The hidden costs of delivery

Nov. 13, 2013

Did you hear the one about the restaurant company that had 14 different cheese suppliers for 14 different styles of cheese?

While that joke may be a bit exaggerated, it is true, too often we forget about the costs associated with delivery. Like the forest for the trees, we see ourselves saving a nickel on a deal only to lose much more than that as an end result.

Consolidation, by its definition, is more efficient, less time-consuming and more economical. Instead of having multiple deliveries from a variety of sources — a broadline distributor, a paper company and a meat company, for instance — we end up wasting valuable dollars and hours that affect the bottom line.

Throughout my many years in the business, I have applied different measuring tools to ascertain the total cost of receiving a delivery. The average number I use for the cost of a delivery is $75. In addition to receiving dock labor, other costs include the management and administrative costs associated with issuing a separate P.O. and the various steps leading to statement reconciliation.

Additional costs, both tangible and intangible, add up: The labor needed to administrate the delivery; issuing another invoice, statement and check; following up receivables; and the chance for a mis-pick, a late truck or some other mishap associated with delivery. Finally, the more often your dock door is open, the more likely pests get in and product finds its way out in a trash bag or other method.

We always want to get the best deal, so we search and negotiate to the nth degree until we find it. While we may get the best individual deal for a specific product, we end up forgetting the cost of that separate delivery.

There are buyers who speak with pride at their largesse and the "need" to use three separate broadline distributors. It is one thing to have a back-up distributor and quite another to have them crossing over each other. Where is the benefit? Most likely, they carry many of the same products so you have an opportunity to negotiate a great distributor deal rather than having a bevy of trucks at your dock when one will do.

Of course, you may have to have multiple sources based on need — a specialty cheese that is not supplied by your broadline distributor can only be delivered by your gourmet cheese house, for instance.

Ultimately, it is important to recognize that supplier consolidation is not a four-letter word, and that the fewer suppliers you use the more economical and beneficial it is to your overall business. Lowest invoice price is not always the lowest cost.

Topics: Financial Management, Food Cost Management, Operations Management

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