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A lesson for educational foodservice operators

How educational foodservice operators can gain a more transparent view of their costs and control of all purchasing cost factors.

September 8, 2014 by John Krebs — President, Axis Purchasing

When it comes to purchasing, school foodservice operators might learn something from others in the foodservice industry that do not rely on the confinements of a bidding system.

School districts contract for many things, ranging from food to furniture, and just about everything purchased is via a request for proposal.  RFPs come in a variety of forms and are designed to have distributors provide pricing in hopes of winning the bid.

In the bidding process, the schools typically provide a list to potential distributors of what will be purchased. In turn, the distributor quotes a price, which may be market competitive, but not the lowest possible price from a manufacturer. Schools adhere to a bidding process in which they are provided locked-in pricing programs. It is competitive and time-consuming however, this process may not ultimately maximize the school’s foodservice procurement bottom line.

Contrarily, others in the foodservice industry bid by asking distributors for a delivery fee; cost plus or case fee, on how much they will be charged to warehouse and deliver product. Having the delivery cost, these purchasing professionals then work with the manufacturing community to obtain the lowest possible manufacturing cost.

With pure economics in mind, maybe school foodservice operators could consider doing what others do:

1. Bid the distribution cost, asking distributors for the cost to purchase, warehouse, and deliver product. This is usually a per case fee or percentage mark-up over cost.
2. Request a market basket showing the distributors cost with the proposed mark-up structure.
3. Having a better picture of the proposed mark-ups and impact on the distributors purchasing ability, (items 1 and 2) then focus on key products directly with manufacturers and/or join a proven group purchasing organization to get the lowest manufacturer’s product cost.

This method assures the lowest product cost. Using a group purchasing organization reduces the administrative burden of bidding individual products, increases the coverage in the number of items and saves in areas that are often overlooked: operating, service, cleaning or other food and service supplies. 

If instead of requesting a bid to the distributor marketplace, the educational foodservice operators approached distributors to find out how much will be charged to warehouse and deliver goods; they would gain a more transparent view of their costs and control of all purchasing cost factors.

The benefits are clear as the educational foodservice operators will gain:

1. Better visibility into the true costs from manufacturers and distributors.
2. Better flexibility by comparing costs of similar products without having to rebid.
3. Better accountability with the process that allows schools to see both production and delivery costs.

Schools could learn a valuable lesson by acting like regular foodservice operators while adhering to governmental regulations. Education is all about asking questions and in this case, the question is very simple: What can I learn from others that will improve my bottom line?

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