COST CONTROL

1
COST CONTROL part 2 ------------------------------
- THE CONTROL PROCESS PURCHASING
2
Who is in Charge Responsible?
THE CONTROL PROCESS PURCHASING
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 --gt 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
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
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 --gt Location/ seasonality/ type of
operation
5
Establishing Quality Standards Standard
Purchase Specifications
THE CONTROL PROCESS PURCHASING
helps insure all FB 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/managers 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
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) --gt
  par/par stock/min-max
• The above should be done daily (by steward)
• Cost/Benefit- what is stewards 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 gtgt quantity you require to meet anticipated
needs in some specific upcoming time period.
Other definitions of PAR gtgt of units time
related gt max. quantity of an item to have on
hand at all times gt quantity that should be on
hand at ALL times gt min-max range that varies
11
PERISHABLES
Steward Market Quotation List example of a
standard form (a very useful tool)
12
NONPERISHABLES
Not issue of quality deterioration like
perishables but a cash tie up

• Goal should be a pull system like Toyotas
  JIT
• excess inventory is todays 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 gtgt a running balance

BUY ONLY WHAT IS NEEDEDANTICIPATED
13
NONPERISHABLES - Cont

• How to anticipate quantity needed for next
  period
• guess v good
  memory
• supplier records v 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 gt 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 gt 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 usagedelivery timesafety
  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
5 (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
19
(No Transcript)
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 gt better control (records kept
  outside of storeroom)
• - (-) perpetual gt requires daily ordering
• - (-) periodic gt 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
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/organizations
  finances
• will always be a trade off decision

wholesalers local producers manufacturers packers
local farmers retailers coops importers
22
Establishing PRICE Standards (cont)
THE CONTROL PROCESS PURCHASING

• 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 gt reliability gt 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
  purchasers 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 (cont.)
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 managers 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)