You stumble into work after yesterday’s marathon of a day. While sipping that cup of coffee, you begin to look over the various vendor quotes. After your highlights and notes, you select the best pricing on the items you want to buy. Your confidence level is high because you are saving a few bucks by choosing the vendors with the best price. However, when you look at the big picture, did you really save any money at all?

Let me put some numbers out there to see if you know where I am going with this. From the time the order is placed, received, handled, and paid, your costs can run from $5 up to $50 per invoice (this has nothing to do with the cost of the items). The variance depends on the size of the order and the amount of follow-up needed. Coincidently, this figure is identical to the estimates provided by Lendal H. Kotschevar and Richard Donnelly in their textbook, Quantity Food Purchasing.

Yes, there is more to the purchase than the just the price (or commonly referred to as the “As Purchased Price”). To drive the point home, let’s take a look at an example that most of us can relate to. We get in our car and drive to the local supermarket. We purchase some canned food items. Later that day we come across an advertisement from another supermarket offering these same canned good items for a few cents less.Realizing that we can obtain a better price for the canned goods, we drive to market to return the product we purchased. Next, we drive across town to purchase the cheaper canned goods from the other store. While we did save money on the purchase, we failed to realize that this endeavor took about 2 hours (time is worth money). Additional time will be spent on sorting out the receipts at the end of the month. Also, we paid for the gas to drive to these markets. When you compare these costs to the savings achieved you are actually losing money (not saving it). Now take this philosophy and move it into a larger setting. In a foodservice operation this mentality costs us thousands of dollars per year. Let me give you a realistic example:

We want to purchase 10 pounds of Grouper, 10 pounds of Halibut and 10 pounds of Snapper for tomorrow’s banquet:

Vendor A: $8.50/# for Grouper, $9.00 per pound for Halibut and $4.50 per pound for Snapper

Vendor B: $8.40 per pound for Grouper, $9.00 per pound for Halibut and $4.55 per pound for Snapper

** Assuming a cost of $10 per invoice

Based on these numbers, we decide to purchase the Grouper and half of the Halibut from Vendor B. We decide to purchase the other half of the Halibut and the Snapper from Vendor A.

The result:

Vendor A
Grouper: NA
Halibut: $45 ($9.00 per pound x 5)
Snapper: $45 ($4.50 per pound x 10)
Ordering cost: $10
Total vendor cost: $100

Vendor B
Grouper: $84 ($8.40 per pound x 10)
Halibut: $45 ($9.00 per pound x 5)
Snapper: NA
Ordering cost: $10
Total vendor cost: $139

Total order cost: $239

Compare that to using just one vendor:

Vendor A
Grouper: $85 ($8.50 per pound x 10)
Halibut: $90 ($9.00 per pound x 10)
Snapper: $45 ($4.50 per pound x 10)
Ordering cost: $10
Total order cost: $230

You are saying to yourself, “Wow, I am only saving $9.” However, look at the big picture. You can save $9 per day multiplied by 6 deliveries per week and, then multiplied by 52 weeks per year. If my math is correct, then we are saving over $2,800 per year with one vendor alone. Besides the cost factor, we must also consider: the freshness of the product, the decrease in delivery truck traffic, wear and tear on your facilities, reduced pricing for larger shipment sizes, and more efficient use of your employee’s time in receiving fewer trucks.

In summary, when you look at the purchase, you need to look at the big picture. I will be the first to tell you that you cannot “crunch the numbers” on every purchase. However, understanding the basic variables involved is half the battle.