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Wednesday, April 15, 2009

Food Cost Techniques - Orders

The number one component in your weekly or monthly food cost percentage calculation is food purchases. This figure is modified by the net inventory change before you divide by sales. Many operators tell me they don't count inventory any more. I always ask them how they order food.

In every case, food service operators go to their storage locations when determining the order requirements. This activity is an inventory count. Although there may not be a formal report or a careful valuation, the person who checked the stock room, walkin cooler or freezer performed a count. In most cases, these counts are discarded once the food order has been completed.

Do you organize your food orders by category (e.g. produce, meat, seafood, dairy, etc.), by vendor, or by storage area (e.g. freezer, cooler, dry storage, etc.)? Do you have a day of the week organization? Perhaps you order produce twice a week on Monday and Thursday. You might replenish groceries once a week for high volume items and monthly for other items. Maybe you have become aware of a special on a shelf stable item. On the other hand, prices for some high volume items may be sky high this week.

If you phone in your orders, you may be on the phone with someone trying to blowout an over stocked item. Do you change your order on the spot to "take advantage" of this limited time offer? If you answer yes, how do you determine the impact on other items you need to order? The person on the other end of the phone line has taken over your order process.

Most operators have a decent price awareness. Some are acutely aware of any market shifts in their top volume items. These same operators may have a vague idea what the market conditions are on their low volume items. Who has the time to track all this activity? Time is money.

Every operation spends a significant amount of time each week ordering, receiving and storing food items. Much of the information used in these decisions is discarded once the order has been submitted. Spot counts, market prices, last minute deals, emergency orders, short shipments, poor quality rejections, and every day customer preference shifts are processed and the impact is seen in your invoices.

Do you have a feedback mechanism built into your control system to highlight ordering issues? If you don't have any feedback other than the goods arrived, you are missing another opportunity to improve your ordering process.

Five simple recommendations:
1. Develop order guides to fit your personal environment. Document the counts, par levels, and other notes. The notes should have details on weather conditions, seasonal peaks, etc.
2. Clearly mark your orders with any changes made during the phone call with the supplier. Use a different color ink to highlight these changes.
3. Organize the price quotes faxed each week on bid comparison sheets.
4. Document all specification issues and ask for credits when the delivery does not match your request.
5. Summarize this activity each week and use the information to improve the process.

Once you order food, the economic impact of the order is reflected in your food cost percentage. It is impossible for something you never ordered to spoil, be improperly portioned, stolen, or over produced. Spend less time in the long run by investing in organizing your ordering process today.

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