Q: What are some key best practices related to conducting accurate pricing comparisons on club supplies?
A: It is important to know what to look for when you receive a price comparison. In many cases, comparisons pair the customer’s purchases with lower quality items. For example, a bad price comparison would be to “show savings” by recommending that high-quality bacon be replaced by low-quality bacon flavored with a liquid. Also critical for achieving the best comparison is pulling from the same time period. Due to changes in market costs, it is not accurate to compare a purchase made in July to the price of the same item in September.
Another best practice: For a price comparison to paint an accurate savings picture, savings must be properly weighted according to a customer’s spending habits and history. Some pricing analyses may exploit the opportunity to pick and choose items that would make savings appear much greater than reality. Clubs should study top purchases together, ideally the top 80 percent of spend, to avoid this pitfall—the savings should demonstrate an accurate and holistic picture of the impact contracts would have on an entire budget.
Establishing a strategic procurement program can help private clubs control costs and remain competitive. While many clubs choose to partner with grocery suppliers or other distributors independently, establishing a strategic procurement program can help generate savings without compromising quality or safety.
Q: How do new customers of procurement programs see where they will find savings?
A: Managers should request price comparisons that provide an analysis of the prices they currently pay vs. the prices they would pay for matching items if they leveraged a firm’s contracts.
Avendra begins by collecting a customer’s purchasing data, including specifications, quantities and freight. We then analyze the items on which the customer spends the most, find the equivalent-contracted product and compare their prices. Savings shown on these items will have the biggest impact on the customer’s budget.
We found that using this system saved an average of 12 percent across a variety of segments and categories (food and non-food) in 2014 cost comparison projects.
Q: What are some examples of changes you can implement based on ongoing price comparison research
A: A great area to investigate savings opportunities is the supply chain. For example, some contracts use bracketed freight, which gives the largest discounts to distributors for buying a full truckload of product from a manufacturer. For products with limited shelf life such as yogurt, it’s hard for smaller distributors to purchase a full truckload, as they may not be able to use the product before it expires. Clubs tend to buy smaller quantities of these items for the same reason. To accommodate these situations, different freight structures for yogurt can be negotiated so both smaller and larger distributors can take advantage of favorable freight rates.
In addition, new products may be added to existing contracts. When reviewing “spend data,” look for frequently purchased items that are not under contract. When you find items that exist outside your contracts’ savings structures, it is possible to add these products so you have access to more advantageous contracting terms.
Karen Holden is the director of product analysis of Avendra, LLC, North America’s leading comprehensive procurement services company. With more than 5,500 hotels, resorts, and private clubs as customers, Avendra wields nearly $4 billion of purchasing power to negotiate the best possible deals with key suppliers and provides customers with a safe, cost-effective supply chain. For more information, visit www.Avendra.com or e-mail [email protected].