Controlling Food Costs in Receiving, Storage and Issuing

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

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The Receiving Process
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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.

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The Receiving Process
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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
  operations standard operating policies and
  procedures.

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Steps for Receiving continued
Credit Memo Form
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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

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Storage of Inventory
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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.
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Storage Practices Impact Profits

• Spoilage of products
• Theft of products

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Sales Needed to Replace the Value of Spoiled or
Stolen Items

• Assume 5 restaurant net profit
• Assume loss of two steaks _at_ 7.00 cost each

Amount lost Net profit percentage Additional sales required to replace lost revenue
14.00 0.05 14.00 0.05 14.00 0.05 280.00
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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

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Controlling Spoilage continued

• Excellent sanitation practices help minimize
  spoilage loss.

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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!

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Dry Storage
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Fresh Fruits and Vegetables
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Eggs and Dairy
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Meat and Poultry
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Fish
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Proper Sanitation Is Key

• 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.

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Proper Sanitation Is Key continued

• 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.

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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.

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Sample Requisition Form

• Large foodservice operations may use a
  requisition system to help control theft-related
  losses.

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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.

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Perpetual Inventory Sheet
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Common Inventory Breakdowns

• Meats
• Dairy
• Bakery
• Produce

• Frozen foods
• Canned foods
• Dry goods

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Common Inventory Breakdowns continued

• The type of restaurant you manage will help
  determine the specific inventory breakdowns best
  suited for your use.

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Sample Inventory Sheet
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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.

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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.

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Comparing Valuation Methods
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Inventory Valuation

• Lets review an additional resource
• Extra Credit Worksheet

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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

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Inventory and Cost of Food Sold

• Inventory value is a critical component of the
  cost of food sold formula.

Opening inventory
Purchases
Total food available
Closing inventory
Cost of food sold
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Extending and Totaling
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Inventory Turnover Calculation

• Step 1 Calculate average inventory.
• Step 2 Calculate the inventory turnover.

( Opening inventory Closing inventory ) 2 Average inventory
Cost of food sold Average inventory Inventory turnover
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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 consideration
  bankers use to evaluate a business for loans!!!

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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)

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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

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Daily Food Cost Percent Calculation Using
Perpetual Inventory

• Step 1 Compute daily food cost.
• Step 2 Compute food cost percentage.

Requisitions
Transfers in
Transfers out
Daily food cost
Daily food cost Daily unit sales Daily food cost percentage
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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

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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.

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Next Week

• Review Quiz 4 (Chapters 5 6)
• Read Chapter 7

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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 items 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
operations food and supplies.
Inventory turnover A measure of how quickly an
item in storage is used.
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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.
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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.
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Key Terms continued
Temperature danger zone Food kept out at a
temperature of 41F to 135F (5C to 57C) 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.