9 The Optimal Amount. 9 The Optimal Amount You Should Be Able To: Calculate the correct order quantities and order times using the par stock, Levinson,

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Presentation transcript:

9 The Optimal Amount

You Should Be Able To: Calculate the correct order quantities and order times using the par stock, Levinson, and theoretical methods. Determine the optimal inventory level. Explain the benefits and problems of using only the theoretical method for determining inventory levels.

Optimal Inventory Level A principle objective of inventory management is maintain only the necessary amount of products to serve guests without running out of anything, but not to have so much that the products suffer from spoilage or incur other storage costs. Changed Title to reflect section in book, EGM

Correct Order Size Par Stock Approach – the maximum amount of a product you want to have on-hand; order just enough to bring the stock to par Levinson Approach – takes into account forecasted sales, portion sizes and yield percentages planning an order Theoretical Approach – takes into account storage costs, carrying costs and ordering costs when planning purchases Added Graphic, EGM

Par Stock Approach PAR STOCK: The maximum amount of a product you want to have on hand. When reordering the product you want to buy just enough to bring you up to par.

Par Stock Approach (cont.) Most small operations utilize this model Utilized when buyer accepts ordering procedures and delivery schedules of seller Method: Decide on order amount needed to bring product stock level up to par Account for banquets, safety stock, and stock needed between order and delivery time Reevaluate par stock levels often

Par Stock Approach (cont.) For Example, Your restaurant determines it needs a par stock of five 10 pound bags of pinto beans. On your regular inventory day you see you have 2.5 bags left. How many do you need to order? Par Stock = 5 bags of 10 pounds Inventory = 2.5 bags of 10 pounds Order Amount = Par Stock – Inventory or 5 bags – 2.5 bags or 3 bags

Par Stock Approach (cont.) Just Remember, Estimate your inventory by delivery day Constantly reevaluate your Par Stock Levels Approach works for set menus/constant usage Does not consider banquets Consider a Safety Stock amount Back up stock to never run out

Levinson Approach Levinson Approach: Determination of appropriate ordering sizes by taking forecasted sales, portion sizes, and yield percentages into consideration

Levinson Approach (cont.) Accept suppliers’ ordering procedures and delivery schedules Determine best time to order (dairy products may be ordered daily) Method: Forecast the amount of product that will be needed between deliveries Calculate order size Adjust for stock on hand, etc. Revise often

Levinson Approach (cont.) Based on historical data Forecast expected number of guests Forecast orders of specific menu items based on popularity index Determine raw pounds of each ingredient needed for projected sales Calculate portion factor Calculate portion divider

Levinson Approach (cont.) Portion Factor – 16 divided by the number of ounces needed for one serving Portion Divider – an item’s portion factor multiplied by the edible yield percentage Edible Yield Percentage – servable weight i.e., a menu item divided by its original weight, multiplied by 100

Levinson Approach (cont.) For Example, You have booked an upcoming dinner for 300 people. Your starch will be a 4 ounce serving of scalloped potatoes. Typically, potatoes have a 75% yield when cooking in this form. Portion Factor = 16 ounces / 4 ounces = 4.00 Portion Divider = 4.00 x 0.75 (yield) = 3.00 Order Size = 300 people / 3.00 = 100 lbs

Levinson Approach (cont.) Just Remember Portion Factor can vary based on unit size Pounds, Liters, Each, Grams You may need to compute the number of pounds further to determine packaging needs 36 lbs per case would be LBS / 36 = # of cases Create historical data for better forecasting Utilize your POS system!

Correct Order Size Some establishments can also use a combination of the Par Stock and Levinson Approaches. For example, a hotel with a restaurant that stays constant and a banquet room may use the Par Stock approach for the restaurant and the Levinson approach for the banquet. When adding the two orders together would ensure proper purchasing to handle all customers. Added Graphic, EGM

Theoretical Approach Theoretical Approach: An approach to ordering which considers the inventory value and the costs associated with that inventory.

Theoretical Approach (cont.) Utilized in large and multi-unit foodservice operations A mathematical model for determining the optimal order amount Weighs total annual cost of storage and purchases against order size Considers Storage and Ordering Costs

Theoretical Approach (cont.) Storage costs / Carrying costs Expenses such as insurance, security, and spoilage associated with holding inventory in storage. Ordering costs The amount of money spent to order, receive, and store products as well as administer those functions.

Theoretical Approach (cont.) Capital Cost The money tied up in your inventory and the inability to earn a return. Opportunity Cost What you give up when making a decision to do something else.

Theoretical Approach (cont.)  

Theoretical Approach (cont.) Just Remember Most use a computer generated model to calculate the figures Sometimes quantities are not feasible due to storage space or cost to purchase

Correct Order Time The order time that minimizes the ordering costs, inventory storage costs, and stockout costs.

Correct Order Time FACTORS Safety Stock Reorder Point (ROP) Product Usage Pattern Lead Time Just-in-time (JIT) Inventory Management Stockout Costs

Problems with Theoretical Approach Usage rates vary from day to day Storage and ordering costs vary Stockout costs are difficult to assess Buyer Qualifications – delivery / quantity Too Many Items to Calculate

Problems with Theoretical Approach (cont.) As we buy from supplier, the supplier buys from a source or other supplier Items get discontinued Assumes adequate storage facilities Assumes products will be used before spoiling

Benefits of Theoretical Approach Factual numbers Costs vary with Order Size Computers help with calculating to minimize time and paperwork Large operations and multi-units benefit greatly