controlling food costs in receiving, storage and issuing

OH 6-1

Controlling Food Costs in Receiving, Storage and Issuing

6OH 6-1

OH 6-2

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.

OH 6-3

The Receiving Process

OH 6-4

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.

OH 6-5

The Receiving Process

OH 6-6

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.

OH 6-7


Credit Memo Form

OH 6-8


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

OH 6-9

Storage of Inventory

OH 6-10

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.

OH 6-11

Storage Practices Impact Profits

Spoilage of products

Theft of products

OH 6-12

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

Amount lost ÷ Net profit

percentage = Additional sales required to replace lost revenue

$14.00 ÷ 0.05 = $280.00

OH 6-13

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

OH 6-14

Controlling Spoilage continued

Excellent sanitation practices help minimize spoilage loss.

OH 6-15

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!

OH 6-16

Dry Storage

OH 6-17

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.

OH 6-22

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.

OH 6-23

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.

OH 6-24

Sample Requisition Form

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

OH 6-25

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.

OH 6-26

Perpetual Inventory Sheet

OH 6-27

Common Inventory Breakdowns

Meats

Dairy

Bakery

Produce

Frozen foods

Canned foods

Dry goods

OH 6-28

Common Inventory Breakdowns continued

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

OH 6-29

Sample Inventory Sheet

OH 6-30

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.

OH 6-31

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.

OH 6-32

Comparing Valuation Methods

OH 6-33

Inventory Valuation

Let’s review an additional resource

Extra Credit Worksheet

OH 6-34

Valuing Heavy Cream Inventory

Given the following purchases: May 15 12qts $3.40 June 30 6qts $3.69Ending inventory is 9 qts Heavy Cream. Calculate my value based on:

LIFO

FIFO (official and modified)

Average

Actual

OH 6-35

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

OH 6-37

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

OH 6-38

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 consideration bankers use to evaluate a business for loans!!!

OH 6-39

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)

OH 6-40

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

OH 6-41

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

OH 6-42

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}

OH 6-43

How Would You Answer the Following Questions?

1. The greatest cause of inventory loss is (theft/poor buying practices).

2. The most common product storage method used in foodservice is (FIFO/LIFO).

3. The type of inventory that is based upon a theoretical count is called a

A. Breakdown inventoryB. Requisition inventoryC. Physical inventoryD. Perpetual inventory

4. Daily food cost divided by (unit sales/transfers out of inventory) equals daily food cost percentage.

OH 6-44

Next Week

Review Quiz 4 (Chapters 5 &6)

Read Chapter 7

OH 6-45

Chapter 6 Controlling Food Costs in Receiving, Storing, and IssuingChapter 6 Controlling Food Costs in Receiving, Storing, and IssuingChapter 6 Controlling Food Costs in Receiving, Storing, and IssuingChapter 6 Controlling Food Costs in Receiving, Storing, and Issuing

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.

Inventory An itemized list of goods and products, their on-hand quantity, and their dollar value.

First in, first out (FIFO) A method commonly used to ensure that refrigerated, frozen, and dry products are properly rotated during storage.

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.

OH 6-46


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.

Padding Inflating the inventory for the purpose of reducing the food cost.

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.

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.

OH 6-47


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.

Short weight The amount a shipment actually weighs subtracted from the weight given on its label.

Requisition A form listing the items and quantities needed from the storeroom.

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.

OH 6-48


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.

Transfer A form used to track items going from one foodservice unit to another.

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.

Uniform Commercial Code (UCC) Sets of guidelines established to harmonize business transactions law across states.

controlling food costs in receiving, storage and issuing

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