Any casino operator will tell you that the key to maintaining profitability is keeping close watch on the tables at the gaming floor. Knowing what comes in, what goes out, and what it’s all costing is central to any successful casino.
However, there is another set of casino tables where it’s critical to keep track of what’s coming in, what’s being paid out, and what everything costs and those are the dining tables… in particular, the commodity food products that are served at those tables. Volatile pricing, complicated invoice calculations, and unintentional human error can make paying for commodity food products confusing and costly.
Commodity food purchasing is unique because of the wide array of factors that affect pricing. Weather, freight, petroleum prices, inflation rates, politics and even your geographic location can affect the commodity price which determines the baseline price of raw and value-added goods. Add the fact that markups are added throughout the supply chain and it becomes very hard to track what’s being charged and whether it’s the correct price. Errors do occur, and they happen more than you may think.
In fact, Buyers Edge’s analysis of more than $100 million in distributor invoices for casinos found that 35 percent of those invoices had at least one overcharge. It goes beyond just making sure that the price on your purchase order matches the incoming invoice. We make sure that you were quoted the correct price. The Buyers Edge system verifies prices electronically in real-time. Many clients simply do not have the time to gather all the necessary information to perform this verification themselves. When deliveries come multiple times a week, often with dozens of different products, chefs would spend more time crunching numbers than they would in the kitchen.
Some of these overcharges can be small: a few pennies here or there. Other times, especially if the error is not caught for several weeks, the overcharge can add up to a significant amount of money. Our analysis found that typical overcharges amount to about 1.5 percent of the total dollar amount of each invoice. The typical overcharges are often in excess of 10 percent when just analyzing that subset of spend.
To borrow a phrase, it’s important to trust your distributor, and we do. However it is simply good business practice to independently verify their calculations. Here’s a concrete example. To the left is a chart showing the market price and the actual price charged by distributors for butter throughout 2015. For the most part, when the market price rises and falls the actual price charged to restaurants rises and falls with it. But look at what happened in November. While the market price of butter fell, the actual price charged to restaurants rose. More often than not there is a legitimate reason for this incongruity. For instance, your supplier was still working off inventory from October or your supplier has yet to see that decrease themselves from the manufacturer. Alternatively, it could also be an unintentional mistake where the price was never updated. Regardless, casinos and restaurants should be empowered with this information rather than be left in the dark.
Buyers Edge is the first company that has created a single stop for analyzing, graphing and comparing your invoice information with market data electronically. Previously an operator would have to go to multiple market outlets such as the USDA, Urner Barry, etc., and pour through pages of data to find relevant information. Next, the operator would have to gather their invoice information for the products they want to compare. Finally comes the hard part, consolidating and analyzing both pieces of isolated information. This process could take days for a single commodity. With the Buyers Edge system this operator would be done in roughly five minutes.
“Trust but verify” is a good policy, but it can be hard to do on your own. Fortunately we have technology available that can help. Buyers Edge’sMarket Report helps casino clients stay on top of the commodity market and monitor how their distributors’ pricing reflects the price of the raw materials that make up their products. It empowers casinos to hold distributors accountable for pricing and to have information that can lead to better budgeting and forecasting.
“Price verification has been wonderful because we do a lot of cost plus programs and so we never have to think about it knowing that Buyers Edge is auditing those invoices on a daily basis and looking at all those things for us,” said Paul Surprenant, director of corporate purchasing at Mohegan Sun. “Particularly in casinos where we do a lot of volume and can easily lose control of all the things that we’re buying, it’s great to have someone behind the scenes managing that, paying attention to that cost and making sure that our contracts are being honored. It eliminates us have to do a manual process for things that we really need to do. We get instant information that makes our jobs a lot easier.”
Buying large quantities of food products is complicated for many reasons, but with the right tools, purchasers can rest assured that they are being charged according to their contracts and buying smart in relation to the commodity market. A keen eye on all of the tables in the casino can better the odds for the operator and ensure that the distribution house does not always win.