© 2011 John Wiley and Sons, Inc. All Rights Reserved

Chapter 13 Purchasing, Receiving, Storage, and Inventory © 2011 John Wiley and Sons, Inc. All Rights Reserved

This Chapter Will Help You Decide what to buy, what to look for in competitive buying. Establish par stock for each. Know the functions and relationships of purchase orders, invoices, and credit memos. Store each type of beverage properly, efficiently, and safely. Establish inventory procedures and conduct physical inventories. Determine inventory value, bar cost, and inventory-turnover rate. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Purchasing Is Planning The term purchasing is usually a two step process. The first step is the selection process, which involves making the decisions. The second step is the procurement process, or the method used for purchasing items. This involves choosing and working with vendors, using a standard system of ordering, deciding on a budget and determining how often to replenish stock. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. What To Buy To meet customers’ needs and avoid overstocked bars and storerooms, today’s bar managers use a policy commonly known as category management. This involves tracking what sells and what doesn’t and using that information to create a beverage program. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. What To Buy Computers and technology give bars and restaurants access to more specific brand information than ever before. This negates the old shotgun-marketing approach, in which a bar would try one idea, then another, and another, in hopes of hitting on something successful. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Quality and Variety Well brands are the liquors that you pour in mixed drinks when the customer does not ask for a specific brand. Other bars use familiar, advertised brands in the middle price range. Still others use premium brands—this is sometimes called a premium well or super well—that they feature in their merchandising. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Internet Sales and Direct Shipments The explosion of e-commerce also has shaken up the traditional wine sales world, which for years has consisted of a three-tier system. A hierarchy in which the winery or importer sells to a wholesale distributor, who sells to the end user. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Where To Buy In 18 states, the retailer—the seller of alcoholic beverages to the consumer—must buy from state stores. These states are known as control (or monopoly) states. In the remaining states, known as license states, the buyer is allowed to purchase from wholesalers licensed by the state and, in some states, from licensed distributors and manufacturers as well. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Supplier Relationships Post-offs and closeouts are deals that help distributorships move wines. Vintage clearances are offered to make space in a distributor’s warehouse for incoming newer wines. Exclusives are deals offered to a buyer. Their business is the only bar in the area pouring a particular wine. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Supplier Relationships There are many other considerations Does the supplier alter quality, quantity, and/or delivery-time standards? Their location? Proper care of product? Minimum order requirements, credit terms? Lead time, or the time between ordering and delivery? Consulting, sales participation? © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. How Much To Buy Establish a par stock for each bar in your facility. A general rule is to have enough to meet 1½ times the needs of your busiest day of the week. Some suppliers will sell a broken case or mixed case, which is a case of 12 bottles made up of several brands or items of your specification. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Carrying Costs and Capital Risk Carrying costs are the total combined dollar value of the liquor, wine, beer, mixes, and supplies at the bar. This figure should not vary widely month to month. Capital risk is the risk you take when a bottle of liquor leaves the storeroom and goes to the bar. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. What To Pay A discount option is a simple variation of the basic discount structure, called the multiple brands or assorted discount. An importer or distiller offers this discount to encourage the bar owner to buy a wider range of its products. Never add a new item of unpredictable demand without eliminating a slow-moving item, or a product that takes nine months or longer to use. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Placing the Liquor Order The periodic order method involves selecting a fixed calendar of ordering dates. Calculating what your bar will use or each time period between order dates. With the perpetual-inventory method, order dates are variable and the amounts are preset. Inventory cards list purchases and issues, par stock, and the lowest amount in inventory before it is reordered. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Placing the Liquor Order Where responsibilities are divided among many departments, a formal, multicopy purchase order (P.O.) may be used (see Figure 13.5). The invoice is the purveyor’s response to the buyer’s order. It reflects the information on the buyer’s order sheet from the seller’s point of view. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Receiving the Liquor Order Cases of product may be tagged with radiofrequency identification (RFID) tags, making them easy for workers using handheld computers to find. These workers, known as pickers, can round up enough product to fill several orders at a time. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Receiving the Liquor Order The math must be checked. The total costs per item, called extensions, and the invoice total. Kegs should be examined. Their contents checked by weighing the keg, and subtracting the tare weight, which is the weight of the empty keg. Request a credit memo. For any discrepancies between the order and the invoice or the delivery itself. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Storage Wines survive best in a cool, dark environment. The ideal temperature being a constant 55°F to 60°F, which is known as cellar temperature. Beer has the most limited shelf life of all. The best system of rotation has a handy acronym, FIFO, which means first in, first out. Most breweries have adopted pull-date systems, the “born-on date” (BOD). © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Issuing Liquor The document used to record the transfer of inventory from the storeroom to a specific bar or outlet is a requisition form or issue slip (see Figure 13.11). Many bars require that the bottles emptied the previous day to be turned in with the requisition form. This is known as the one empty-for-one-full system. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Inventory The beverage inventory is the amount on hand at any given time. The only accurate way to know what you have on hand is to take a complete physical inventory, which means counting each bottle and keg on a regular basis. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Physical Inventory One tool to speed the inventory process is the bar-code scanner. Since practically every item is labeled today with a Universal Product Code (UPC), a handheld model scanner can be used to scan each UPC label and instantly download its identity to a computer. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Physical Inventory A depletion-allowance form (see Figure 13.14) should also be kept handy at the bar each day to record any of the inventory that has been broken, spilled, transferred from one location to another (in large facilities), or given away as complimentary beverages. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Perpetual Inventory Another way of providing inventory information is to compile ongoing daily records from invoices and requisitions, adding each day’s purchases and subtracting each day’s issues for every item in stock. This task is typically performed by the accounting department and the results are known as a perpetual inventory. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Determining Inventory Value, Bar Cost, and Inventory Turnover Rate Totaling the values of all the items gives you the value of your entire inventory. This number is known as the ending (closing) inventory for the accounting period. This number becomes the beginning (opening) inventory for the next accounting period. This figure determines the value of all of the liquor used to produce your sales for the period, which is your beverage cost. © 2011 John Wiley and Sons, Inc. All Rights Reserved

Determining Inventory Value, Bar Cost, and Inventory Turnover Rate The values for ending inventory and purchases for the period will determine your inventory turnover rate. This rate will help you to decide whether you are keeping too much or too little in inventory. If the turnover rate is consistently below 1, you are probably stocking more than you need. If it runs above 2, you probably often run out of items that you need. © 2011 John Wiley and Sons, Inc. All Rights Reserved

© 2011 John Wiley and Sons, Inc. Summing Up A bar manager must be a good purchasing manager. It is important to maintain good relationships with suppliers and to understand their pricing systems. A careful system of records is maintained at all phases of the purchasing cycle. A well-organized, well-managed purchasing system can contribute to profits by keeping costs down, efficiency up, and supplies flowing. © 2011 John Wiley and Sons, Inc. All Rights Reserved