How to get a grip of your purchase orders

Cybake purchase ordering moduleCybake’s Robert McIlroy explains how bakeries can save an extra 4% on ingredient purchases.

Have you got a proper grip of your purchasing? Are you sure that you are paying the best price for all your ingredients? Do you really have complete control over your purchase orders?

If the answer to the above is anywhere between “not really” and “not quite”, then you are not alone.

Bakers face many pressures. For example, although we in the industry tend to take it for granted, bakeries are some of the most complex manufacturing operations in existence. Bakery owners also operate in one of the food market’s most competitive sectors.

It is not surprising, then, that a forensically precise audit of each and every item that is bought and delivered to the business is not always top of the agenda. However, due to our work with Cybake users, we at RedBlack have found that this is precisely what bakers need to unlock considerable cost savings, improve stock control and achieve better traceability.

In fact, we estimate that just about every bakery business could save an extra 4% on ingredient purchases. To put that into perspective, let’s say your bakery has a turnover of £1 million, 25% of which goes on ingredients. A saving of 4% of this £250k equates to an extra £10,000 per annum of profit.

When considering these figures, it is also worth remembering that every pound in your business is not equal. What do I mean by that? Well, although this might be slightly counter-intuitive, an extra pound in sales is worth much less than a pound saved.

Yes, gaining additional sales is always a priority. But once ingredients, energy and labour costs are taken into account, an extra pound in sales is unlikely to add more than 20p to your bottom line. In contrast, all of each pound saved goes directly on your bottom line – and yet purchasing is frequently not given adequate attention.

That’s why, in close collaboration with some of our customers, we developed Cybake’s Purchase Orders module. Suffice to say, the module has proved to be a hit.

Take this from Roger Topping of Doncaster’s award-winning Topping Pies: “The ability to easily see how much we spend on each ingredient and with each supplier, as well as the typical frequency and size of each order, has allowed us to negotiate prices far more effectively with prospective new suppliers”.

“Previously, gathering this information was a time-consuming job we only did for highest-spend ingredients. Combined with a greater focus on purchasing in general, this has resulted in a noticeable improvement in our bottom line.”

Clear insight and control

Here’s a scenario that may sound all too familiar. You agree a good price for a certain ingredient with the rep for a preferred supplier. However, if you leave it too long between placing orders then the agreed price reverts back to the supplier’s list price which can be more than twice the agreed amount.

Without clear insight and control over your purchase orders, the price increases but you are still getting the ingredient delivered. Obviously, this has a knock-on effect down the line. In the end, the margins on your finished products are adversely affected without you necessarily knowing about it.

Or take more transparently market-driven fluctuations in ingredient prices. Over recent years, we have seen fairly big swings in the price of commodities like almonds, vanilla and even eggs. While most wheat prices have remained stable, this year’s harvest is not expected to be so good which will also lead to price volatility.

Even if you had a clear insight into all of the above, how do you account for human error? If your supplier only delivers part of an order, even if it’s because a few bags of ingredients burst in their delivery van, how to do you record this short delivery? And how do you ensure that your supplier issues the requisite credit note in a timely fashion?

Cybake’s Purchase Orders module makes sure that you have all the above covered and more, delivering true cost savings and control. Easy to implement, Cybake’s Purchase Orders module:

  • makes sure that you are only paying for what you have ordered and had delivered
  • makes sure that your suppliers’ invoiced price is the price originally agreed
  • keeps the ingredient cost prices, and hence margins, in your Cybake recipes up to date, always using the last price paid to your suppliers
  • maintains an ingredient-cost price history to allow you to work out the effect of cost price changes on margins over time
  • gives you all the information you need to negotiate better prices with your suppliers at the press of a button
  • interfaces with accounts packages such as Sage to avoid the need for double entry of data and its associated labour costs.

Even if you are not ready to take the step up to Cybake, here are four practical steps you can take today that will help you manage your purchase ordering better:

  1. Make sure you have a clearly defined and adhered to purchase order processing system in place, ideally using purchase order numbers for all orders placed.
  2. Before payment, be sure not only to check invoices against delivery notes but also against the originally agreed price.
  3. Review supplier prices monthly, monitor against expected market price changes and gauge the impact of any changes on profit margins.
  4. At least annually, invite quotes for all your main ingredient spends from alternative suppliers. Even long-standing suppliers cannot resist the opportunity not to offer the best price to complacent customers.

Cybake’s Purchase Orders module is available now. To install the new software, please get in touch and we can have you up and running in no time.

If you are not a Cybake user and would like know more about how our solutions can help manage your bakery better, why not give us a call on 01904 622888 or drop us a line? You can be confident that we will understand the challenges facing your business and we’ll know how to meet them.

About Robert McIlroy

Cybake Implementation specialist Robert McIlroy is a bakery industry veteran who also sits on the board of a four star hotel. You can follow him on Twitter at @Rob_CyBake.