I recently came across a Pittsburgh Post-Gazette article entitled “Soaring chicken wing pricing making Pittsburgh bars, restaurants sweat.”
The article detailed how the prices of chicken wings have gone up – in one example, more than quadrupling over a 10-year period. It went on to discuss how the price of this purchased product influenced strategic decisions of the restaurants, such as raising prices to customers, switching to lower-quality inputs (that angered customers), or abandoning an attractive marketing angle (i.e., “50-cent wing night”).
If you’re reading this, you’re probably a procurement professional buying for an organization much larger than a local corner bar. But, I’m sure you can see how something as seemingly simple as chicken wing procurement has high stakes just like what you buy has high stakes for your organization.
So, let’s say that you had a crystal ball and knew what would happen to chicken wing pricing between 2007 and 2017. What advice would you have given to chicken wing buyers that would be general enough to apply to any procurement professional responsible for purchasing a key input with volatile pricing?
I’ll lay out some examples:
- Convince suppliers to agree to a fixed price by “trading” attractive concessions on terms like quantity guarantees, exclusivity, length of term, etc.
- Contractually tie price adjustments to published market indices
- Make instead of buy
- Change the outputs so that a less volatile input is required (e.g., Thinking as I type, I would invent something called the “chicken ching,” a deep-fried piece of chicken breast meat shaped like a wing, doused in buffalo sauce, and served on a skewer)
Now, think of inputs that you procure whose pricing could take flight like chicken wings. Those things that go into a final product that is gaining trend-like momentum. What are those inputs? How would your organization be strategically affected if pricing rose uncontrollably? And what are you going to do to prevent that from happening?
All fundamental procurement questions that can apply to virtually any organization. Perhaps you can ponder them at the pub while having a pint of beer and basket of wings.