Page 85 - New Employee Onboarding

reduce the amount of paperwork required for category managers and other team members,
and is a better reflection of what is happening in Members’ restaurants.

Therefore, for 2015 supply chain cost management performance review, the Co-ops adopted
the Modified Producer Price Index methodology which entails comparing the performance
of Co-op market basket (Apple/Pancake market basket) against that of a modified Producer
Price Index. The Apple/Pancake market baskets are comprised of a group of key products
from different categories whose actual store delivered costs are tracked by the
Apple/Pancake Price Index. The modified Producer Price Index is made of PPI sub-indices
that resemble the key products in Apple/Pancake market basket.

The next section describes in more detail the MPPI methodology, the Producer Price Index,
and the various rules surrounding this approach.

MPPI: Technical Details

Objective of the MPPI Methodology

The MPPI is used to compare changes over time in actual restaurant delivered prices of
commodities to changes over time in a broad benchmark index. This is used to evaluate the
overall performance of our procurement approach compared to market performance. It
should be noted that the MPPI only shows the change in relative improvement from one year
to the next and does not capture our price benefit in relation to the market price.

Producer Price Index (PPI)

In the US, the PPI was known as the Wholesale Price Index, or WPI, up to 1978. The PPI is
one of the oldest continuous systems of statistical data published by the Bureau of Labor
Statistics and one of the oldest economic time series compiled by the Federal Government.
It began in 1891.

The PPI is actually a family of thousands of sub-indexes. Sub-indices are organized by
similarity of end-use of products or material composition of the products. The sub-indices
measure the average change in prices received by domestic producers of commodities in all
stages of processing. They include all costs that go into a selling prices.

The Producer Price Index is published by the US Bureau of Labor Statistics on a monthly
basis. The raw data is collected from a snapshot during the same week of every month. Each
data point represents the average sales of all types of transactions (spot, formula, contracted,
etc.) for that month. Data from the Producer Price Index is categorized by following the
NAICS guidelines for classifications, however is not as detailed as the NAICS classifications.
The Produce Price Index uses what a supplier received for a finished good as compared to
the Consumer Price Index which uses what a consumer pays for a finished good.
Consequently, the PPI is an FOB calculation and does not take into account ancillary costs for
delivering a product to the next stage of value creation or consumption.

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