July 25, 2005
Volume 1 Issue 21       

Does the Prime Vendor Make Sense for You?

I was reviewing an article written by Jim Laube and published by Restaurantowner.com, that talked to the Restaurant industry about how to save 10% on food costs. The discussion centered around large chain operators and their tendency to procure 80% to 90 % of their food supplies from one vendor. They can drive a better overall deal using the Primary Supplier concept. There is only one or two vendors to deal with so they can spend more of their time cultivating customers and training their employees; an activity that is more productive than saving a nickel a case on green beans.

Although we address food distributors and processors here, I believe we can strike some commonalty with the restaurant guys, many of which you folks serve as customers.

The following chart shows the elements of pricing and how making a larger purchase from one source allows them to save you more money.

·         Product Costs- the more he buys the more he saves, and then he can pass those savings on to you.

·         Administrative and Selling Expense- mainly fixed per order. Thus costs can be spread over more dollars.

·         Delivery and Handling Costs- you guys know it costs almost as much to drop 100 cases as it does 1 case. Same goes for your supplier.

·         Profit on the Account- amount required for him and you to be viable to each other.

By helping your supplier lower his cost in servicing you, you will help him be able to lower his markup to you and you both make money. Sounds too easy, doesn’t it?

Smart suppliers look for more ways to make money. You can help them by showing them how lowering their margin with you can help them make more money. Please look at the following:

Case 2 is where both your supplier and you want to be. This is how the Primary Vendor concept works.

Apply it to your business. Find a Primary Vendor tell him your story and see if he can ,make it happen for you.

By the way, you will have more leverage with the vendor, a closer relationship (which will mean faster service), improved product quality and availability and less internal purchasing activity that saves you even more money. All of these pluses far outweigh the fact that too many vendors to manage and support cost lots of your money.

If you think this won’t work in your situation then:

Become a primary supplier to some of your customers.

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