FER EXCLUSIVE: Anatomy Of A Noncommmercial Buy

Those of you who read “How Do Chains Choose E&S Suppliers?” in the August 2013 issue of FER know it was a tricky topic. Sure, we had survey data about numbers, priorities and logistics practices. But getting chain execs to talk about specifics on the record was virtually impossible. Fortunately, we knew consultants with lengthy chain backgrounds who were willing to talk, and they spoke about sometimes extreme vetting processes, such as noting the general condition of cars in a supplier’s parking lot (as an indicator of well-being). Practices vary by chain size and clout, of course. More clout gives big chains almost National Security Agency-like access to information and leverage.

That survey really was geared toward and intended for chains, but it went out to noncommercial operators as well. We kept the noncommercial data in the hopper, but we realized a true noncommercial survey would require some tweaks. So we tweaked, and an updated survey went out a couple of months ago for this story.

Segments & Wild Cards

The 2014 Noncommercial Purchasing Practices Study was distributed to a broad cross-section of the magazine’s noncommercial readers, and you can see the breakout of respondents in the pie chart. Almost a third of respondents were from primary or secondary schools, a third were from colleges and universities and almost a quarter were from healthcare facilities. About 7% were from correctional facilities, and the remaining 6% were corporate-dining respondents (B&I) and “other.” Generally speaking, the biggest segments responded in the biggest numbers.

One thing to keep in mind is that the data are focused on operator segments, and there’s a wild card: The numbers don’t account for contract-management companies and how their purchasing systems might differ from the self-op practices of operators in any segment. So someone running a healthcare kitchen was answering only for his or her facility as if it were a self-op. If you’re curious about where contract management figures in, however, we do have some archived data from the 2013 survey. In that sample, contract-management companies accounted for about 16% of healthcare operators responding, 9% of schools, 12% of college/university foodservices and about 20% of corrections facilities. With these subsets, the samples get a little volatile; we assume the figures are not etched in stone but instead are a starting point.

Shared Basics, Then Differences

In the current survey, data reveal differences from one organization to another, of course, and the size of the operation always has some implications in terms of who signs what. But in general, organizational purchasing systems don’t seem to vary much by segment. Foodservice directors and/or other operations personnel define a need. In fact, they might even have more control of the specs and brands than their commercial chain counterparts, many of whom have to dance pretty closely with purchasing departments that like to lead.

In this survey, more than 70% of respondents said foodservice directors and other operations management personnel have “the most” say on choosing equipment and supplies suppliers. Then, like the chain teams, noncommercial operators go through administration/finance for approvals and purchasing departments to make the actual transactions. Anecdotals from interviews with foodservice directors indicate varying approval-process cutoffs, but very often purchases under $5,000 (or under $10,000 in some organizations) don’t have to go through a formal bid process, although there might be an informal “gather some prices” dictate. So, a school district buying five countertop steamers will go through a formal bid process while a district replacing one per year over five years won’t.

Apart from the big-ticket formal bids, noncommercial decision-making seems to be more fluid and individualized than in the bigger commercial chains. Some noncommercials have tight budgets and not a lot of capital-forecasting for scheduled replacement; others are quite the opposite.

Either way, when the time comes to make a purchase, outside input comes from many sources. Roughly 25-30% of survey respondents say they’re influenced by purchasing-co-op or affiliated distribution-support personnel; this figure is slightly lower than what commercial chain people reported last year. A third of noncommercials in the survey cited independent dealers for information/assistance, and more than a quarter said they confer with their food suppliers. Long story short: When a fryer goes down and cannot be repaired, foodservice directors call people they know and ask for recommendations.

A separate question in the survey asked—in a more strategic sense—which sources are used “to identify/evaluate potential E&S suppliers?” In the answer-with-all-that-apply format, nearly three-quarters of respondents named existing E&S OEM suppliers. Trade shows, trade magazines and websites, recommendations from other operators and independent manufacturers’ reps each were named by roughly half of the respondents. Dealers were just a few points behind.

First The Equipment

Not to belabor the obvious, but when it comes to making equipment choices, noncommercial operators—regardless of segment and much like their commercial counterparts—are focused first on whether a new equipment item will do the job. Price, energy efficiency, support and everything else comes after performance. The respondents, about 80% of whom were foodservice directors or other operations-management personnel, are “hands on” with equipment decisions, and foodservice directors we spoke with indicate they rely very much on input from kitchen staff regarding equipment.

After that, segment differences begin to emerge. You can check out the charts for the details, but a few broad-brush observations jump out. First, organization size: More than 90% of healthcare respondents are buying for three or fewer kitchens; 70% are buying for just one (possibly large) kitchen. More than a third are purchasing less than $100,000 per year in fabrication, furnishings, equipment and supplies (FF&E). The flip side, though, is that many healthcare kitchens are big, even enormous, and almost 30% of healthcare respondents are spending more than $1 million a year. Corrections, too, is skewed toward smaller operations, with half of corrections respondents indicating they operate a single kitchen.

For comparison purposes, foodservice directors at school districts and colleges/universities each tend to oversee quite a few more kitchens. Almost half of school-district respondents are buying for more than 10 kitchens each; more than 40% of college/university personnel are buying for more than six kitchens. Roughly 40% in both segments buy more than $1 million a year in FF&E.

Educational Segments Charging Ahead

Undeniably, primary- and secondary-school foodservice is different from college/university foodservice. But they both are large segments, tend to have larger operations and serve young clienteles; increasingly, even school foodservice finds itself competing with local commercial operations for breakfast and/or lunch business.

Maybe it’s all of these factors, or maybe it’s the scholastic atmosphere, but tax-driven segments are pretty aggressive about smart operations these days. Foodservice directors at schools and colleges/universities are notably more likely to have “the most say” on choosing suppliers than in other segments. Of college/university respondents, about 40% said magazines and websites were among their top three sources for identifying/evaluating potential suppliers, and a hefty 55% cited trade shows. Those numbers are way above the overall noncommercial figures. School respondents, not surprisingly, were more likely to say speed was a criterion. Schools and colleges/universities both were far more likely than other segments to say life-cycle cost was a consideration.

Listing up to the top three criteria that had “the most influence” in choosing E&S suppliers, college/university personnel scored energy and water efficiency a significant 10 points higher than other segments.

The University of Wisconsin-Madison may be a harbinger of things to come. Campus foodservice, which pretty much covers everything but student-union operations and athletic foodservice, is retail self-op with no board plan. Student population is 44,000 with about 7,000 living on campus. Julie Luke, associate director of dining and culinary services, says campus foodservice alone processes 95,000 transactions a day. As an auxiliary service to the campus, it raises and spends its own money, which gives it some autonomy in planning for future development.

“We have seven operating foodservice units,” Luke says. “Most are stand-alone, and three are within residential units. We’ve recently renovated almost everything and have one more unit to go.”

Apart from renovations, which go through the usual architect/general-contractor/foodservice-consultant processes, Luke says the executive chef, who oversees all seven units, largely influences routine replacement and purchases of upgraded production equipment.

In addition to ops duties, Luke also is involved with the foodservice capital budget, which at UW-Madison includes 10-20 year planning. The foodservice operations team works extensively on forecasting replacement needs. “A facilities-management person is assigned to dining services,” Luke says. “I work closely with him to project our equipment needs. We learned a lot in the process of doing these renovation projects and having our own facilities-department person has helped us. We’re much better at preventive maintenance than we used to be. We used to just do bulk line items, a blanket dollar estimate for equipment replacement,” she explains. But now the department is tracking maintenance and repair expenses and can project when specific pieces of equipment will need replacement, which helps them make more accurate dollar projections for replacement budgets. Luke says the team is building maintenance histories that help with projections.

Healthcare: Function First

“When we start the decision-making process, first we look for equipment function,” says one East Coast hospital foodservice director whose organization has policies against public discussions. “Will the equipment do what it’s supposed to? If it’s cooking equipment, the users, the executive chef really drive the decision. And we look at size—does it have a small footprint? Small is easier to clean and easier to use. If those answers are yes, then we look at price.”

The 30-year foodservice veteran says her facility goes through typical purchasing systems. The hospital, which is affiliated with a university, has its own capital budget and manages its own department funding. The foodservice operations department recommends vendors, then there’s a formal three-bid process for capital expenses.

“If a piece breaks down, I have a maintenance and repair company or our own facilities department look at it. We try to pre-plan foreseeable replacement needs. If it’s an emergency, most hospitals have contingency budgets, but the expense still has to be approved. It goes through admin and a chief operating officer to be approved. In some places, even the president gets involved.”

Processes are similar at IU Health Bloomington Hospital, Indiana, which isn’t directly affiliated with Indiana University but is part of IU Health Network, which includes 19 member organizations.

“[Equipment purchasing] is a team effort. We need everyone’s input. A purchase above a certain amount is a capital expense, and then we need more than one bid,” says Evelyn Pemberton, supervisor of food and nutrition services. “We will call our purchasing people, but they are not so familiar with foodservice equipment, so then we will check with [our broadline supplier] or whoever might have good information. And we have the magazines of course. We don’t have a lot to buy locally, but when we do, we’ll check with our existing suppliers, or I will check with people I know through the Association for Healthcare Foodservice.”

Pemberton says procedures have changed somewhat since the formerly stand-alone hospital joined the healthcare network. Most of the purchasing still is done through Bloomington’s purchasing department, although now the network sets some corporate controls or parameters and is available for input.

Corrections Is Different

Corrections equipment selection also is largely a matter of networking for information, then running it up the finance/purchasing chain. But “up the chain” is a little different. The sampling of survey respondents in the corrections market is too small to read too closely, but it’s clear that foodservice directors and other foodservice operations titles don’t have as much control of kitchen equipment specs/brands. The response to who has “the most say” clearly goes with admin/finance and purchasing offices. Not that anyone goes off arbitrarily, disregarding the wishes of the people running foodservice. Foodservice titles retain influence over the equipment selection, but the purseholders wield veto power and presumably use it more often than in other segments.

Still, the equipment-selection process starts in the kitchen. “We go to Internet catalogs, to manufacturers’ reps, even to vendors for information gathering,” says John Rogers, associate director of foodservice for the Rhode Island Department of Corrections, which is not privatized and is self-op. “We don’t always go for the best or the cheapest, but the best value,” he says. Under $500, the process is pretty quick and direct. From $500-$5,000, he gets informal bids. “When I go out for informal bids, I might get probably six or seven prices, and I have to submit at least three with the requisition.” This brings up the subject of specs, and Rogers emphasizes the importance of writing tight specs to avoid an avalanche of substitutes that really aren’t suitable.

Formal bids have to be conducted by the Division of Purchases, he says, which is a state office. “They’re neither foodservice nor corrections people,” he notes, which tends to line up with survey data. By the time a requisition gets to the Division of Purchasing, however, the acquisition already has been approved through the foodservice department’s budget.

The Same, Yet Different

In many ways, the priorities of the bigger noncommercial segments are much like those of the commercial segments, although they might be listed in slightly different orders. Everybody wants equipment that’s easy to operate and is reliable and durable. And everybody has to live with budgets. That’s all pretty unremarkable. What’s the most different is the logistical component. Few noncommercial operators need nationwide service networks.

But one thing that comes out of this survey is the focus on quality, finished foods above all. On the commercial side, it’s clearly for profit—if the food doesn’t taste good, people won’t buy it. On the noncommercial side, it may not literally be for profit, but the basic drive to do it right and make people happy is the same, from schools to healthcare to anything else. Even in the corrections market, where the population literally cannot take its business anywhere else and spending decisions are based on pennies per meal, equipment performance is as important as it is in a competitive restaurant chain.