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Sunday, June 27, 2010

Optimal Order Size Question

When creating a build to for food orders, what is the exact formula
used? I know it's units used divided by how many days and something to
do with how many deliveries a week.


Thanks for the question, James.

Use of the formula described depends on the shelf life of the product. For example, fresh picked raspberries have a rapid spoilage rate when compared to frozen raspberries. The average daily usage/number of deliveries per week model works well for high volume items with a shelf life of 7 days or more.

A twist on this method you may find interesting is to multiply your expected sales (in dollars) by the average consumption per dollar of sales. If you used 1 case for every $1,000 in sales and your sales forecast is for $20,000, you would require 20 cases. Simply check to see what the in stock level is and order the net amount. In our example, we would order 18 cases if we had 2 cases on hand.

Should we order extra in case our sales forecast is off? I think the answer depends on your number of deliveries per week, the day of the order, and your ability to adjust to actual sales volume.

If you are placing a Thursday order for a Friday delivery to handle a busy weekend and you can't get the next delivery until Monday, you would want to provide for a small cushion. On the other hand, a Monday order to replenish your inventory should not be inflated with a safety factor. Your suppliers are most likely in your area all week for any adjustments.

To utilize this method, ask your distributor for a quarterly tracking report. Next you should run a sales recap for the same quarter on your POS system. Divide the number of cases on the tracking report by the total food sales for the quarter. The result is the average usage in terms of sales.

Thursday, June 10, 2010

Should You Cherry Pick Spot Prices?

The quotes come in via fax and the internet. You load them into your recipe costing/inventory software. Next, you feed a shopping list to the program and you print the suggested orders. After some minor changes, you send the orders out to as many as 10 vendors. Is this a smart way to buy?

Yesterday, my client and I were on a conference call with a sales rep from Gordon Food Service in Michigan. Our objective is to eliminate waste in the restaurants. I have always recommended weekly inventories but the salesman's advice was twice a week. He wanted us to feed the online ordering system with the inventory counts on Monday and Thursday. Rather than going through the storage areas with a shopping list and jotting down order quantities for under-stocked items, he encouraged my client to take a full inventory.

If you have never been good at inventory control, the journey to tight control absolutely requires a tremendous change in the normal routine.

You may be unwilling to take twice a week inventories for the entire restaurant. Consider phasing in inventories by category starting with protein. In addition, carefully monitor all waste due to spoilage. If you have a sophisticated database loaded with over 100 count values per year, your entire purchasing history and details of your waste, par values will stare you in the face (with seasonal variations).

More importantly, we want to eliminate waste. Ordering too much of a perishable item with a high cost per pound and a major change in taste and texture profile when frozen has to be avoided. As you begin to order the appropriate quantities, your supplier can work with you on the proper pack/size for each item in the non-perishable goods section. They can help you find labor saving alternatives.

I believe it is highly advisable to stay aware of market trends. Whether I would go the cherry picking route in today's marketplace is the question. It's typically a mistake.

As far back as 1981, Tom Noble from Denver (eventually sold his business to Sysco) sent his rep out to our construction site in Parachute Creek. We setup a ordering guide for our comprehensive 4-week cycle menu. Scott, our Noble rep, went through the stockrooms, walk-ins and outside freezer. He designed a storage sequence for each room. We bought almost everything from this company. Our contract allowed us quarterly audit access and we had a Denver office. Once in a great while we would complain about meat yields. Overall, we enjoyed a very low cost per man per day and waste was non-existent.

Until you work with a competent supplier armed with an excellent database, it's tough to see the way to single source. Go ahead and take the plunge. The potential is huge.

Sunday, June 06, 2010

Historic Costs vs. Future Costs

The role of a food cost controller is much different from the menu analyst. Cost control relies entirely on historic data to prepare reports which quantify results and alert management to possible problems or opportunities. On the other hand, the menu analyst needs to look to the future.

When a menu price revision takes place, the prices need to cover the future costs and provide a reasonable profit. Knowledge of commodity trends, economic forecasts, unique events in the coming year and other future oriented information is helpful. The costs used to arrive at theoretical menu item costs should use these expected prices.

The food cost controller studies purchase data to understand the previous period. Use of theoretical food cost data may help the controller discover a usage problem. Usage problems involve units rather than dollars. There is concern regarding missing steaks or shrimp or perhaps an entire case is gone. Purchase costs are important only when there is a big swing in price on one or more high volume items.

Using the same price data for both menu planning and food cost control is a mistake. The portion sizes for all key items should be 100% exact. It is the prices which need to vary. Many operators simply take an educated guess on overall inflation and raise menu prices across the board with the same % increase.

Ideally, the menu analyst benefits from the ongoing work of the food cost controller. Portion control tests, relative price volatility and other information the controller has at their fingertips is valuable to their counterpart. They should work together to discover how the current menu has performed.

In a highly collaborative organization, the cost control team could utilize information from the menu analysis team (e.g. future menu price revision strategy) to create better budgets.

Restaurant Data Pros

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