Phone: (413) 727-8897 email:

Monday, March 06, 2006

JIT vs. Too Many Deliveries

Since food products are quite perishable, over ordering should be avoided at all times. Certainly, I strongly recommend daily deliveries of fresh seafood, bread and pastries. It's possible in most markets to receive deliveries daily from most suppliers. This unlimited access to supply may be costly.

The classic optimization technique for reorder frequency, EOQ, is often ignored by most operators in our industry. This technique establishes the optimal reorder point as the inventory level that equalizes carrying cost and order cost. One of the most useful variations of the straight EOQ model is the S,s model.

The S,s model requires a perpetual inventory system and establishes a maximum inventory level(S) and a lower level(s) which triggers an order. If you have greater than s in stock, no order. If you are below s, you order S-current stock level.

Now let's examine a typical food service stock with hundreds items. Would you save by running a perpetual S,s style ordering system? Absolutely! Just don't do it for every item. Locate your top 100 items. Make a short list of the suppliers needed to supply these items. This list will handle the bulk of your ordering since these high consumption items are often perishable.

Pretend you are a remote site feeder and every delivery requires a trip up a snowy haul road. The truck will be sent exclusively to your operation. Imagine a really expensive delivery cost (high energy costs, union driver and lots of tolls).

It is very likely you could find some innovative ways to schedule deliveries if you were subjected to these conditions. These innovations could be jointly identified by you and your best suppliers. Pick suppliers interested in passing along part of the savings to concerned customers.

With today's higher energy costs, this might be a great opportunity to call key suppliers and find out how you could be a better customer. Also, find out what's in it for you. You need a win/win scenario. A 50/50 cost split is a good starting point.

Partner with the suppliers you buy these top 100 items from each week. Discuss market fluctuations, delivery, payment terms and the days their trucks are carrying less product. Optimizing your supplier's costs could save you big money.

I have mentioned our contract at Syncrude before. We partnered with a second tier meat supplier with great quality and some empty trucks. He allowed our other suppliers to drop their pallets at his dock rather than drive up the haul road. By synchronizing orders and signing a solid, market-based price agreement, we allowed this supplier to deliver FREE to our account. We asked our other suppliers to deduct all haul road costs from our pricing. We used the savings to completely cover our meat supplier(gas, driver, fleet depreciation, etc.).

Whether you are located in the mountains or in a city with loads of small delivery trucks, rising gas prices are now built into your invoices. Suppliers do appreciate customers watching their backs.

Click Here For More Information

No comments:

Restaurant Data Pros

web counter