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Stop Food Cost from getting out of Control.

If you run a blue-collar sandwich shop you better not be purchasing items like Fois Gras. But how do you implement an intelligent food purchasing program? Hopefully, these guidelines will help in creating a useful tool for your establishment.

Purchasing more than needed

Although this is obvious, here are some of the nuances which go along with over purchasing:

  • The most obvious, excess product can result in spoilage and waste
  • You may decide to sell specials at a discounted rate to move product before it goes bad
  • The extra product increases the chance that FIFO (first in, first out) will not be followed and you will lose product due to improper rotation
  • The excess product increases the opportunity for theft and decreases the chances of its detection

Purchasing for too high a cost – no bid system to get the best price

The natural tendency to want to be “nice” or “friends” with people will conflict with the need to operate a business and make purchases based upon business needs. Having no bid system in place will certainly make it harder to make your salesmen competitive in their pricing. Having a bid system in place forces your vendors to compete to get your business based best price for the best product. Remember, it is NOT about getting the Best Price…it is about getting the Best Product at the best price (who cares if you got a killer deal if the product is dog shit!).

Here are some things to remember:

  • If no one is bidding on your product purchases then you are paying the highest price
  • You should have 2-4 vendors bidding on your business for items such as produce, beef and fish
  • Even if you have a contractual broad line vendor agreement, keep them honest by accepting bids from competitors
  • Do NOT simply buy based upon the lowest price
  • Buy according to the best quality at the best price
  • If you have to choose between quality and price… choose quality if it is measurable (don’t serve dog shit!)
  • Purchase according to your demographics and budget…you are not going to purchase Wagyu beef tenderloin to serve at Denny’s

No detailed Specifications – quality, weight, type

Detailed specs for the product are needed ]

to maintain consistency in recipes. But detailed specs are also needed to maintain consistency in quality and price. Product specs can be as simple as naming the pack size that you require, or it may include pack size and a specific quality from a specific vendor. For instance, if you butcher your Halibut then a 20/40 fish has a better yield than a 10/20 fish and the difference in yield will affect your food cost. How about your New York steaks? Are they an end to end cut or are they a center cut? Are they select, choice, or prime grade? If you are on vacation or sick, does your crew know which quality and spec to order? Is it labelled on your ordering sheets?

Detailed product specs can:

  • help minimize customer complaints and comps due to wrong product served
  • make recipes more consistent
  • make cost analysis and food cost more consistent
  • make portion sizes more consistent
  • make quality more consistent
  • ensure consistent ordering when you are not there
  • ensure consistent ordering when your purchaser or salesman is gone (and someone else places the order)
  • make it harder for an unscrupulous salesman to con you

No purchasing budget

A purchasing budget establishes, in theory, how much food you can purchase to meet your budgeted food cost as measured against forecasted sales. It’s important to remember that this number is based upon sales. So if you do half the amount of forecasted sales but spend all of your budgeted purchasing dollars than your food cost is in the tank. Likewise, if your sales are above forecast then you will need more dollars to purchase food for those additional customers. Use the same percentage to calculate your purchase budget.

If your actual sales are significantly (+5%) above the forecasted sales, and your manager or regional manager is giving you a hard time about purchasing above the purchasing budget amount, then run the numbers, make sure your percentage of purchases is in line with the budget. Present that info saying you are hitting the budget percent for purchases. If they still give you a hard time then they are either ignorant or pricks. The percentage is the most important part of this tool. I consider this to be one of the “lesser tools” in the food cost control tool kit. It can be helpful if things are way out of line, or if you want to fine-tune things. But if your food cost is generally in line, then don’t bother with this one unless you have a problem.

Things to remember:

  • Purchasing budget equals forecasted sales times budgeted food cost percentage for the month
  • Example: forecasted food sales of $200,000 x cost budget of 35% = purchasing budget of $70,000
  • Use the Declining Balance Sheet to help track your daily trend against the purchasing budget
  • The most important part of this tool is hitting the %, not the number

No audit of invoices and payments

If you are in the habit of simply signing invoices at delivery and writing a check when the bill is due then a food cost problem could be hiding here. An audit (verification) of invoices and payments should always occur with all invoices and payments. It can save you money. An actual invoice audit in accounting terms is more detailed than this, but here are the basics you should check.

For Invoices:

  • Check invoice items delivered against your PO or order sheet
    • Did you get what you asked for?
    • Is it the right spec?
    • Did you get subbed or outed on an item?
    • Did something get rejected when it arrived? Where is the credit for that item?
    • Verify that items with a bid price are at the price you were bidding
    • If non-food items are on the invoice be sure they are properly coded for your budget and general ledger (i.e. equipment coded to the kitchen equipment, etc.)
    • Verify that the totals are correct both in the extensions and in the total
    • Verify payment against invoiced amount
      • Are any/all credits and adjustments accounted for?

For Payments:

  • Verify payment against invoiced amount
    • Are any/all credits and adjustments accounted for?

Too Many Vendors

While too few vendors stifle competition, too many strangle it. You have X dollars in purchasing power for each type of vendor (broad line vendor, produce, beef, etc). If you cut that dollar amount into too many small pieces then the business the vendor receives may not be worth the discounted price you want. As a general rule, 2 to 4 vendors bidding for each segment of your business is best (based upon the volume you do). That does not mean that you will only have 3 or 4 vendors. Some things you can only get through a specialty vendor and they may be the only viable source for that product. I like to receive 3 bids for fresh seafood and beef, 4 bids for fresh produce and have a contract agreement for food staples through a national broad line vendor. And it is worth mentioning again, I purchase by defining my quality expectation first and then seeking the best price for that quality. The best price should ALWAYS be secondary to the best quality for the price range.

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Written by Chef_Kory

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