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Thursday, August 06, 2009

The 4 V's and the Pareto Principle

If you buy the notion of working smarter vs. harder, the 80/20 principle is certainly a great starting point. When a restaurateur searches for the 20% of his operation producing the 80% impact, I'd like to suggest a simple method. The 4 V's stand for volume, variance, volatility and value.

It is important to focus on high volume activities. Ranking your menu items by the percentage of total sales is a popular weekly report. Try the same analysis on your food purchases. If you monitor production of batch recipes, you could rank these by the highest volume. In every case, find the high volume items and activities.

Avoid spending lots of time on issues which do not produce a decent return for your efforts. If there is a low variance in usage, price, or any other business metric, look elsewhere. There are lots of high volume items with very little variance from your budgeted expectation. Maybe you consume lots of rolls but the usage report indicates the rolls were used properly. Find another item with a higher variance.

Price volatility is a major opportunity area. Locate all of your raw ingredients with volatile market prices. Any positive actions you take in purchasing these items will produce a benefit.

Most chefs have a handful of items stored in their offices. You may find truffle oil, saffron, cognac and other high value items. They recognize the relative value (in terms of cost per milliliter or gram) of these items.

If you focus on high volume items and activities with usage variances, price volatility or high relative value, the 80/20 principal will start improving your return on time invested.

1 comment:

The People Advisor, LLC said...

Great thinking. What we have discovered in the B2B arena calling on business owners is that the 80/20 rule has been working with deficits instead of strength. We look at successes and have had some amazing results by shifting the focus, etc. Thanks for your article.

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