Blanket Contracts: Why it’s good to be under the blanket

When it comes to efficiently running your food service operation, more operators are joining Group Purchasing Organizations (GPOs).  GPOs and consultants offer various types of services and sources that help boost the bottom lines of their members. Some of these services support day to day operations while other services help impact cost savings. GPO services can include:

  • fully outsourced supply chain management
  • individual project-based services like location scouting or specific sourcing
  • custom contract negotiations for individually spec’d items
  • Master Distribution Agreement (MDA) negotiation
  • product recommendations and vetting

Among all of these services, however is one that can be incredibly beneficial, and easily attainable for operators: Blanket Manufacturer Contracts.

What is a Blanket Contract?

Blanket Manufacturer Contracts are valuable volume-based contracts that GPOs negotiate with manufacturers and service providers. GPOs like Consolidated Concepts have thousands of members. The large combined volume of the GPO’s membership appeals to food and supplies manufacturers who offer exclusive pricing and contract terms to GPO members. Members of the GPO get hundreds of contracts made available to them instantly, including broadline grocery products, produce, paper products and even chemicals. These volume-based contracts can mean major savings for the operator. Savings take three basic forms: deviations off invoice pricing, manufacturer rebates (paid monthly, quarterly or annually), or service discounts.

Despite the natural appeal of blanket contracts, some food service operators are still hesitant when it comes to using a GPO to assume these contract benefits. After all, is it not possible to get the same contracts if operators just negotiate for themselves? As a decade-old GPO we’ve seen the hurdles and hardships that the DIY method can create for operators. First of all, negotiating and tracking direct manufacturer contracts costs major time (or consulting fees) for the operator and require a level of contract expertise in order to ensure operators aren’t snared into loopholes and skewed pricing. Secondly, contracts can also often prove restrictive. Operators may be bound by the terms of the contract and may have to meet minimums, agree to exclusivity clauses, or have limited choices when it comes to product selection.

How do operators take advantage of blanket contracts?

If an operator is already a member of a GPO, taking advantage of blanket contracts is a natural next step after joining. As a member or client of a GPO an operator should aim to get on as many of that GPO’s contracts as possible in order to reap the full benefits of GPO membership. Being a good user of blanket contracts requires the right perspective from the operator side. For example, if an operator has 20 loaded deviations and is on 20 contracts. In order to maximize their cost savings year over year on these contracts, a good goal may be to try and explore 10 more contract opportunities per year or to increase their contract utilization by 50% per year.

New contract opportunities are often easy to identify and join if an operator asks the right questions. One way to find about new contracts from a GPO is to request an invoice or usage analysis from the GPO’s analytics or account management teams. Break the contracts into categories and inquire about the best fits in each category: food, non-food, and indirect spend. Or, ask in a business review, “ What new contracts are available and what are some popular contracts that I’m not currently taking advantage of?” By staying in the loop on the new or existing contracts the GPO has access to, operators may be able to find deviations and rebates on items they’re already purchasing or looking to source.

How do you choose the right GPO for the best blanket contracts?

While many GPOs offer blanket contracts, finding the right GPO for a restaurant operation is integral. Select a GPO that has a core competency that includes blanket contracts. A great GPO will provide business reviews, compliance reviews, and savings analyses. Additionally, a GPO with the latest software and technology will be able to use that technology to identify contract opportunities for their clients, audit contract pricing, and recommend contract renewal and contract management strategies.

A good GPO will never pose a threat to a restaurant’s existing procurement team.  Rather, the GPO should offer extra contracts on top of the existing direct contracts that a CFO, VP of Supply Chain, or Procurement Director has already negotiated on their own. Blanket contracts help in-house staff be more effective at their jobs and are perfect for items for which they don’t have quite as much buying power. Take, for example, beverage napkins: an item that every operator buys in high-volume but is rarely considered a ‘core item. With a blanket contract, operators can utilize the GPO’s more aggressive volume-based pricing without going through the hassle of negotiating directly with manufacturers.

Want to know more about what makes a GPO right for you? Learn more about Consolidated Concepts here.