Page 356 - 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 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 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 2015 market basket versus -6.8% change in 2015 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.
a. This starting value is then used to calculate an ending value of the respective PPI item,
using the rate of performance as previously calculated.
b. If the PPI category item increased by 1.94%, then the starting price per case of $2.10 is
increased by 1.94% to result in an ending case value of $2.14.
5. The indexed method of performance calculation of the PPI is then put through the same case
volume as the market basket mix of the MPPI, yielding the comparison of only price change. The
difference in market basket item compared to PPI item results in the net performance
differential.
6. The market basket is treated as a unique index each year
a. Items are added and deleted each year
b. Mix shifts occur
7. Data gaps in PPI are treated as the average of the most recent periods
a. For some items PPI is not consistently reported (Almonds)

MPPI Process – Commodity Risk Management Page 3