Controlling Food Costs in Receiving, Storage and Issuing

1. Controlling Food Costs in Receiving, Storage and Issuing 6 OH 6-1

2. Learning Objectives • Explain the process for managing vendor delivery schedules. • Describe the proper procedures for receiving goods. • Discuss food storage techniques and the FIFO method of stock rotation. • Identify and describe proper methods of taking inventory and the various methods of inventory pricing. • Describe the issuing process, including issuing beverages.

3. The Receiving Process

4. Steps for Receiving • Step 1 – Delivery person brings products to receiving area. • Step 2 – Check products against the purchase order. • Step 3 – Check products against purchase specifications. • Step 4 – Check delivery quantity against the invoice and the purchase order.

5. The Receiving Process

6. Steps for Receiving continued • Step 5 – Match invoice prices to purchase order prices. • Step 6 – If everything matches correctly, sign the invoice. • Step 7 – Put delivered products in proper storage areas. • Step 8 – Process paperwork in keeping with the operation’s standard operating policies and procedures.

7. Steps for Receiving continued Credit Memo Form

8. Steps for Receiving continued • Concerns in receiving • Adequate tools to complete the receiving task • Scales, thermometers, carts, hand trucks, etc. • Commercial fraud: short weights and slack-out seafood • Employee training • Knowledge, commitment, ability and attitude

9. Storage of Inventory

10. Issuing & Perpetual (Running) Inventory Issuing = distribution of food, beverage or other products from storage areas to the production or service staff. Perpetual Inventory = ongoing running total of what should be in inventory based on what is brought into and taken from inventory.

11. Storage Practices Impact Profits • Spoilage of products • Theft of products

12. Sales Needed to Replace the Value of Spoiled or Stolen Items • Assume 5% restaurant net profit • Assume loss of two steaks @ $7.00 cost each

13. Controlling Spoilage • Storage loss from spoilage is usually caused by carelessness. • Spoilage loss can be controlled. • Spoilage is caused by • Improper product rotation • Time abuse • Temperature abuse

14. Controlling Spoilage continued Excellent sanitation practices help minimize spoilage loss.

15. First In First Out (FIFO) • Use for refrigerated, frozen, and dry products • Use oldest product first. • Relies on • The receiving clerk (to rotate stock properly) • The person using the product (to choose properly) • Must be continually monitored by management!

16. Dry Storage

17. Fresh Fruits and Vegetables

18. Eggs and Dairy

19. Meat and Poultry

20. Fish

21. Store foods away from walls and at least six inches above the floor. Store dry goods in airtight containers. Walls and floors should be nonporous and easily cleaned. Proper Sanitation Is Key

22. Rotate stock to minimize spoilage. Organize products so they are easily found. Label shelves and sealed food containers. Include “use by” dates and name labels for all stored products. Proper Sanitation Is Key continued

23. Controlling Theft • Keep storage areas locked whenever practical. • Establish a par stock per shift system for key ingredients. • Issue secondary sets of keys on an as-needed basis only. • Restrict delivery drivers from access to storage areas or walk-ins.

24. Sample Requisition Form Large foodservice operations may use a requisition system to help control theft-related losses.

25. Inventory Types • Perpetual inventory • A count based upon additions to (purchases) and subtractions from (requisitions) storage • If records are properly kept, it is always up-to-date. • Physical inventory • An actual count of inventory items • Usually taken to obtain information for theincome statement.

26. Perpetual Inventory Sheet

27. Meats Dairy Bakery Produce Frozen foods Canned foods Dry goods Common Inventory Breakdowns

28. Common Inventory Breakdowns continued The type of restaurant you manage will help determine the specific inventory breakdowns best suited for your use.

29. Sample Inventory Sheet

30. Inventory Valuation Methods • FIFO • First in, first out • Inventory is valued at its most recent (latest) cost. • Oldest product is used first. • LIFO • Last in, first out • Inventory is valued at the cost of the oldest product but factored forward for ending inventory (example) • Newest product is used first.

31. Inventory Valuation Methods continued • Averaged price method • Inventory is valued at a composite of all prices paid for the item. • Actual price method • Each inventory item is valued at its original purchase price.

32. Comparing Valuation Methods

33. Inventory Valuation • Let’s review an additional resource • Extra Credit Worksheet

34. Valuing Heavy Cream Inventory Given the following purchases: • May 15 12qts $3.40 • June 30 6qts $3.69 Ending inventory is 9 qts Heavy Cream. Calculate my value based on: • LIFO • FIFO (official and modified) • Average • Actual

35. Inventory and Cost of Food Sold • Inventory value is a critical component of the cost of food sold formula.

36. Extending and Totaling

37. Inventory Turnover Calculation Step 1 – Calculate average inventory. Step 2 – Calculate the inventory turnover.

38. Average Inventory Turnover • Industry averages vary per concept • Rules of thumb for turnover • 1 – 2 times per week (4-6 times per month) • 1 ½ times the weekly food cost • Liquor – approximately 7 – 12 times per year (once a month) • Inventory turnover is the #1 considerationbankers use to evaluate a business for loans!!!

39. How Much Inventory To Carry • Low end would be your cost of goods sold ÷ 6 $25,000 ÷ 6 = $4,167 Inventory value (low end) • High end would be your cost of goods sold ÷ 4 $25,000 ÷ 4 = $6,250 Inventory value (high end)

40. Number of days of inventory Another measure of inventory turnover: Calculate the average daily food cost Food cost ÷ # of days in period = Avg daily food cost Calculate days sales in inventory Ending food inventory ÷ Avg daily food cost = Days sales in inventory

41. Daily Food Cost Percent Calculation Using Perpetual Inventory Step 1 – Compute daily food cost. Step 2 – Compute food cost percentage.

42. Beverage Inventory Management • Processes similar to food inventory management • Perpetual inventory method used to track flow of alcohol into and out of storage through requisitions • Breakage is tracked on the requisition form also {product emptied during shift} • Par levels established for every shift • Depletion allowance form to track spillage, transfers or complimentary drinks • Physical audit of inventory compared to perpetual inventory {tenthing to estimate product in bottles}

43. How Would You Answer the Following Questions? • The greatest cause of inventory loss is (theft/poor buying practices). • The most common product storage method used in foodservice is (FIFO/LIFO). • The type of inventory that is based upon a theoretical count is called a • Breakdown inventory • Requisition inventory • Physical inventory • Perpetual inventory • Daily food cost divided by (unit sales/transfers out of inventory) equals daily food cost percentage.

44. Next Week • Review Quiz 4 (Chapters 5 &6) • Read Chapter 7

45. Key Terms continued: Directs Items that are charged to food cost as they are received by the operation, on the assumption that these perishable items will be used immediately. Extending Multiplying the number of units of each item by the item’s unit price. First in, first out (FIFO) A method commonly used to ensure that refrigerated, frozen, and dry products are properly rotated during storage. Inventory An itemized list of goods and products, their on-hand quantity, and their dollar value. Inventory breakdown A method of categorizing the operation’s food and supplies. Inventory turnover A measure of how quickly an item in storage is used.

46. Key Terms continued: Issuing Taking food or beverage products from storage. Key drop delivery Delivery of food items and goods after hours when the establishment is closed for business. Last in, first out (LIFO) An inventory method used when an establishment intends to use the most recently delivered product before using any part of that same product previously on hand. Latest price method A method that uses the latest price paid for a product to value an inventory; this is the most widely used pricing method in the restaurant and foodservice industry. Padding Inflating the inventory for the purpose of reducing the food cost. Perpetual inventory A theoretical count based on goods received and issued, which exists on paper only. Physical inventory An actual physical count and valuation of all items on hand.

47. Key Terms continued: Reduced oxygen packaged (ROP) bulk food Food contained in a package in which (a) oxygen has been removed, (b) oxygen has been displaced with another gas or combination of gases, or (c) something else has been done to reduce the oxygen content to a level below that which is normally found in air; also called reduced oxygen packed bulk food. Requisition A form listing the items and quantities needed from the storeroom. Short weight The amount a shipment actually weighs subtracted from the weight given on its label. Slack-out seafood A type of fraud in which frozen seafood is thawed to appear fresh. Stores Items that are considered part of the inventory until issued for use in an establishment and are not included in food cost until they are issued.

48. Key Terms continued: Temperature danger zone Food kept out at a temperature of 41°F to 135°F (5°C to 57°C) for a total of more than four hours is unsafe and must be discarded. Time and temperature control Policies and procedures that monitor the amount of time and the ongoing temperature of food products in the flow of food. Transfer A form used to track items going from one foodservice unit to another. Uniform Commercial Code (UCC) Sets of guidelines established to harmonize business transactions law across states.