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Saturday, December 09, 2006

Food Cost Control - Alphabetic Approach

Manufacturing companies often segregate their parts inventories into A, B and C groups. The parts in Group A are used in high volume and are expensive. Group B has two types of parts. The high volume, less costly parts would fall into the B group. Also, expensive parts used in lower volume would be in Group B. Finally, Group C parts would include the largest number of members. These parts are inexpensive and used in low volume.

Why stop with only three letters?

I'd recommend segments for product shelf life and I wouldn't use Group B for two profiles. Let's use Group A to include highly perishable, costly, high volume items. If a costly, high volume item is purchased frozen, we'll use group B. Group C will include all costly, high volume items which are shelf stable.

Following this approach, we'd use groups D, E and F to handle moderate volume items. The perishables would be coded to Group D. Frozen would fit the E profile and the shelf stable would go to Group F.

Since the 80/20 principle is in play in most kitchens, you'll be left with lots of items in groups G, H and I. Use the perishable/frozen/shelf stable structure to complete the grouping exercise.

A 1,000 item inventory will contain about 200 items in the first three groups. The next three groups will have from 150 to 200 items. All the other items will fall into the last three groups. You'll find very few items in Group C vs. Group I. Perhaps coffee and oils will be in the C group and the spices down in Group I.

When you are finished with this exercise, start to spend more time and energy with the first 5 groups. The last four groups will have the majority of items and the least amount of opportunity to favorably impact your food cost percentage.

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