Page 343 - Onboarding May 2017

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 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 selling prices.

The Producer Price Index is published by the US Bureau of Labor Statistics monthly. 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 consider ancillary costs for
delivering a product to the next stage of value creation or consumption.

PPIs are used for a variety of different purposes. There is a public interest in knowing the extent to
which the prices of goods and services have risen. Also, it has long been customary in many countries
to adjust levels of wages, pensions, and payments in long-term contracts in proportion to changes in
relevant prices, a procedure known as index linking or contract escalation. Price indices have a long
history for this reason.

MPPI “Rules”

1. Compares the change over time of a market basket item relative to a corresponding price index
over the same period.
a. -4.5% change in 2016 market basket versus -6.8% change in 2016 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 to capture one variable - the
change in price over time.
a. Budgeted volume in 2016 to be used to compare changes in delivered prices and
corresponding MPPI from 2016 to 2015

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