Purchasing cooperatives are a well-established feature of the restaurant industry, providing the owners of restaurant franchises with professional buying expertise and negotiation strengths while helping franchisors maintain a stable supply chain. Despite their importance to franchisors and franchisees alike, however, independent purchasing co-ops—particularly food purchasing co-ops—often find that their success is limited by processes beyond their immediate control.
Because it is governed by a board representing both the franchisor and franchisees, a purchasing or supply chain management co-op must pursue an integrated, proactive approach to deliver its full potential benefits to members. Broadly speaking, such purchasing co-ops are quite good at sourcing and supply chain management. In most instances, the co-op’s managers and executives also have an innate appreciation of the importance of strategic sourcing as a management principle.
As good as they are at sourcing, however, co-ops sometimes struggle with the challenges of managing their relationships with brand marketing, product development, sales and operations. As a consequence, they often find themselves reacting to unexpected events rather than proactively managing the sourcing operation.
Here are seven principles restaurant purchasing co-ops can apply to improve their effectiveness:
1) The sourcing organization should have adequate authority and appropriate responsibility. Although not a part of the franchisor’s corporate structure, the purchasing co-op should have a place at the table alongside internal departments when important operational, sales, or marketing issues are being considered. Above all, the co-op should have a say in the qualification of suppliers and should have accountability for managing their quality instead of being required to simply accept the franchisor’s choices.
2) Visibility and leadership are essential to successful sourcing. Sometimes this principle involves something as basic as physical location. The purchasing co-op does not need to be in the same building as the franchisor’s headquarters, but proximity helps facilitate regular face-to-face contact so the parties do not need to rely exclusively on conference calls and email.
3) Sourcing must be integrated into new-product development and planning. One prominent national restaurant chain recently shortened its new-product development cycle by more than half through a variety of initiatives, which included involving the purchasing co-op in weekly new-product development meetings. Once a week might not be the right frequency for every organization, but engaging sourcing in new-product development is necessary.
4) Strategic sourcing is not strategic without a materials management plan. In addition to employing numerous specialized buyers with focused areas of expertise, a restaurant purchasing co-op should dedicate valued resources to overall supply chain management. Particular emphasis should be given to evaluating sales, marketing and new-product plans to identify related supply chain issues and risks and developing a materials management plan to address those concerns.
5) Category sourcing strategies must be challenged critically with regularity. Just as internal departments should engage in continual improvement, the purchasing co-op should review and challenge its sourcing strategies on a scheduled basis. This inspection includes evaluating the category structure itself to identify improvement opportunities.
6) Supplier management involves more than performance scorecards. Supplier performance must be reviewed regularly, of course, but true strategic sourcing requires a more in-depth approach. The co-op should initiate joint buyer-supplier efforts to improve predictability, reliability and consistency. Whenever possible, the goal is to help suppliers succeed as well.
7) Supply chain risk mitigation strategies and contingency plans are a must. Managed correctly, strategic sourcing offers important cost-saving opportunities, but focusing on cost alone overlooks the broader advantages. Effective risk mitigation strategies also must be incorporated into the co-op’s planning and responsibilities. Supplier viability analysis is particularly important. The brand and co-op should perform frequent financial analyses of all critical suppliers to identify risks early—before they cause an unexpected shortage.
Setting the Table
Industry experience suggests that most restaurant purchasing co-ops could find opportunities to apply these principles in the pursuit of a more proactive and integrated procurement approach. Results might include improved visibility into the brand strategies the co-op is asked to support and more effective implementation of strategic sourcing policies and practices.
About Crowe Horwath
NCBA CLUSA Associate Member Crowe Horwath provides audit services for public and private entities—among them cooperatives—while also helping clients reach their goals with tax, advisory, risk and performance services. To accompany the public accounting and consulting firm’s webinar this week, Wil Knibloe and Ron Melcher wrote the above thought leadership piece.
Wil Knibloe is with Crowe Horwath LLP in the Grand Rapids, Michigan office. He can be reached at (616) 233-5561 or firstname.lastname@example.org.
Ron Melcher is a principal with Crowe Horwath in the Atlanta office. He can be reached at (404) 442-1639 or email@example.com.