Sysco 2007 Annual Report Download - page 29

SOURCES OF SUPPLY
We purchase from thousands of suppliers, none of which individually accounts for more than 10% of our purchases.
These suppliers consist generally of large corporations selling brand name and private label merchandise, as well as
independent regional brand and private label processors and packers. Generally, purchasing is carried out through
centrally developed purchasing programs and direct purchasing programs established by our various operating
companies. We continually develop relationships with suppliers but have no material long-term purchase commitments
with any supplier.
In the second quarter of fiscal 2002, we began a project to restructure our supply chain (National Supply Chain project).
This project is intended to increase profitability by lowering aggregate inventory levels, operating costs, and future facility
expansion needs at our broadline operating companies while providing greater value to our suppliers and customers.
The National Supply Chain project involved the creation of the Baugh Supply Chain Cooperative, Inc. (BSCC), which
administers a consolidated product procurement program designed to develop, obtain and ensure consistent quality food
and non-food products. The program covers the purchasing and marketing of SYSCO Brand merchandise as well as products
from a number of national brand suppliers, encompassing substantially all product lines. The operating companies can
choose to purchase product from the suppliers participating in the cooperative’s programs or from other suppliers, although
SYSCO Brand products are only available to the operating companies through the cooperative’s programs.
The National Supply Chain project has three major supply chain initiatives actively underway. The first initiative involves
the construction and operation of regional distribution centers which will aggregate inventory demand to optimize the
supply chain activities for certain products for all SYSCO broadline operating companies in the region. We currently expect
to build five to seven redistribution centers (RDCs). The first of these centers, the Northeast RDC located in Front Royal,
Virginia, opened during the third quarter of fiscal 2005. A second RDC located in Alachua, Florida is being constructed and
is expected to become operational in the latter half of fiscal 2008. SYSCO has purchased the site for a third RDC in Hamlet,
Indiana. The second initiative is the national transportation management initiative, which provides the capability to view
and manage all of SYSCO’s inbound freight, both to RDCs and the operating companies, as a network and not as individual
locations. As of June 2007, all inbound freight to United States broadline operating companies is managed centrally.
The third initiative is the national implementation of demand planning and inventory management software. This project
is strategically important in that it creates the foundation to effectively execute new supply chain processes, including
redistribution, as well as efficiently manage our inventory assets.
WORKING CAPITAL PRACTICES
Our growth is funded through a combination of cash flow from operations, commercial paper issuances and long-term
borrowings. See the discussion in Liquidity and Capital Resources under Management’s Discussion and Analysis of
Financial Condition and the Results of Operations at Item 7 regarding our liquidity, financial position and sources and
uses of funds.
Credit terms we extend to our customers can vary from cash on delivery to 30 days or more based on our assessment
of the customers’ credit risk. We monitor the customers’ accounts and will suspend shipments to customers if necessary.
A majority of our sales orders are filled within 24 hours of when the customers’ orders are placed. We will generally
maintain inventory on hand to be able to meet customer demand. The level of inventory on hand will vary by product
depending on shelf-life, supplier order fulfillment lead times and customer demand. We also make purchases of additional
volumes of certain products based on supply or pricing opportunities.
We take advantage of suppliers’ cash discounts where appropriate and otherwise generally receive payment terms from
our suppliers ranging from weekly to 30 days or more.
CORPORATE HEADQUARTERS’ SERVICES
Our corporate staff makes available a number of services to our operating companies. Members of the corporate staff
possess experience and expertise in, among other areas, accounting and finance, cash management, information
technology, employee benefits, engineering, risk management and insurance. The corporate office makes available legal,
marketing, payroll, human resources, training and development, information technology and tax compliance services. The
corporate office also makes available warehousing and distribution services, which provide assistance in space utilization,
energy conservation, fleet management and work flow.
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