Foundations of cost control by daniel traster chapter08

Calculating Purchase QuantitiesThe process for determining quantities to order differs for perishables short shelf-life and non-perishables long shelf-life... Purchasing Quantities for

Opening Questions

• When purchasing food for yourself, what factors do you consider other than price?

• How do you decide where to shop?

• Where does price rank among those other factors?

• How do you decide how must food to buy?

• Do you buy exact quantities or estimate?

• Are the quantities impacted by packaging size?

Factors for Selecting the Right Product

Product Specification or “Spec”

• Defines acceptable parameters for a product.

• Eliminates miscommunication between purchaser and purveyor

• May list product

Purchase Specification

A purchase specification is the product specification plus the delivery schedule

and credit terms

Choosing Purveyors

Securing Product Pricing

(and Other Shopping Means)

Calculating Purchase Quantities

The process for determining quantities to order differs for perishables (short

shelf-life) and non-perishables (long shelf-life)

Purchasing Quantities for Perishables

• Order only enough to get through to the next delivery to minimize spoilage, but with a small buffer.

• Take into account inventory on hand and forecast sales.

Predicted Item Sales = Forecast Guests x Menu Mix Percent (as a decimal)

Example 8a

Item Sales = Forecast Guests X Menu Mix %

= 210 X 0.07

= 14.7

A restaurant forecasts 210 guests 7% of guests usually order the cream

of asparagus soup How many asparagus soups should the chef expect to sell?

Example 8b

Asparagus Soup Yield = 20 portions

Chef forecasts sales of 15 portions of asparagus soup Calculate quantity

of ingredients to order using recipe below.

Example 8b Notes

1. Money is saved if asparagus stems are used for soup and tips are used

elsewhere

2. When two parts of an ingredient are shared by two recipes, the recipe with

the greater quantity need determines the order quantity.

3. Quantities will always be rounded up as a buffer

4. Ingredient need is not usually the final purchase order

From Ingredient Need to Order

Order =

ingredient need – forecast amount on hand when delivery arrives

Conduct a storeroom inventory of perishables and deduct expected usage before

the next delivery arrives What remains is forecast amount on hand at

delivery arrival.

Summary of Steps for Perishables

Example 8c

Ordering and Technology

• Process for calculating order quantities by hand is complicated Set up in a spreadsheet, it is easy!

• Purchaser just enters forecast guest counts for now to delivery and for the order period.

• Computer calculates preliminary order from standard recipes and menu mix information.

• Purchaser then just deducts current inventory from preliminary order.

Two Non-Perishable Methods

Periodic Inventory Counting inventory

only at regular intervals (week, bi-week,

month).

Perpetual Inventory Keeping a constantly

current database of inventory by updating inventory sheets or cards every time a product is removed from or added to the

storeroom.

vs.

Periodic Inventory Purchasing System

1. Forecast ingredient needs

• Non-perishables are usually stable across order periods with adjustments made for holidays, weather, season or menu changes, major business shifts.

2. For each ingredient, determine a safety net quantity (or %) to protect against

business shifts and to sustain kitchen from order placement to receipt.

3 Conduct a physical inventory on the regular schedule (which is just before the order is placed).

Periodic Inventory Purchasing System

4 Quantity to Order (for each ingredient) =

Example 8d

inventory at the end of each order period

How much pasta should be ordered for the next two-week

period?

Perpetual Inventory Purchasing System

Inventory card or spreadsheet includes (for each ingredient) date and quantity added to or removed from storeroom, par stock, reorder point, reorder quantity

Perpetual Inventory Purchasing System

• To order, just place an order for an ingredient of the reorder quantity when it reaches the reorder point.

• In determining par stock value, it must be high enough to get through an order period but low enough to fit in the storeroom and not tie up excess money.

Calculating Reorder Point

Calculating Reorder Point

Reorder Quantity

Example 8e

• Restaurant has par stock of 50 cans of kidney beans

• It uses 3 cans per day

• Management wants safety net of 9 cans in inventory at delivery

• Order usually takes 2 days to arrive after placement

Example 8e (cont.)

Quantity Needed between Order and Delivery

=Daily Usage X Days bet Order & Delivery

= 3 cans/day X 2 days

= 6 cans

Example 8e (cont.)

Reorder Quantity

=Par Stock– Reorder Point + Quantity Needed between order and delivery

= 50 cans- 15 cans + 6 cans

= 41 cans

Perpetual Inventory Purchasing System

When pack size does not match reorder quantity exactly, round down

to the nearest pack size because par stock is a maximum quantity for the storeroom

Which Inventory Method to Use

• Perpetual Inventory offers better control but requires a dedicated employee in the storeroom to record every product removal and addition Usually

affordable only in large operations

• Smaller businesses without a dedicated storeroom clerk usually use the

periodic inventory system.

Make-Buy Analysis

Factors

• cost of ingredients (cost per portion)

• labor (direct labor cost)

• energy cost in the decision-making process

To decide when to make a product from scratch vs buying it premade:

Make-Buy Analysis

Example 8g

Labor = 0.25 hours X $12/hour = $3 Cost per portion = ($28 + $3 + $2) ÷ 30

= $1.10/portion

Premade ($1.10/portion) is cheaper than scratch version ($1.44/portion)

The restaurant in example 8f can buy frozen lasagna, serving 30 portions, for

$28.00 It requires $2.00 in energy and only 15 minutes of the $12/hour cook’s

time What is the cost of the premade lasagna?

Other Variables in Make-Buy Analysis

• Is quality of the two products similar or is one noticeably worse?

• Does the restaurant have the space and equipment to make the product from scratch?

―A necessary major financial investment to make something from scratch may negate cost savings