Buying materials for a food and beverage company requires a bit more agility than buying at another type of company. Consumer's quirky tastes change very quickly and the purchasing organization at a food company needs to maintain relationships with reliable suppliers to be able to adapt and even predict those changes.

The procurement organization at Diamond Foods of Stockton, Calif. is expert at balancing the supplies and demand of this industry. Diamond specializes in processing, marketing and distributing culinary, in-shell and ingredient nuts and snack products. Its products are sold in more than 60,000 retail locations in the U.S. and in more than 100 countries. The company also has a strong presence in the walnut market under the Diamond of California brand and in August 2004 launched its Emerald line of premium snack products nationwide.

Procurement manager Bruce Cudd has a three-person staff in the purchasing department and another 30 people who come under the umbrella of supply chain management. They are actively involved with projects, starting on the ground floor, to working with marketing and following the costs through to the finished product.

Because of its product line, Diamond Foods is not affected as severely by Mother Nature's tantrums as some other food companies and can take advantage of buying strategies that allow the company to stock most products longer, because they are less perishable.

Inventory issues demand the majority of Cudd's attention, as well as the three "pillars of purchasing" as he describes them: price, availability and quality.

"Although there is an indirect relationship, we are looking at a lot of costs driven by natural gas and polyethylene," Cudd says of his commodity strategy.

In many cases, Diamond Foods has leveraged vendor-managed inventory (VMI) programs with its suppliers to avoid using warehouse space. It also allows the company to maximize cash flow and inventory control.

While the vast majority of the company's purchasing is domestic, like most companies, Diamond Foods is looking to quality suppliers beyond U.S. borders, specifically, in South Korea and Southeast Asia for packaging and other materials. For example, compared to a foreign supplier, domestic suppliers may charge as much as 50% more for shrink sleeve.

In the long term, Diamond Foods believes that its overseas ventures may affect domestic suppliers, who may have to reduce their prices to remain competitive against the foreign competition.

To ensure product quality from overseas sources, Diamond Foods works with a pre-press company in the Chicago area that evaluates and qualifies potential suppliers of items, such as flexible film, ridged containers, displays and point-of-purchase products, to assure quality.

The biggest challenge to managing overseas production and delivery schedules for suppliers is logistics and longer leadtimes. An overseas job can take eight to 10 weeks from start to delivery, compared to a domestic repeat order, which could be completed in two to three weeks. Even a new order placed with a domestic suppler can be finished in four weeks—half the time of the foreign contract.

"The quality of the overseas product is excellent and pricing is excellent, but sourcing and availability is the issue," Cudd says.

While there is some ability to do some "hard forecasting" with upcoming budgets and buying strategies, Cudd, who has 27 years' experience in purchasing associated with food processing, says some of the planning he does is simply by "gut feeling."