Controlling Administrative Costs: The Key to Higher Profits

In today’s foodservice equipment market, one reality is the trend towards consolidation of players among various industry segments, including manufacturers. Some may see this as a negative development, believing that fewer equipment manufacturers, for example, means less competition, which in turn leads to higher prices and fewer product innovations.

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But this also ties into another industry trend: leaner staffs and the resulting pressures to streamline distributor and dealer administrative costs. Assisting in this drive for greater efficiency, it’s important to realize that a so-called “broadline” manufacturer can transfer efficiencies in production, delivery and administrative functions.

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But how exactly can customers expect to realize such savings? Let’s assume for the sake of discussion that several manufacturers are making products of equal quality and sticker price. Where the broadline manufacturer can “break the tie” is in the ability to help a customer reduce administrative, freight and on-site receiving/installation costs.

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Let’s start with administrative savings. By combining multiple product lines into a single transaction, administrative purchasing procedures and costs can be cut by reducing the amount of time and manpower needed to process what might otherwise be two, three or four individual dealings. That may seem like a small incremental benefit, but it can really add up.

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What about freight costs? Now, here’s where the benefits of consolidating the sources of product have had a major impact over the past several years as everyone has faced rising gasoline and shipping, costs. Today, the dealer community is paying anywhere between 8 percent to 12 percent of its cost of procured items for freight — a percentage that’s more than double what it was six or eight years ago. Combining purchases from a single source by consolidating as many items as possible for each job on a single shipment means that significant freight breaks in weight-per-shipment will be realized. In doing so, the freight savings per job could be as high as 12 percent or more on the overall cost of freight.

Let’s not overlook equipment delivery and installation costs either, as these can also be reduced when dealers purchase equipment from fewer, more strategically chosen sources. It’s much more economical for a dealer to unload one shipment than several: There are lower fees for docking and unloading trucks, not to mention valuable time and labor savings. This can translate into another couple of percentage points in cost savings.

All told, dealers can realize as much as 12 percent or more in savings by working with a single source that can provide them with a broad line of products. And that’s with making no sacrifices in product selection, quality or the amount of equipment delivered.

What to do with the savings? Dealers can keep the entire amount for themselves as additional profit, or choose to pass along some of their windfall to the end-user customer. And, if the dealer picks the right partner, they’ll find some major relief from the headaches of administrative documentation.

It’s a fact: Working with fewer suppliers can be a winning combination all around. And that’s never been more true than today.

“Parting Shot’’ is a monthly opinion column written on a rotating basis by guest authors. The opinions expressed are not necessarily those of FE&S.

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