When the Contract is King

[From iSource Business, August 2001] In the $379 billion foodservice industry, the contract is king. The online auction and spot-buying options currently available on the Web are not for its players. A Burger King restaurant, for example, can't go week to week from supplier to supplier, shopping for the best deal on soft drink syrup or hamburger buns. Regular shipments at predetermined prices are a must.

But with contracts comes the complexity of special regulations, rebates, deviated pricing and volume discounts that are based on a dizzying mix of variables. Manufacturers, distributors and multi-unit restaurant chains dedicate untold hours and dollars to ensuring that all parties in their particular supply chains use current contracts that contain accurate pricing information. Out-of-date documents and human error can lead to big losses in a world in which every penny literally counts. For example, a 3 cent pricing error on meat rounds, when a restaurant chain purchases 2 million pounds of them in a year, can mean a loss of $60,000.

The paper-based nature of the contracts that govern relationships between the parties in the supply chain is a major part of the problem, says Robert Sala, president and CEO of Distribution Market Advantage Inc. (DMA). DMA is a sales and marketing company wholly owned by 15 independent shareholder distributors, including such industry leaders as Shamrock Foods, Metropolitan Provisions, Maine's Paper and Food Service, and Food Services of America. The company has annual sales of more than $900 million in the multi-unit operator segment.