3 Common Food Service Contracting Mistakes
Updated: May 25, 2021
Now, more than ever, with the effects Covid-19 has had on the restaurant industry, operators find themselves searching for every possible cost-savings opportunity.
We've found ourselves very busy working on supply chain assessments for new clients, and throughout this process have seen some of the same contracting mistakes over and over again.
We thought it would be helpful to point out a few of the most common and repetitive mistakes we've seen recently to help operators avoid these pitfalls if they haven't already recognized them.
Top Three Food Service Contracting Mistakes:
Not Contracting for Required Goods and Services
this is definitely one of the biggest pitfalls we see from growing operators and we hear a number of reasons when discussing this issue with new clients and prospects; "we weren't sure HOW to effectively work/contract with our supply chain", "we don't know if we have sufficient volume to directly contract", "we don't have anyone in our organization responsible for, or knowledgeable with this". As a concept grows, it becomes more critically important to actively manage the supply chain, and failure to do so, either directly, or with the help of a partner in this area, can result in a competitive disadvantage for an operator.
Poorly Structured Contracts
We typically see two major areas of concern here: 1. contracts that don't adequately address the business' objectives, for example; not defining and/or outlining expected service levels, or, not adequately defining price/cost terms, and 2. poor contract utilization, which simply means contracting for a specified item without reviewing all the items purchased from that particular supplier and including them in the contract.
Not Managing the Contract Lifecycle
So you've avoided the first mistake outlined here, recognized the need to actively manage your supply chain, and have negotiated a contract for some key items. You've also avoided the second mistake by incorporating some provisions regarding expected service levels, planned for the future by addressing how new markets will be handled and costed, and reviewed your current purchases to cover all items from your supplier partner in this contract, so you're done, right? Not so fast, contact management becomes the next critical step in this project, from measuring the resulting contract savings versus forecasted savings, and ensuring you renew the contract prior to expiration, possibly even allowing sufficient time to revisit items specs, potential suppliers, and pricing.
In trying to navigate the new "normal" in an active pandemic, and eventually, a post-pandemic business environment, the need to excel at managing your business' supply chain will only become more critical to success.
Not sure where to start with your supply chain management? Reach out and we can help with a free, no obligation initial consultation.