2. Value Revisited Reducing Costs

3. Describe the concept of value and its dimensions. Understand the relationship among AP price, EP cost and value. Cost out standardized recipes.

4. Compare the AP prices and EP costs from multiple vendors. Ability to suggest a variety of methods to increase overall value. Ability to create a variety of ways to reduce AP prices.

6. Introduction (cont.) – Also true of Supplier Services: focus on what you have to have Vendors may not give you all of the services or price breaks you want

7. Introduction (cont.) – To increase overall value and reduce AP prices Know what you need Keep a good head for numbers Don’t be influenced by sales pressures

8. Specifications Revisited: Here’s where you determine what it is that you need!

9. Standard Recipes Revisited – Just as critical as specifications – Highlights expensive ingredients – Recipes should be written with AP amount for each ingredient – Calculating and adding AP prices for all ingredients and dividing by number of servings the recipe makes gives the cost for one portion

10. Standard Recipes Revisited – You must cost out as many recipes as there are potential vendors for the items in that recipe – The yield percentages may be different for different vendors – Different grades of product from the same vendor may give different yield percentages

11. Standardized Recipes Revisited – When you find an AP price variation, order from the vendor who is truly less expensive – Don’t want to do the tests on all ingredients? Track the most expensive ingredients – check AP prices and convert to EP costs for vendor comparisons Average restaurant kitchen has 600 to 800 ingredients in stock but only 20 to 25 account for almost 80 percent of total food purchases

12. Standard Recipes Revisited Example – Three vendors sell brisket by the pound Vendor A: $3.79/pound; 75% yield percentage Vendor B: $4.25/pound; 90% yield percentage Vendor C: $4.15/pound; 82% yield percentage (everything else is similar: delivery schedule, bill-paying procedures, etc.)

13. Standard Recipes Revisited AP price ÷ Edible Yield Percentage = EP cost per unit Vendor A: 3.79 ÷.75 = $5.05 (EP) Vendor B: 4.25 ÷.90 = $4.72 (EP) Vendor C: 4.15 ÷.82 = $5.06 (EP) Vendor B would get your business based on EP cost per pound

14. Practice Problem Fresh Poultry: $4.50/pound (AP), 75% yield percentage What is its EP cost per pound? 4.50 ÷.75 = $6.00 per pound Note: the EP cost per unit is almost always higher than the AP price per unit

15. Practice Problem Ranch Dressing: 90 edible yield percentage; 1½ ounce (EP); $8.25 per gallon (AP price) Calculate the EP cost for one serving 8.25 ÷.90 = $9.17 EP cost per gallon 9.17 ÷ 128 (ounces per gallon) = $0.07 $0.07 × 1.5 = $0.11 EP cost per serving

16. Practice Problem Beef tenderloin: $12.45/pound (AP price); 70% edible yield percentage Calculate the EP cost for a five-ounce serving $12.45 ÷.70 = $17.79 EP cost per pound 17.79 ÷ 16 = $1.11 EP cost per ounce 1.11 × 5 = $5.55 EP cost per serving

17. Practice Problem Pinnacle Vodka: 90% servable yield; 45 ml serving size; $27.95/1.75 liter bottle (AP price) Determine the cost of a servable portion of vodka? $27.95 ÷.90 = $31.06 $31.06 ÷ 1,750 ml = $0.018 Servable Portion cost per serving = $0.018 × 45 ml = $0.81

18. Practice Problem 32 Pounds of Turkey: $2.40/pound (AP); $1.43 (EP) How many servings can you get from the 32 pounds of turkey? 1 portion is to $1.43 as X portions is to $76.80 X = (1 ÷ $1.43) × $76.80 X = approximately 54 servings

19. Practice Problem 30 pounds of a food item @ $5 per pound (AP); EP cost is $1.52 per serving How many servings are available for sale? 30 pounds × $5 = $150 1.52 ÷ 1 = 150 ÷ X X = 150 ÷ 1.52 = 99 servings

20. Practice Problem Total amount used in recipe: 50 pounds of meat, 4 quarts of sauce How many will a single recipe serve, if the serving size is 9 ounces? 50 pounds × 16 ounces per pound + 4 quarts × 32 ounces = 928 ounces or 103 servings (approx.)

21. Cutting calculation time – Track the 25 most expensive ingredients in the kitchen – Buy products that guarantee a “100%” yield (some may be too expensive) – Be cautious when adding convenience foods

22. Reduce Product Quality (a bit scary) Reduce Portion Size (better than reducing quality and can be an “invisible” change) Use Substitute Products (a test of your culinary skills) – Look at trade publications – Visit relevant web sites

23. Evaluate the Use of Convenience Foods – May be expensive – Does your multi-item menu require the use of convenience foods? One-Stop Shopping – Saves on administrative costs – Are you buying convenience?

24. Trade-Outs – Work best when done directly-not through an intermediary Provide Your Own Support Functions – Direct buying (from large manufacturer or farmer) – Shipping may cost more than vendor markup – Returns may be a challenge

25. Co-Op Buying Theory – large order of several small operators will qualify for reduced AP price Administrative costs may overshadow savings Buying clubs are an option

26. Discounts – Quantity discount – Volume discount – Prime-vendor discount – Cash discount – Promotional discount – Forklift discount – User discount

27. Discounts – Introductory discount – Trade-show discount – Freight-damaged discount – Odd-hours discount – Proprietary-brand discount

28. Ask and you might receive – Negotiating is a two-way street: what do you have to give? – Ask – What are today’s promotions? – Monk fish on sale? Think of the ways you could use it… – Ask for an enhancement such as a few dozen dinner rolls to go with your breakfast pastries – Never let a vendor get too comfortable with you as a customer

29. Practice Problem Restaurant waste -- $783 each month Budget – 14% profit on sales revenue How much additional revenue must be generated to recoup the waste? 783 ÷.14 = $5,593 (approx.) per month or $67,116 (approx) per year

30. Practice Problem Restaurant waste -- $783 each month Budget – 5% profit on sales revenue (industry standard) How much additional revenue must be generated to recoup the waste? 783 ÷.05 = $15,560 per month or $187,920 per year

31. How Do Vendors Figure Out What AP Prices to Charge? – AP price as a function of the cost of doing business – AP price as a function of competitive pressure – AP price as a function of supply and demand – AP price as a function of retail value – AP price as a function of buyer pricing