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Tuesday, December 02, 2008

Commissary Question

Hello Joe,

I have been an avid reader of you blog for some time now & I have always wanted to ask you a question that I have not come across in your blog & I believe I have it.

We have just opened our CPU to help with consistency first & foremost with a hope to find savings from labor & food costs. What we have noticed is the running costs are something we need to work with & to accommodate them we are spreading them out over all locations, this in the end I find a little unfair as this isn't a reflection on the location “actual” costs. If you could point us in a direction to help the units show the better costs & how we should take care of the CPU expenses. We have discussed charging per item plus a percentage (5-7%), setting it up as a separate business ... Not sure which way we should turn...

With thanks!


I'd expect you to focus on expected CPU benefits and expected CPU costs. Benefits include: consistency, shared resources, shared production labor, lower unit production labor, lower unit investment in major equipment and large drop size for major suppliers. Costs include: packaging, delivery fleet, special equipment, maintenance on the fleet and equipment, delivery labor, administration expenses, rent of the CPU facility, insurance and many other unexpected expenses.

Try to avoid turning the CPU into a full blown warehouse with cases being broken down into smaller shipping units. Keep the initial focus on consistently producing high volume batch recipe items. Try to ship these key production items as cheaply as possible.

Encourage your units to avoid excessive deliveries by splitting the commissary expenses into production costs (allocated by shipping unit) and delivery costs (allocated by delivery). Build the production cost allocation into every container shipped. Higher volume units will bear more of these costs. Rather than a % method, I'd prefer a container charge. This charge would cover all non-delivery expenses associated with the CPU. If the CPU expenses were $200,000 per year and you shipped 100,000 containers, you would charge $2 per container.

The delivery costs should be allocated by actual deliveries. If you had 1,000 deliveries per year and the costs of the fleet (including maintenance), labor, etc. totalled $100,000, the cost would be $100 per delivery.

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