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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.

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