back out the door again.
One of the most significant challenges you face is managing the relationship with your suppliers. From late deliveries, to wrong orders, to missing credits, your business can barely survive, much less thrive, when the communication process with your suppliers is broken.
Maybe you feel this pain, but aren’t sure how to fix it. That’s where a supplier review comes in. It’s a simple strategy you can use to save thousands of dollars a quarter.
Here’s how the supplier review process works: Sit down with each of your suppliers once a quarter to spark a practical and profitable conversation. Your goal by the end of the meeting will be to ask for price relief on important items and items with a high percentage of increase.
To perform your own quarterly business review, just follow these seven steps with each of your food suppliers:
Step 1: Discuss what's most important to you in your relationship
Start off with what’s most important: How you’re being treated as a customer. Be as detailed as you can. Your rep will appreciate your openness and honesty so they can service your account better.
- Major problems or notable highlights are a good place to begin the conversation:
- Timeliness of deliveries: Does your supplier deliver orders consistently and conveniently?
- Quality of deliveries: Do you receive the items you ordered every time?
- Availability of rep: When you’re ready to place an order or you have a problem with a delivery, does your rep respond in a timely manner?
- Return policy: When you need to return an item based on poor quality or a wrong order, does the supplier honor that return with a credit?
- Credit terms: How quickly does your supplier honor the credits it owes you?
- Rebates: Does your rep make sure you know about rebates?
Follow-through on these steps alone can save you money immediately.
Step 2: Confirm the amount you’ve spent with your supplier
This is simple but powerful. Calculate how much you’ve spent with each food supplier this quarter.
The easiest way to get this number is by adding up the totals from all your orders. You can go through your invoices from the quarter, reference a spreadsheet you keep totals on, or ask your accountant for it.
Step 3: Calculate the percent of total food cost with this supplier
Your food costs take up a third of your budget, so find out how much of those food costs are from this particular supplier. Just take the amount you calculated in Step 2 and divide it by your total food spend over the last 3 months.
For examples, if you spent $220,000 on food, and you’ve spent $55,000 with this one supplier then 55,000 / 220,000 = .25 or 25% of your total food spend was with this supplier.
This is definitely a number you will want to discuss with your rep.
Step 4: List the top 20 items you buy from your supplier
You should create a list of the top 20 items by cost you bought from your supplier this quarter. List the cost at the beginning of the quarter and the price at the end of the quarter. Then calculate how much prices have increased on these items.
This will give you the talking points for the next step in the conversation.
Step 5: What are the top 10 areas of biggest price increase?
From the information you gathered in Step 4, highlight the items that represent the most significant price increases. Jot down:
- Item name
- Price at the beginning of the quarter
- Price at the end of the quarter
- Percent increase
Here’s where the quarterly business review is going to save you the bulk of your money.
Step 6: What are the top 10 items of importance to you?
Think about the ingredients that are important to your restaurant. It could be the ones you’re ordering the most of from this supplier or in general and are probably a part of the list you created in Step 4.
Narrow it down to your top 10, and then rank them by how much you’re spending on them or the amount they’ve increased in price.
It’s important to list each of these out so your supplier can see them firsthand. Your rep will get a clear understanding of what items matter the most to your business.
Step 7: Find out the comparable prices from other vendors for your top 10 items
Using the information you covered in Step 6, research comparable prices from other suppliers on your top 10 items. This last step is what can bring the most change in your food spend, so take the time to do your homework.
Beside each item and its price increase, list the name of another supplier and its comparable price on each item.
This will give you and your supplier an idea of what trending prices are across the market for your most important items, and what a fair price is to pay for those items.
Then ask for price relief on important items and items with a high percentage of increase.
We suggest asking for a discount on any item that represents a 10 percent increase. If you’re spending that much money with your supplier, there should be no reason why your rep wouldn’t want to give its loyal customer a price break.
Here’s a pro tip: Supplier prices are all negotiated, so just know that you’re in the business of negotiating.
Get Started With Your Own Quarterly Business Review
Costs at your restaurant aren’t going down. The NRA reports that food prices alone have increased 25 percent since 2011. If followed, this quarterly business review process is a bulletproof way to contain costs, lower prices, and increase margins.
To help you with this process, you can download the free, printable Quarterly Business Review Template to use in your supplier review. This worksheet walks through the 7 steps of the strategy and process.
By sitting down with your supplier and performing a quarterly business review, you can have a healthier relationship with your suppliers and save thousands of dollars a quarter on your food spend.