Purchase Requisition Stock Requisition Specifications Standard Recipes Maximum Inventory to Keep on Hand Vendor Approval Order Record

Kickbacks Steward Sales Receiving Procedures Storage Food Cost Analysis Employee Fraud Direct Control System

Set up an inventory control system. Know how product specifications and standardized recipes contribute to inventory control systems. Determine how much inventory an operation should keep on hand.

Explain the ethical and legal consequences of kickbacks and detect their presence. Manage steward sales. Navigate the vendor approval process. Describe the receiving and storage process. Perform food cost analyses.

Understand the difference between the standard cost of food sold and the actual cost of food sold. Conduct a physical inventory. Use inventory control procedures to keep theft, waste, and pilferage at acceptable levels.

Normally found in large hotel food and beverage operations Precedes the purchase order Clarifies the need for the item and includes specifications Good for tracking things outside normal inventory control system

Used in cases of a storage facility managed by a separate department head Similar to purchase requisition Usually a computerized process Can provide up-to-date food and beverage cost information

Control product quality and costs Consistency = Predictability = Better Forecasting

Control product quality and costs Absolutely necessary Even one-time specials should have a standard recipe (with costs) “Don’t pick up the knife until you have a plan.”

Three “Rules” to Choose From: Rule #1: Value of food inventory should not exceed a week’s food cost Rule #2: Total inventory should not exceed 1 percent of annual sales revenue Rule #3: Food inventory should not exceed 1/3 of the monthly food cost

Example: Total Annual Revenue: $2,000,000 ($500,000 beverage alcohol; $1,500,000 food) Food Costs: 24% or $360,000 ($1,500,000 ×.24) Rule #1 Food inventory should not exceed $5,923 (360,000 ÷ 52 = $5,923)

Example: Total Annual Revenue: $2,000,000 ($500,000 beverage alcohol; $1,500,000 food) Food Costs: 24% or $360,000 ($1,500,000 ×.24) Rule #2 Food inventory should not exceed $20,000 ($2,000,000 ×.01)

Example: Total Annual Revenue: $2,000,000 ($500,000 beverage alcohol; $1,500,000 food) Food Costs: 24% or $360,000 ($1,500,000 ×.24) Rule #3 Food inventory should not exceed $10,000 ($360,000 ÷ 12 months × 1/3)

Most chefs prefer Rule #1 Easier to meet food cost percentage goal Less spoilage and waste Not a lot of temptation for pilfering May pass up good deals Stockouts may increase

Authors Prefer Rule #3 for Food Cannot accept stockouts Cannot pass up good deals

Use Rule #2 if Responsible for Beverage Inventory and Operating Supplies Gives a little leeway

Approved Supplier List Vendor Approval Process Use criteria noted in Chapter 3 Add a vendor temporarily to test products/services Approved-Payee List

Absolutely Necessary Doesn’t Have to be Formal

Illegal gift by vendor to encourage defrauding of the restaurant Avoid by Doing All Buying Yourself Type of Fraud: Accepting lower-quality product while paying higher AP price

Allowing employees to purchase items from the restaurant at restaurant prices Employee perk Most large companies don’t allow this May increase stockouts and pilferage

Control product quality and costs Absolutely necessary Even one-time specials should have a standard recipe (with costs) “Don’t pick up the knife until you have a plan.”

Introduction Focus on the project at-hand Trust process to an extremely knowledgeable employee or do it yourself

1. Compare invoice to order record (these must match) 2. Check the product quality – Open packages to check for spoilage – Check temperatures of refrigerated/frozen foods – Note expiration dates 3. Check the quantity – Count and weigh items – Spot-check portion-cut items – Check and calibrate scale regularly

4.Compare AP prices to quoted prices (spot- check should be okay) 5. Accept shipment/sign invoice 6. Rejecting all or part of a shipment – Ensure proper credit 7. Arrange to return unacceptable items

8.Move accepted items into storage – Refrigerated/frozen product most important – Helps prevent pilferage – Some items may go straight to production 9. Complete necessary paperwork

10. If on COD send driver to pick up check 11.If inventory is computerized, update inventory amounts, AP price changes and bar codes 12.Give driver items for backhaul (returns or recyclables) 13.Follow same procedures with route sales 14.Change process to accommodate FedEx, UPS, etc. orders

1. Limited access is primary defense against theft or pilferage –Lock up expensive items – Other ingredients in open storeroom 2.Use good locking system – Physical locks (Medeco) – Locking system (Marlok) – Alarms (can also warn of refrigeration issues)

3. Use web cam security 4.Rotate stock – Move older stock to the front of the shelf – Use FIFO method of inventory: first-in, first-out – Purchase a dot system (Daydots) 5.Maintain proper temperature, ventilation, humidity

6. Clean and sanitize storage area 7.Arrange inventory conveniently on shelves

Opening (beginning) food inventory on first day of the month Plus:Food purchases during the month Less:Closing (ending) food inventory on last day of the month Equals:Actual cost of food used during the month Less:Cost of employee meals during the month (you can make an estimate) Less:Other credit (such as manager’s personal use) during the month Equals:Actual cost of food sold during the month

$10,000 (opening inventory) Plus:$25,000 (purchases) Less:$7,500 (ending inventory) Equals:$27,500 (cost of food used) Less:$1,500 (employee meals) Less:-0- (other credit) Equals:$26,000 (actual cost of food sold) Percentage:$26,000 ÷$100,000 (monthly sales revenue) = 0.26 or 26%

Also known as expected or theoretical food cost Provides something to compare to the actual cost of food sold Difference between “actual” and “standard” cost of food sold is the variance or cost variance

Need to know the following: Number of each menu item sold (from POS system) Standard recipe cost of each item Multiple these two figures and then add all together for total standard cost of food sold Dividing the total standard cost by the total sales revenue gives standard cost of food sold percentage

Calculate the difference between the actual and standard cost percentages to determine the variance If the variance is too high, the cause(s) must be found and eliminate Often standard costs are estimates at best

A legal pad will do the trick Five columns Typical items (fish, meat, etc.) How many at start of shift How many issued during shift How many left at end of shift How many used during shift Separate sheet for each shift

Roast for pork cutlets – 25 lbs with loss of 5.5 pounds AP price for pork roasts – $4.50 per pound Standard Portion – 9 ounces Opening inventory – 115 pounds (AP) Issued during period – 235 pounds (AP) Ending inventory – 110 pounds (AP) Sold – 300 cutlet entrees at price of $15.95

115 lb lb. – 110 lb. = 240 lb. actual usage 300 sold × 9 ounces = 2,700 ounces (EP) or 169 lb. (EP) Calculate yield percentage: (25 lb. – 5.5 lb) ÷ 25 lb. = 0.78 or 78% 169 ÷.78 = 217 lb. Should have used 217 lb. (AP) for 300 cutlets Variance = 240 lb. (AP) – 217 lb. (AP) = 23 lb. Usage Variance

23 lb. (AP) × $4.50 per lb. = $ Cost Variance 23 lb. (AP) ×.78 = 18 lb. (EP) 18 lb. × 16 ounces per lb. = 288 ounces 288 ounces ÷ 9 = 32 portions 32 portions × $15.95 = $ Sales Revenue Variance

Chicken breast for fajitas AP price for chicken breasts – $3.19 per pound 1 pound (AP) yields 3 servings Opening Inventory – 75 pounds (AP) Purchased during period – 90 pounds (AP) Ending inventory – 25 pounds (AP) Sold – 350 orders of chicken fajitas for $8.95

75 lb lb. – 25 lb. = 140 actual usage (1 lb. ÷ 3 servings) = (X lb. ÷ 3 servings) × 350 X lb. = (1 lb. ÷ 3 servings) × 350 servings = lb. – 117 lb. = 23 lb. Usage Variance 23 lb. × $3.19 per pound = $73.37 Cost Variance 23 lb. × 3 servings × $8.95 = $ Sales Revenue Variance

Coffee Service AP price for coffee – $3.25 per pound 1 pound (AP) yields 58 cups Opening Inventory – 50 pounds (AP) Purchased during period – 75 pounds (AP) Ending inventory – 42 pounds (AP) 2,585 guests expected to drink 1 ½ cups each

50 lb lb. – 42 lb. = 84 lb. actual usage 2,585 customers × 1.5 cups each = 3,878 cups 3,878 cups ÷ 58 cups per pound = 67 lb. (AP) expected use − 83 lb. actual use = 16 lb. Usage Variance 16 lb. × $3.25 per pound = $52 Cost Variance (approximately)

Bar Operation AP price for Seagram’s Gin – $14.50 per liter Drink size – 1.5 oz. Opening Inventory – 5 liters (AP) Ending inventory – 2.5 liters (AP) 75 $6 per drink

2.5 liters = actual usage 2.5 × 33.8 oz. = 84.5 oz. actual usage 75 × 1.5 oz. = ounces expected usage − 84.5 = 28 Ounces or 8/10 Liter Usage Variance ×.80 = $11.50 Cost Variance (approximately) Note: Actual is LESS than Expected

Consider outsourcing to inventory-taking service Count everything Calculate actual cost of beverage used Calculate actual cost of beverage sold Suggest order size Calculate sales revenue you should have collected

The answer varies If it varies too much: Your calculations may be wrong You received a shipment of off-spec products There is extra production waste Portion sizes are too small (or too big) Someone is ripping you off

Labor Cost Control Labor needs fluctuate with the number of guests to a certain point – if a line cook can produce 40 meals, adding another 10 doesn’t add the need for another cook; if the number of meals drop to 30, you will still need the cook (it’s hard to hire ¾ of a cook no matter how hard you try)

You are the direct control system Walk around Be visible Don’t sit in your chair (if you have a chair)