The food and beverage industry today is faced with the question of whether corporate procurement is more effective than decentralized procurement. While its challenges set it apart from other industries, F&B organizations share common procurement practices with those in other industry sectors.
‘Many ingredients in the F&B industry are universal and market-driven commodities, making a good argument for corporate procurement. For example, a major food company that uses tomatoes across most of its divisions or subsidiaries would reap many benefits from a global contract for tomatoes, including the ability to leverage volume and have a single point of contact to manage all suppliers.
Consider the cost of what is thrown away
There are distinctions, however, that influence procurement processes. When a well-known and respected brand is involved, it makes more sense for the concerned business unit to make decisions with the assistance of corporate procurement. It’s very difficult for corporate procurement to take over and manage the supply chain of an individual brand. Instead, corporate procurement should be realistic and help the division make decisions by sharing its research and data.
The same holds true when waste and timing are important considerations. While a corporate contract for a product may be good from a purchase price point of view, it may not be from a spoilage point of view. Consider the cost of what is thrown away. Here again, the division should be the decision maker because it can focus on keeping the supply chain as short as possible.
Pasta sauce division of a major food company
Earlier this year, after suffering considerable market share decline, the pasta sauce division of a major food company agreed to involve its corporate procurement department and key suppliers in a collaborative process. Harnessing the inherent abilities of all members of the supply chain, the group developed an idea that not only increased market share, it saved money and retained the brand image. No suppliers were changed, nor did the division give up any control over the decision making. Corporate procurement brought value in helping the division push the brand further, not take the brand from it.
While there is much for F&B organizations to consider, know that there is no cookie cutter answer, nor will your answer always be black and white. In my experience, the best mix is one of center-led, decentralized procurement, where everyone is focused on the business, and where corporate understands the needs of the divisions and brings value to their decision making process.’
Author and lecturer, Jimmy Anklesaria, is the founder of Anklesaria Group, who has influenced the procurement transformation process at numerous Fortune 500 companies. He currently teaches a graduate course in Supply Chain Management at the University of California, San Diego.