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Sunday, January 29, 2006

Common Sense vs. Analytical Techniques

It's often difficult to communicate the results of a complex mathematic formula to operators. If the communication is unsuccessful, no action is taken. We had a clause in a contract with a construction firm concerning the maximum length of the line for meals. The line had to be less than a 20 minute wait at dinner.

I spent two days gathering data on mean service times and arrival rates. After running the calculations, I went to Earl our General Manager with the findings. He was a retired Army Sergeant with years of experience in mess halls. The site superintendent had a great rapport with Earl.

We engaged the chef in our conversation. He understood the line was too long and mentioned a spot on the wall which meant the wait would be unacceptable. I counted the number in line and his spot was one person off the number I calculated.

The chef insisted the waiting delay was temporary and only lasted for 15 minutes maximum. Earl would not allow for a concession. The workers were laying rail ties and were not a patient bunch. He decided to call in the top foreman from the largest crew to discuss alternatives. We got our solution in about 20 seconds.

The foreman decided the buses all left the camp at the same time in the morning and returned each night together. He ordered the buses to depart 5 minutes apart in the morning and evening to allow a more workable arrival rate. Problem solved!

Tuesday, January 24, 2006

Forecasting 401 - Day Profiles

Two of the simplest profiles for a sales forecast are Slammed and Dead. It's pretty easy to order food and beverage and schedule staff for these two expectations. A simple spreadsheet with date, dow, sales and special event is all that is needed to perform percentile analysis. I'd prefer at least two years of data. Sort the file by sales. Divide the number of data points by 5.

Now split the sheet in 5 parts. Note the highest and lowest sales figure for each partition. That's all we need for this analysis.

Save the sheet and start a new one. The left column is the Description, next column is High, then Low, then Midpoint. Fill in the Description with Slammed, Busy, Typical, Slow, and Dead. Fill in the High and Low numbers with the data points taken from the master sheet. In the Midpoint column, you'll create a simple formula as follows: Midpoint=(High + Low)/2.

Create a staffing chart for each of the 5 Midpoint sales levels.

Take a look at the upcoming week. Label each day as Slammed, Dead, etc. Use the staffing chart and the budget food cost % times the sales estimates to complete the forecast. The result of this work is a simple forecast for sales, staffing and food cost.

Once you're comfortable with the profiling method, you can change the number of descriptions. Perhaps you could have 7 or as many as 9 increments. The food cost % analysis can be extended to beverages, supplies, and other categories. All categories should be controllable operating expenses.

Seasonal operations may want to create a off-season chart and a peak season chart.

Monday, January 23, 2006

Forecasting 501

In my MBA program, they must have been frightened to send graduates out on the first job before they mastered break even point analysis. We covered break even points in microeconomics, cost accounting, advanced cost accounting, finance, analytical techniques, and marketing. Once in awhile, linear regression would pop up in an operations research course. Regression was rare compared to break even points.

When I got into the real world, I noticed people really did want to know their break even sales level. I also found the simple puzzle of fixed costs, selling price and variable cost per item were tougher to define. Menus were loaded with lots of items. There were no simple answers to the selling price point. Luckily, I remembered my linear regression techniques. In fact, my HP programmable calculator could handle regression fits in minutes. No need to know the selling price.

If you regress labor costs against sales, the curve will yield the fixed cost and the variable cost (as a % of sales). If your food cost % is consistent, throw it into the variable cost bucket. Run another regression curve fit for all other costs. Split the fixed component (intercept) and variable % (slope) and your done.

The break even point in a restaurant with $1,000,000 in fixed costs, a 30% food and beverage cost, and 30% variable cost (labor and other) equals $2,500,000. Be careful of the lease agreement you sign. Good help is hard to find and the high cost of gas is impacting food cost negatively.

Thursday, January 19, 2006

Profile 1 - Messy Walkin Cooler

There are certain operational profiles which have a high correlation with out of control food cost. In my experience, messy walkin coolers rank near the top. One specific example comes to mind.

I was sent to Terror Lake on Kodiak Island, Alaska to investigate wild variations in monthly food costs. We had a contract with the state to feed construction workers at an important dam project.

Getting to the project from Anchorage required a flight to Kodiak Island and a transfer to an amphibious plane. The scenery en route was fantastic. Our pilot flew low enough for frequent Kodiak bear sightings. Our landing on the lake went smoothly and I was met on the beach by our GM.

There were two chefs and they rotated monthly. My visit was timed for the middle of the month. The chef with the highest food cost numbers met me in the kitchen.

After explaining my role in the company, I requested a quick tour of the operation. He asked where I wanted to start. My favorite spot is the walkin. This cooler was as filthy as a pig sty. Rotten produce was laying on the floor. Boxes were everywhere. Expensive meat and fish were improperly stored with no wrap.

As I expected, the food quality was fair at best. This chef was not focused and there was a significant risk of food borne illness.

I phoned the headquarters and requested a replacement. The new chef was extremely upset with the appearance of the kitchen and storage areas. He had a small thermometer and checked all the serving pans. One of the serving line heat sources was defective.

Within 60 days, the food cost was consistent and 5% lower. Quality improved and we received a contract extension.

Wednesday, January 18, 2006

Faster Turns Can Help

If you ever dig deep into your restaurant's information mine, you'll locate plenty of valuable ore. Since most money is made and most opportunities are lost on busy days, it's always wise to focus on high volume days.

Take the day of the week with the highest sales (week in and week out). For this busy day, enter the date and sales figures for an entire year in a spreadsheet. Chart the information using the Line method. Locate the high and low sales figures and note the dates. Pay specific attention to holidays, seasons and special events in your area. Go a step further and calculate the average, median and standard deviation.

Most days will fall within one standard deviation (plus or minus) of the average. In fact, it is rare to find days which do not fall within two standard deviations of the mean. Most likely, you will find specific events which caused the high or low figures. You can even rework the numbers excluding those data points.

If you have a line out the door during peak hours on these busy days, you can turn the dining room faster through intelligent prep. Know your menu well. Prep the popular items ahead of time for the average sales level. Don't produce less. We're going for a faster turn which will increase your volume.

It is especially critical to have appetizers and desserts ready to go fast. A quick response to the initial order for starters and the final order for dessert have a major impact.

By increasing focus on your busiest night, you can get a higher sales number when the opportunity is greatest. Make sure patrons do not feel rushed and prevent a long wait time for the check. Your faster turns will produce greater sales. The best route to a better food cost percentage is a bigger sales figure.

Tuesday, January 17, 2006

Profitable Lines?

Any operation with a "no reservation" policy wants a line out their door on a good night. It's worth the money to advertise if you have no line on a Friday. If the line can't be achieved, the policy should be changed to accommodate reservations.

The most popular restaurants have long lines at dinner time on Friday and Saturday. With a decent size lounge area, the average revenue per patron can be significantly increased. The next turn is waiting in line or in the lounge boosting bar profits. A steady line increases turns and the average spent per patron.

When is the line too long? The line is too long when the estimated wait produces a negative profit expectation.

To solve this riddle, we need to know quite a lot about the operation. Valuable information would include the number of seats, average dining time per patron, peak hour arrival rates, off-peak arrival rates, recent promotions and the expected impact on arrivals.

Your hostess can help to answer the question. Find out the percentage of parties willing to wait 15 minutes, 30 minutes, 45 minutes, an hour, 90 minutes, etc. Keep records to document the sweet spot.

What's the policy on keeping your best customers waiting in line? Perhaps they are treated exactly the same as someone who has never dined in your restaurant before today. You might discreetly escort them to the bar and comp them with a drink order.

A factor called mean service rate equals the average number of patrons you can serve in one hour (or another time period which works in your operation). The expected time someone needs to wait in line equals the traffic intensity ratio divided by the net of mean service time and mean arrival rate. The traffic intensity ratio equals the mean arrival rate divided by the mean service rate.

The idea here is simple. It pays to know 3 pieces of information in your operation: the unacceptable wait time, covers served per hour and peak period arrival rate.

Thursday, January 12, 2006

Requisitions and Transfers - KISS Principle

Any operation with more than one kitchen should consider accounting for transfers of inventory from one location to another. This accounting activity is essential if the transfer volume is significant. There are a few simple policies which can dramatically improve the return on investment for time spent analyzing transfers.

Establish an open zone available to all kitchens for all low cost, low volume items. Toothpicks would be an excellent example. I'd recommend many items for this treatment including spices, rice, pasta, and portion control condiments. The costs associated with these items may be charged to each kitchen based on an allocation.

Spend the time saved on these low impact items on increased control over high cost, high volume items. Shrimp U15 and Beef Tenderloin are prime candidates. Most operations will benefit from tight control on all meat, fish, dairy and produce. Fats and oils may be added depending on the menu mix.

The poorest use of transfer controls I have ever witnessed took place at a student center. This center was on the campus of a major university in Boston. There were seven outlets including a deli, a cafe, two major QSR outlets, a grill, a salad concept and a convenience store.

Without a doubt, the convenience store was the biggest problem. Hundreds of items a week were transferred from central storage to the store. The staff was demoralized by the incredible waste of time. Over 95% of the items on the transfer sheets were sold exclusively by the convenience store.

Since the entire food service operation had only one kitchen, the staff developed a method of circumventing the transfer system. They created "hot sheets" for items needed urgently. Over time, the items transferred on these sheets outnumbered the volume recorded on the pre-printed transfer forms.

Three man days a week were spent by the staff filling in forms, calculating costs and tracking hot sheet activity. The staff never achieved a consistent food cost percentage and the convenience store's product cost was never close to reality. Clearly, the convenience store's theft problem was masked by endless policy revision.

When we tore apart the control system, we found the two QSR concepts had excellent food cost percentages. These operations purchased all items directly from their respective franchisor. No need for transfers.

We setup separate storage areas for all items used exclusively by one concept. Our vendors setup separate accounts for each of the concepts (at our request). Transfer activity accounting time was slashed to 4 hours a week. Cost of goods sold percentages came in line. The new manager was paid a bonus.

The new system was simple to run and kept transfers to a bare minimum.

Forecasting 101

Perhaps you are visionary. The simple way to evaluate your forecast accuracy is the employee schedule. How often are you asking people to work overtime or to leave early? If this is a daily occurrence, you need a better schedule which requires more work in the forecast department.

If you have little or no statistical analysis background, you can still become a great forecaster. You need to keep score. Document each week's forecast and save these in a folder or a spreadsheet. Keep track of the important factors. Maybe the weather is key. Day of week is most important. Any special events in your locale with a big impact on business should be noted. Advertising changes are extremely important.

You need a forecast of covers by meal period. This information should be compared to actual counts. Calculate the difference in count and as a percentage of actual.

The next step involves analyzing variances. Highlight very low variances and very high variances. You want to improve the overall performance. Identify weaknesses and make adjustments in future forecasts. Try to imitate accurate forecasts. Find out what you did right on low variance predictions.

Building stronger forecasts is a game of keeping score and improving your gut feel with a reality check. As your numbers improve, you will be tempted to stop the documentation process. Don't stop! Life is dynamic. Look for new patterns.

Saturday, January 07, 2006

Who Is Fred Hardy?

My first Visit to Syncrude was in May 1981. It was my job to visit the site and make sure there were proper internal controls. Syncrude was a huge project involved in mining oil sand and converting the ore into crude oil. We offered food service and housekeeping for over 3,000 workers.

The month end inventory was scheduled for the next day. I went on a tour of the food service operation, met the site managers, ate dinner and went to sleep.

Early the next day, I arose and walked to the office. Our office manager gave me the count sheets. We divided up the 30 sheets between 4 count teams.

It was necessary to invalidate the initial count due to an unauthorized delivery. I don't like deliveries during month end inventory counts. This made me quite unpopular.

We finally completed the counts and took the sheets back to the office. Everyone began using their calculators at a furious pace. I asked everyone to total each page. We finished up in 30 minutes. Using the previous inventory and the purchase information, I calculated the food cost. The number was way high.

I took a quick look at each page and noticed the dairy figure was much higher than normal. In a quick review of dairy purchases, I noticed a delivery the previous day of an entire truckload of eggs. The inventory sheet had a zero count for eggs. After asking why the eggs were not on the sheet, I was told there was no delivery the previous day. As I held the invoice in my hand, I noted the signature: F. Hardy, Manager.

I asked "Who is F. Hardy?" The regional manager said it was Fred Hardy. When I asked to speak with Fred, they said he was vacationing for two weeks. He would be back in 8 days. "So how did his signature get on this invoice?"

After a long pause, the assistant site manager produced a rubber stamp from the desk with an inverted F. Hardy on the back. I threw it in the garbage.

To complete the story, the eggs WERE delivered the day before. The problem was they went to our competitor's site down the road (another large oil sands project). The invoice was for $5,000.

I'm really big on receiving controls. HUGE!!!

Thursday, January 05, 2006

Market Price Menu Items

Imagine you are on the New Jersey shore in 1997. It's slightly past the peak summer season. Our restaurant specializes in crabs. They are sold by each, half dozen, dozen and all you can eat. These crabs are available by size.

We're at the loading dock and we've just received 5 bushels of live crabs. Carefully selecting the best crabs and accurately pricing them is the key to this simple menu. The cost per bushel is $55. Now the fun begins. What did we get for our $275?

Three workers grab the bushels and take them to a room with a clean floor and two tables. They pour the crabs on the floor and watch as the crabs run in all directions. The crabs are grabbed and placed in bus pans marked MEDIUM, LARGE, JUMBO and X-JUMBO. The crabs in the medium pan average 4 to 6 ounces; large crabs run between 6 and 8 ounces; jumbos are 8 to 10 and the rare x-jumbos are over 10 ounces.

Our primary focus is on menu pricing and we need to get top dollar for the larger crabs. The medium crabs will be offered in the popular all you can eat menu option. Large crabs and jumbo crabs are mostly ordered by dozen or half dozen. The x-jumbos are purchased individually.

It is time to find out the proper prices for today's menu. We begin by counting the crabs in each of the bus pans. Today's catch yielded 130 Medium, 185 Large, 56 Jumbo and 14 Extra Jumbo. With the smaller crabs, customers work less on the claw meat and order more crabs. They eat more bushels. Savvy Maryland, Delaware and New Jersey patrons demand larger crabs.

My client prefers a pricing method which assigns the midpoint weight to each crab in the bus pan (5 for medium, 7 for large, etc.). We got 2,603 ounces for our $275. The menu prices will use the 10.56 cents per ounce and our goal is a 35% food cost.

We'll sell the Jumbo crabs for $16 a half dozen. A dozen Large crabs we'll price at $25. The popular $19.95 all you can eat special will yield a 39.7% food cost (average patron eats 15 medium crabs).

Pricing the menu accurately is essential with live crabs. Cost per bushel, weight of graded contents, and competition impact the decision. This restaurant takes the time to price the menu and they have prospered in an intense competitive environment.

Monday, January 02, 2006

Buffet Style Events

My corporate background includes a nine year stretch with Sodexho. My field work was at major construction projects, oil production facilities, Calgary Winter Olympics and the Alaska Railroad. We served hungry men over 5,000 calories a day. They worked in the freezing cold of Alaska, Alberta, British Columbia and Colorado.

Our sites served 3 to 4 buffets a day. We had very tight cost control due to the nature of the industry. Our contracts were won in competitive bidding wars against as many as 20 companies. Serving all-you-can-eat (AYCE) buffet style meals to voracious diners is half art and half science. In our company, I was the scientist. Most of our projects were staffed with marvelous artists. I can vividly remember their efforts during the holiday season each year.

The four key people in any successful high volume buffet production team are the chef, the baker, the butcher and the chef de garde manger. It is the job of the baker to make the patrons want dessert before they ever take their meal. To accomplish this task, we staged our buffets with the pastries first. The best bakers were showmen. They worked their magic every night with batters and pies and loaves of bread.

Most of the purchase dollar in our business was spent with purveyors of meat and seafood. Our best chefs worked closely with their butchers to optimize purchases based on market conditions. We served T-Bone Steak twice a week on every Canadian and Alaskan site. The butchers would buy a variety of cuts: sides, hinds, long loins and short loins. They looked at each cut as a source for steaks. They knew the percentage yields and the number of T-Bones from each cut. Depending on market prices, they bought enough steaks (through huge cuts) for the week and used the trim in stews and ground beef.

For this style operation, it is essential to have a completely separate refrigerated area for leftovers. Ideally, the bulk of the food left over may be served at the next meal period. The chef de garde manger sliced cold roasts for sandwiches, used leftover chicken in salad. Shrimp and crab was spread lightly over well presented pasta salads.

Every day, I watched the coming and going from this cooler. At a good site, there was never much food in this storage area. The same was true for bakery items. Each baker had his own use for the previous day's leftovers. Some liked bread pudding and others liked to use bran muffins.

Most of my buffet clients serve Sunday brunch or special events. There is little opportunity for reusing over production. Food won't last until the next week. The best chefs still display elaborate desserts in a prominent location. They use trained cooks to slice meats carefully. Salad bars are presented with well made dressings and garnishes.

The best buffets have a favorable impact on food cost results. Unfortunately, many buffet operations hurt the overall food cost results. If your operation uses the weekly buffet as an excuse for poor results, I would consider changing the buffet style meals to banquet style. Portion control in a buffet operation is an art. Careful calculations are necessary to prevent over production.

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