Thursday, 4 September 2014

Buying smart is key to success for restaurants

Back in 2002 I was appointed financial controller of a medium sized construction company. One of my first projects was to design & implement a centralised purchasing system. This would replace the existing decentralised system of individual sites all over the country buying their own materials. The objective was to save 3% of the €25m per annum spent on materials.

Before I got into any of the details I contacted two of the biggest and best companies in the industry and asked if I could sit in with their purchasing departments for a few days and learn how the market leaders operated. They kindly obliged and put up with me asking endless questions until I got a clear idea of how good purchasing systems work.

The project took 12 months to develop and a further 6 months of tweaking to get right. It was worth the effort as it highlighted so many weaknesses in the old system and revolutionised the way the company bought. The target savings were exceeded and the system is still in use today.

You may be thinking " so bloody what!?" but bear with me, there is a point to all of this!

Purchasing is a key area for any business, especially those with high input costs, such as restaurants . Regardless of the size of a business, the same basic principles apply. 

In my experience, it's an area where restaurants can be weak and exposed. Ordering tends to be done on the back of a napkin and phoned in after service. Goods arrive, often during busy periods, are signed for by whoever answers the door. The invoice arrives, gets processed and paid. Shortfalls are often filled in by sending the KP to the local supermarket. 

Bigger operations may have more structure, but I know for sure that what I've just described applies to a lot of small independent restaurants. 

With a few small changes, requiring very little extra effort, restaurants can reduce their purchases by 10%. To put that into context, if a restaurant has a gross turnover of €15,000 per week, they will spend approximately €4,000 just buying food & drink. A 10% saving would deliver €20,000 per annum into their bottom line and, ultimately their bank account. When you add in consumables and other non food/drink purchases, this figure rises to €25,000. Not an insignificant sum, I'm sure you'll agree.

It goes back to what I've said in many other posts about the skillsets required to operate a restaurant. I would never knock a great chef for being less than great in the paperwork department. Everyone should play to their strengths. 

Purchasing is a skill that is very much valued by large organisations but often unrecognised by small ones. It can literally be the difference between success and failure for some small businesses. 

If you think you could buy better or would like to find out more information, please feel free to drop me an email.

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