1. -------------------------------
COST CONTROL
part 2
THE CONTROL PROCESS
& PURCHASING

2. Who is in Charge & Responsible?
THE CONTROL PROCESS & PURCHASING
Who is in Charge & Responsible?
Goal: ensure a continuing supply of sufficient (quantity)
of the necessary foods with the required quality and at the best price.
Focus: develop standards for quality/quantity/price
Depending on size and culture of operation, can be:
--> owner, chef, purchasing dept., steward
Critically Important Steps
determination of quality standards
development of standard purchase specs.

3. Food Categories/Types of Foods Purchased
THE CONTROL PROCESS & PURCHASING
Food Categories/Types of Foods Purchased
Drives the frequency & quantity of Purchasing & Costing
Perishable food (frequent orders in limited quant) Typically fresh foods that have a comparatively short useful life after they have been received / Direct Issue
Nonperishable food (less frequent orders in larger quant) Items, often referred to as groceries or staples, that have a longer shelf life / Stores
YOUR OWN EXAMPLES ?

4. Food Categories/Types of Foods Purchased
THE CONTROL PROCESS & PURCHASING
Food Categories/Types of Foods Purchased
Drives the frequency & quantity of Purchasing & Costing
Categorizing Importance
Has to do with the
Amount purchased
Frequency of purchase
Cost treatment in food cost calculations
Some factors --> Location/ seasonality/ type of operation

5. Establishing Quality Standards & Standard Purchase Specifications
THE CONTROL PROCESS & PURCHASING
Establishing Quality Standards & Standard Purchase Specifications
helps insure all F&B purchased will be of the desired
quality for their intended use.
Basis is the menu
Define degree of excellence of Raw Materials
cans/beef/seafood/eggs/organic/Scotch/Champagne
Decisions Re: brand, size, grades, freshness, delivery
Consistent products require consistent raw materials
Ideally, for each and every purchased item
Goal: Standard Purchase Specification
based on owner/chef/manager’s experience
Federal gov. grading specs &/or industry standards

6. Advantages of Standard Purchase Specifications
1. Forces managers to determine exact requirements in advance for any product
2. Useful in menu preparation
3. Eliminates misunderstandings between stewards and purveyors
4. Circulation of specifications for one product to several purveyors makes competitive bidding possible
5. Eliminates the need for detailed, verbal descriptions of a product each time it is ordered
6. Facilitates checking food as it is received
Makes sure that everyone is on the same page

7. Standard Purchase Specifications

8. Establishing Quantity Standards & Procedure
THE CONTROL PROCESS & PURCHASING
Establishing Quantity Standards & Procedure
Need to be continually revised, probably with each order.
Goal: Determine appropriate quantity for each item
based mainly of useful life of item
deal with measures
weight/volume/count/ for buying & selling portions
& labor control
historical usage data and covers forecast are helpful
foods are divided into perishables and non perishables
Purchasing procedures differ for each category

9. PERISHABLES By definition, use what you have before buying more
Determine quantity on hand vs. what will be needed
quantity needed (to meet future needs) --> par/par stock/min-max
The above should be done daily (by steward)
Cost/Benefit- what is steward’s time worth
Use Market Quotation List
should be listed in order they are stocked
could include fruits/veg/meat-poultry/seafood
Then based on needs, place order
chef/kit manager is best one to supply the needs

10. PERISHABLES + AMOUNT NEEDED (par) AMOUNT ON HAND
then order the difference
PAR >> quantity you require to meet
anticipated needs in some specific upcoming
time period.
Other definitions of PAR >> # of units & time related
> max. quantity of an item to have on hand at all times
> quantity that should be on hand at ALL times
> min-max range that varies

11. PERISHABLES Steward Market Quotation List
example of a standard form (a very useful tool)

12. NONPERISHABLES Goal: should be a “pull system” like Toyota’s JIT
Not issue of quality deterioration like perishables but a “cash tie up”
Goal: should be a “pull system” like Toyota’s JIT
excess inventory is today’s business poison (theft/emps/space)
maintain appropriate level using infrequent order method
Storeroom controls
labels on shelves & permanent locations
Market Quotation Lists not normally used
Question arises-when to reorder and how much to order
Periodic order method
Most common method
Can have regular order dates with fixed intervals (1/week)
Perpetual inventory method
- Like a checkbook >> a running balance
BUY ONLY WHAT IS NEEDED~ANTICIPATED

13. NONPERISHABLES - Con’t
How to anticipate quantity needed for next period
guess √ good memory
supplier records √ bin cards (text 119)
Bin Cards
on the shelf (2x purpose) records each IN & OUT instance
useful info: item size/vendor/last price
verify on-hand with physical count
important Order Quantity considerations
one component “desired ending inventory (DEI)” (lag time)
- calculated using daily usage & delivery time
one component “safety margin” (extra biz)
Usually 50% or 100% of (normal usage x delivery time)
Cost/Benefit
lots of record keeping required = a non-revenue expense

14. Periodic Order Method for Nonperishables
storage space a factor
company inventory policy a factor
the 2 important quantities are
Normal usage (historic data)
Desired ending inventory
they will vary the menu/weather/etc
+ Amount required for the upcoming period
– Amount presently on hand
+ Amount wanted on hand at the end of the        period to last until the next delivery
= Amount to order
Must constantly review 2 quantities:
Normal Usage & DEI

15. Periodic Order Method for Nonperishables
Usage = 7 cans / week ==> 1 can / day
Delivery time = 5 days
Ordering for 2 weeks
How we arrived at DEI of 10 cans ?

16. Periodic Order Method for Nonperishables
Usage = 7 cans / week ==> 1 can / day
Delivery time = 5 days
Ordering for 2 weeks

17. Perpetual Inventory Method for Nonperishables
Purpose
Ensure sufficient but not excessive quantities
Provide effective control of items in storage
Implementation
Uses Perpetual Inventory Card (manual or computerized)
Negative side is that can require daily ordering
Perpetual Inventory Card
Like Bin Card, but kept “remote” from storeroom location
better control b/c not maintained by storeroom staff
additional Info: reorder point / par stock / reorder quantity
Reorder point
requires normal usage+delivery time+safety margin
= Desired Ending Inventory (DEI) of the Periodic Method
Par stock (amount needed to meet anticipated needs in some period)
To establish must consider following CONSTRAINTS

18. Perpetual Inventory Method for Nonperishables
Par Stock Quantity Constraints
1. Storage space (less is better)
2. Limits on total value of inventory prescribed by management (cash flow)
3. Desired frequency of ordering
4. Usage
5. Purveyors’ minimum order requirements (pack size/delivery)
Reorder Quantity
Quant. that will be reordered when the Reorder Point reached.
Quant. should bring Total Inventory up to the Par Stock level.
+ Par Stock 15 (text pg 122)
- Reorder Point 10 (or DEI)
= Subtotal (difference)
+ Normal usage until delivery 5 (1/day x 5 days : add back in)
= Reorder Quantity 10 (12 cans b/c come 6/case)
when delivered, inventory will be 16 cans or near Par Stock

20. Perpetual Inventory Method for Nonperishables
GENERAL FORMULA
Par stock
- Reorder point
= Subtotal
+ Normal usage until delivery
= Reorder quantity
NOTE: Hybrid Method
- Process used must be based on needs of organization
(+) perpetual > better control (records kept outside of storeroom)
- (-) perpetual > requires daily ordering
- (-) periodic > comparative absence of control
Most common Hybrid
Reorder points and pars set high enough that they function only as a signal that on next scheduled order day item needs to be reordered.

21. Establishing PRICE Standards
THE CONTROL PROCESS & PURCHASING
Establishing PRICE Standards
Recall: Purchase Standards (specifications) give Quality to Buy
Inventory Procedures give Quantity to buy
CONSIDERATIONS
Purveyors (Suppliers/Vendors)
Sources are Critically Important (supplier credit)
best to use a mix based on
size/mgmt preferences/organization’s finances
will always be a trade off decision
wholesalers
local producers
manufacturers
packers
local farmers
retailers
coops
importers

22. Establishing PRICE Standards (con’t)
THE CONTROL PROCESS & PURCHASING
Establishing PRICE Standards (con’t)
CONSIDERATIONS
Price Quotations
compare prices from various vendors
best way to insure most favorable price (all else being equal)
phone/fax/mail/sales rep. visit/online/direct computer link
- to obtain prices & place orders (purchase)
Quote Frequency
Perishables: prices change daily but quoted for a week
Nonperishable: about the same process
Purchasing Decisions
more of a cost/benefit decision
who &/or how many purveyors wanted
delivery time > reliability > # of items carried
local competition places big role in choices available

23. Centralized Purchasing
Used by chains and coops created for independents
Advantages
1. Foods and beverages can be purchased at lower prices because of volume
2. Desired quality can be obtained more readily because the purchasing agent has a greater choice of markets
3. Foods can be obtained that meet the purchaser’s exact specifications
4. Larger inventories can be maintained, ensuring reliable supply to individual units
5. The possibilities for dishonest purchasing in individual units are greatly reduced

24. Centralized Purchasing (con’t.)
Trade off: lower prices for not having decision making power
Disadvantages
Each unit must accept the standard item in stock and has little freedom to purchase for its own peculiar needs
2. Individual units may not be able to take advantage of local “specials” at reduced prices
3. Menus are ordinarily standardized, limiting the individual unit manager’s freedom to change a menu
Almost always requires a distribution infrastructure
STANDING ORDERS (2 MAIN TYPES) {usually bread & milk]
1. Delivery Of Specific Quantity Daily
2. Replenishing up to a predetermined number (PAR)