The quotes come in via fax and the internet. You load them into your recipe costing/inventory software. Next, you feed a shopping list to the program and you print the suggested orders. After some minor changes, you send the orders out to as many as 10 vendors. Is this a smart way to buy?
Yesterday, my client and I were on a conference call with a sales rep from Gordon Food Service in Michigan. Our objective is to eliminate waste in the restaurants. I have always recommended weekly inventories but the salesman's advice was twice a week. He wanted us to feed the online ordering system with the inventory counts on Monday and Thursday. Rather than going through the storage areas with a shopping list and jotting down order quantities for under-stocked items, he encouraged my client to take a full inventory.
If you have never been good at inventory control, the journey to tight control absolutely requires a tremendous change in the normal routine.
You may be unwilling to take twice a week inventories for the entire restaurant. Consider phasing in inventories by category starting with protein. In addition, carefully monitor all waste due to spoilage. If you have a sophisticated database loaded with over 100 count values per year, your entire purchasing history and details of your waste, par values will stare you in the face (with seasonal variations).
More importantly, we want to eliminate waste. Ordering too much of a perishable item with a high cost per pound and a major change in taste and texture profile when frozen has to be avoided. As you begin to order the appropriate quantities, your supplier can work with you on the proper pack/size for each item in the non-perishable goods section. They can help you find labor saving alternatives.
I believe it is highly advisable to stay aware of market trends. Whether I would go the cherry picking route in today's marketplace is the question. It's typically a mistake.
As far back as 1981, Tom Noble from Denver (eventually sold his business to Sysco) sent his rep out to our construction site in Parachute Creek. We setup a ordering guide for our comprehensive 4-week cycle menu. Scott, our Noble rep, went through the stockrooms, walk-ins and outside freezer. He designed a storage sequence for each room. We bought almost everything from this company. Our contract allowed us quarterly audit access and we had a Denver office. Once in a great while we would complain about meat yields. Overall, we enjoyed a very low cost per man per day and waste was non-existent.
Until you work with a competent supplier armed with an excellent database, it's tough to see the way to single source. Go ahead and take the plunge. The potential is huge.
Kamis, 10 Juni 2010
Minggu, 06 Juni 2010
Historic Costs vs. Future Costs
The role of a food cost controller is much different from the menu analyst. Cost control relies entirely on historic data to prepare reports which quantify results and alert management to possible problems or opportunities. On the other hand, the menu analyst needs to look to the future.
When a menu price revision takes place, the prices need to cover the future costs and provide a reasonable profit. Knowledge of commodity trends, economic forecasts, unique events in the coming year and other future oriented information is helpful. The costs used to arrive at theoretical menu item costs should use these expected prices.
The food cost controller studies purchase data to understand the previous period. Use of theoretical food cost data may help the controller discover a usage problem. Usage problems involve units rather than dollars. There is concern regarding missing steaks or shrimp or perhaps an entire case is gone. Purchase costs are important only when there is a big swing in price on one or more high volume items.
Using the same price data for both menu planning and food cost control is a mistake. The portion sizes for all key items should be 100% exact. It is the prices which need to vary. Many operators simply take an educated guess on overall inflation and raise menu prices across the board with the same % increase.
Ideally, the menu analyst benefits from the ongoing work of the food cost controller. Portion control tests, relative price volatility and other information the controller has at their fingertips is valuable to their counterpart. They should work together to discover how the current menu has performed.
In a highly collaborative organization, the cost control team could utilize information from the menu analysis team (e.g. future menu price revision strategy) to create better budgets.
When a menu price revision takes place, the prices need to cover the future costs and provide a reasonable profit. Knowledge of commodity trends, economic forecasts, unique events in the coming year and other future oriented information is helpful. The costs used to arrive at theoretical menu item costs should use these expected prices.
The food cost controller studies purchase data to understand the previous period. Use of theoretical food cost data may help the controller discover a usage problem. Usage problems involve units rather than dollars. There is concern regarding missing steaks or shrimp or perhaps an entire case is gone. Purchase costs are important only when there is a big swing in price on one or more high volume items.
Using the same price data for both menu planning and food cost control is a mistake. The portion sizes for all key items should be 100% exact. It is the prices which need to vary. Many operators simply take an educated guess on overall inflation and raise menu prices across the board with the same % increase.
Ideally, the menu analyst benefits from the ongoing work of the food cost controller. Portion control tests, relative price volatility and other information the controller has at their fingertips is valuable to their counterpart. They should work together to discover how the current menu has performed.
In a highly collaborative organization, the cost control team could utilize information from the menu analysis team (e.g. future menu price revision strategy) to create better budgets.
Kamis, 27 Mei 2010
Spotting A Problem Early
We had a rather difficult winter here in the Washington, DC metro area. With a mild winter snow removal budget, we got hit with a severe winter snow fall during the key month of February. Just as the New Year's resolutions relaxed for Super Bowl Sunday, the snow took away the weekend. Local super markets were out-of-stock on milk, bread, orange juice, bacon, ground beef, and many other staples. Restaurant parking lots were empty.
This rough weekend repeated itself for Valentine's Day and President's Day weekends. I spoke with one operator who said his February food cost percentage hit 45%. This is a common trend - high cost of goods sold % in a low volume month.
I like to chart a month like this vs. a high volume month. The key to using this type of analysis is dollars vs. percentages. If you have a bad month with $200,000 in sales and $90,000 in cost of sales, you'll be close to the person I spoke with in February. Contrast this poor performance with a busy month's $800,000 sales figure and a cost of sales equal to $240,000 or 30%.
The change in sales volume is $600,000 ($800,000 - $200,000). Cost of goods sold had a change of $150,000 ($240,000 - $90,000). The slope is 25%. This is the variable component of the food cost. The fixed component is $40,000.
We'd expect a food cost of 29% if we hit $1,000,000 in monthly sales. On the other hand, we would expect to see a $65,000 cost of goods sold if we only manage a sales figure of $100,000. That's 65%!
If these numbers seem completely off the wall, they are not at all unusual for out-of-control operations. The bad months are explained away with stories of blizzards, rainy days, traffic jams, competitor discounts, etc.
Your cost of sales should be almost completely variable. Food should not be consumed if there is no sale. Why do you use more food when you're slow?
Employee meals have a bigger impact. The fixed staff eats the same meal whether you are slow or busy. This should be minimal and measurable. Chronic waste due to over-ordering is a bigger cause. Reduce your "safety factor" when ordering during slower periods. Sometimes the weekday counts are too low to absorb food left from the busy weekend. If the weekend is a complete bust, freeze everything you can and value any perishables which can't be saved.
You may have a major theft problem. If you're not finding many dollars in the research above, you may have discovered a persistent loss due to theft. If the 45% month had $10,000 in theft and you eliminated this problem, the result would be 40% in an otherwise terrible month. The bad month would have allowed you a chance to discover a $120,000 annual loss.
This rough weekend repeated itself for Valentine's Day and President's Day weekends. I spoke with one operator who said his February food cost percentage hit 45%. This is a common trend - high cost of goods sold % in a low volume month.
I like to chart a month like this vs. a high volume month. The key to using this type of analysis is dollars vs. percentages. If you have a bad month with $200,000 in sales and $90,000 in cost of sales, you'll be close to the person I spoke with in February. Contrast this poor performance with a busy month's $800,000 sales figure and a cost of sales equal to $240,000 or 30%.
The change in sales volume is $600,000 ($800,000 - $200,000). Cost of goods sold had a change of $150,000 ($240,000 - $90,000). The slope is 25%. This is the variable component of the food cost. The fixed component is $40,000.
We'd expect a food cost of 29% if we hit $1,000,000 in monthly sales. On the other hand, we would expect to see a $65,000 cost of goods sold if we only manage a sales figure of $100,000. That's 65%!
If these numbers seem completely off the wall, they are not at all unusual for out-of-control operations. The bad months are explained away with stories of blizzards, rainy days, traffic jams, competitor discounts, etc.
Your cost of sales should be almost completely variable. Food should not be consumed if there is no sale. Why do you use more food when you're slow?
Employee meals have a bigger impact. The fixed staff eats the same meal whether you are slow or busy. This should be minimal and measurable. Chronic waste due to over-ordering is a bigger cause. Reduce your "safety factor" when ordering during slower periods. Sometimes the weekday counts are too low to absorb food left from the busy weekend. If the weekend is a complete bust, freeze everything you can and value any perishables which can't be saved.
You may have a major theft problem. If you're not finding many dollars in the research above, you may have discovered a persistent loss due to theft. If the 45% month had $10,000 in theft and you eliminated this problem, the result would be 40% in an otherwise terrible month. The bad month would have allowed you a chance to discover a $120,000 annual loss.
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