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Thursday, June 15, 2006

One Dollar of Food Cost

In an earlier post Purchasing Dollar vs. Food Cost Percentage , the topic of dollar analysis of food cost was explored. When I say "dollar" in this context, I am referring to an entire year of food cost expressed in terms of one dollar.

There are many interesting ways to look at one dollar of food cost. One of the easiest starting points is vendor analysis. Find out how much of your food cost dollar is spent with each vendor. If you want to improve your overall results, start out with the top 3 to 5 vendors. Could competitive bidding or market-based pricing contracts help lower your costs with these high volume vendors?

You may want to answer this question with a more in depth view. A simple matrix could be used to analyze the dollar value by vendor for each major cost category. Every operation has certain categories which stand out. Steak houses would have a major part of their dollar spent with butchers and meat suppliers. Mexican concepts and pizzerias spend big amounts on dairy products and sauces. The dough ingredients and tortillas are high on their list.

The matrix would have a row for each major category. Many use the following categories: meat, seafood, produce, dairy, dry goods, frozen goods, breads and baked goods. I recommend a more focused list. A QSR chicken concept might have a category called fryer items. The actual ingredients in the category could include chicken tenders, frozen fries and the 35# containers of fryer oil. A pizza concept might have dough components, sauce components and toppings as their rows. Try to visualize the operation by production function.

Your top 3 to 5 vendors would make up the columns.

The entire matrix should equal one dollar. Find out which vendors supply you with the ingredients used in each phase of production. It's common to find cells in the matrix with values greater than or equal to a quarter. These cells are high impact activities. Focus your attention on these areas and vendors first.

On the other hand, there will be many cells with values below five cents. Don't devote excessive time on these activities. The use of flour would be a low level activity in many operations. If you make pizza dough or have a major bakery, flour could be part of a major impact cell.

Rank the cells and attack the big parts of your food dollar first. You'll get results faster with less effort.

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