QSR money-saver: The overlooked elements of distributor audits

| by Andrew Rosenbloom
QSR money-saver: The overlooked elements of distributor audits

Distributors and vendor invoices may be the source of quite a bit of lost cash, according to an analysis of more than $3 billion in distributor invoices completed by business management consultancy, Buyers Edge. The company found that an eye-popping 35 percent of those invoices had at least one overcharge, which is about 35 percent too many in most restaurant operators' minds.

That finding underscores the value of auditing these business documents regularly right along with receipts and the other revenue records so vital to QSR operation since those overcharges are certainly revenue, too. Unfortunately, in those 35 percent, however, it was lost revenue. 

Invoice auditing: The additional steps that save real money

This type of audit goes beyond just ensuring that the price on your purchase order matches the incoming invoice.  True invoice auditing also ensures that the price restaurant management is quoted is, in fact, the correct price.  

For instance, let's say you have a cost-plus agreement but you are quoted $3.20 per pound for butter.  How do you know the price of $3.20 per pound was properly derived from cost? This is just one area where invoice auditing systems can catch a lot of lost cash by verifying those prices electronically in real-time. After all, handling that task via management for the dozens of invoices a QSR receives weekly would likely be prohibitive for most brands just in the sheer time involved.

Granted, some overcharges are small, but they still add up. Likewise, more substantial errors can put huge holes in the bottom of your bottom line, particularly if left undetected for weeks on end. 

For some insight into the typical overcharge amount, let's return to that aforementioned analysis. In that case, Buyers Edge found that, on average, overcharges amount to about 1.5 percent of each invoice's total dollar amount. 

But, it's not just a variable-cost item concern

Overcharges, however, aren't unique to variable costs, according to SIB Fixed Cost Reduction founder and CEO Dan Schneider.

As he put it, "Mistakes happen. But, there are examples out there of vendors acting in bad faith and taking advantage of clients."  

As an example, Schneider said his company uncovered evidence that a linen vendor who was charging a chain for "ruining" 280 towels per month was, in fact, only damaging 10 towels monthly. 

Granted, it's important to trust your distributors and vendors, but it is also a good business practice to independently verify their calculations. Here's a hypothetical example that highlights why that is critical. 

Let's suppose that over the course of one year, distributors' actual cheese prices fluctuated, like most commodities, in unison with market prices. For the most part, when the market price rises and falls, the actual price charged to restaurants rises and falls with it. 

But there are documented examples of instances where quite the contrary occurred, and the actual price was sporadically increased. Sometimes these have occurred with justifiable reasons and sometimes not.

Of course, mistakes do happen, as do warranted price increases. But the rules of good business dictate that the wise restaurant operator stay on top of these numbers simply to protect the interests of his or her brand in a highly competitive market.  

Photo: iStock

Topics: Business Strategy and Profitability, Equipment & Supplies, Fast Casual Executive Summit, Food & Beverage, Operations Management, PCI Compliance, Restaurant Franchising & Innovation Summit

Andrew Rosenbloom

Andy Rosenbloom is a foodservice professional who heads up the Marketing Teams at Dining Alliance, Consolidated Concepts, Buyers Edge and other GPO Platform Brands. Andy’s insights come from the cross-section of the Operators, Distributors, Manufacturers, Service Providers and Trend-Watchers.

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