Page 322 - Aida Hovsepian Onboarding

Objective of the MPPI

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.

The Producer Price Index is published by the US department of commerce 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 future
consideration of the MPPI should be at an FOB level, but currently follows the same
protocol as the CSCS Price Indexes, which calculates a landed cost. This is not an
issue if we are only tracking one variable, being the relative change in price from one
year to the next.

MPPI “Rules”

1. Compares the change over time of a market basket item relative to a
corresponding price index over the same time period.
a. -4.5% change in 2012 market basket versus -6.8% change in 2012 MPPI
2. Uses budget volume of the latest (or current) year for comparison. This volume
is set at the beginning of the year following the same budgeted volume of the
respective CSCS Price Index. Volumes are not adjusted throughout the year but
remain static, in order to capture one variable, the change in price over time.
a. Budget 2015 to be used to compare changes in delivered prices and
corresponding MPPI from 2015 to 2014
b. Budget 2012 to be used to compare changes in delivered prices and
corresponding MPPI from 2012 to 2011
3. The producer price index performance is calculated at an item level over the
same period of time as the corresponding market basket item. Ex: 2014 average
price of 103 and 2015 average price of 105, represents a 1.94% increase.
4. The producer price index item level performance is then indexed against the
same dollar figure of the respective market basket item at the start of the same
time period. Ex: start time period value is $2.10/case for market basket item.

MPPI Process –Director, Commodity Risk Management Page 3