GAYLE MEISNERUNIVERSITY OF CONNECTICUT

Appropriate Inventory Levels

THE PROJECT

• For the Spring semester, I was given a project to work with some locations to develop a P&P on appropriate inventory levels. Our Director felt that many locations were carrying too high of inventory levels, and he wanted to decrease our risk exposure by having locations carry the minimal amount of inventory necessary to operate. He also wanted a P&P to give people a guideline and something to hold people accountable to.

• This will continue to be reviewed in the fall semester.

WHERE TO BEGIN?????

Let’s see what’s on the internet…..

I found a couple articles that all seemed to reference 6-7 days of food on hand. One article actually broke produce out further to be 2-3 days. The main drive of these articles was that “reducing inventory results in reducing your food cost percentage due to less spoilage, less waste, better portioning, less theft, essentially much more overall care in handling your inventory when there is less of it to go around.”

Our Asst Director of Retail had always said 2-3 days of sales, but we weren’t sure how to apply that to a board plan or commissary location. (When we compared this to our test, 6-7 of food on hand did = approx. 2-3 days of sales in the CS.) The 6-7 days seemed the easiest for me to wrap my head around, so that is what we went with. On the last slide, I listed the links to information I found.    

What the articles didn’t address:

• Most of these articles were written for a restaurant – with one reference a food truck. So, how would this work in a board plan university environment with a 4 week rotating menu?

• Frequency of delivery: How many deliveries were they getting to aim for 6-7 days of inventory?

• Odd-ball ingredients, particularly spices, that cost a lot and are used in a small amount once every 4 weeks.

• Hard to get items, or infrequently delivered items where the locations had to buy in bulk.

• What about low volume dining halls or coffee shops? One of the army quartermaster slides did allow for higher

inventory for locations closed the previous month or less then 100 lunch covers.

Other obstacles

It was hard to make a comparison from semester to semester or year to year, because our menus and process changed from semester to semester. There were numerous changes made in the dining halls and retail operations that increased or decreased their food expenses independent from this project.

Prior to beginning this project, it was decided that the smallest CS didn’t turn product over quick enough, such as a case of soda, so we set up some internal order groups for them to buy in smaller increments from a busier shop.

As a result of the project, we did the same for the smaller dining halls. We arranged for one dining hall to buy from another using an internal order group. We arranged with our commissary to pickup and deliver.

So, I asked for volunteers

We had a plan, now we had to tackle it. The managers of 2 of our two smallest dining halls volunteered, as well as the CS manager. In hindsight, I should have used a large dining hall and small dining hall, but anyway….

As a point of reference, for the most part, our locations get 3 day a week delivery.

I met weekly with the two dining halls to look at numbers and talk about progress, issues, ect. I met less frequently with the 7 coffee shops - so they did this mostly on their own.

The first report we used was the LCS

• We analyzed this weekly – but in a whole new way!

• The Period Actual cost column showed me what we used for a week. Perfect! I divided that number by 7, and I got the average daily use.

• Ending inventory values gave me exactly that. Divided that number by my daily use number above, and I got how many days in inventory, by category. (When looking at the total period actual costs, I subtracted the prepared product transfers from the period actual cost values because we wanted to focus just on inventory levels.)

Grocery: 4028.4/7 = 575.49 ~ 13386.6/575.49 = 23 days in inventory Produce: 3138.43/7 = 448.34 ~ 1982.59/448.34 = 4.42 days in inventory

The LCS identified the areas to start…

• We used Inventory Usage Report to identify items that we had too much quantity on hand.

• I then used our Vendor Projection Report to see if other locations had these excess items ordered so that we could transfer them instead of them being ordered. These were items that would not have been used up by the end of the semester.

• We used Inventory Analysis to identify items that were high in value.

So, lets take a look at some of the examples….

Inventory usage reports uses the use period dates set up in global. Ours are set up monthly.

DATE DATE PERIOD LAST LAST || DAYS TURNOVER ITEM DESCRIPTION UNITS USAGE PURCHASED USED || ON-HAND SUPPLY RATE ---- ------------------------------- ---------- ------- --------- -------- || ------- ------ --------

A couple more inventory usage examples:

Produce:

Let’s take a look at one of our newer Coffee ShopsThey are a 5 day/wk operation, so in total they have 12.42 days in inventory1803.16-1043.62 = 759.54/5 = 151.91 per day 1887.63/151.91 = 12.42

Because the grocery category had the highest inventory values, I looked at items in that category on the inventory analysis, and identified a few items that were high in value.

Even though $13.45 doesn’t seem like something to look at, in a low volume shop like this, it makes a huge difference.

You may notice they bought another bag of coffee even though they didn’t even use part of the two they had..

If inventory was minimized, they would only have: .25 boxes of kind bars, 1 bag of coffee, and 1 case of mudslide coffee = $95.34 vs 193.47, or about 50% less.

Fighting the mind-set

BUT…this is what FoodPro ordered me………I think this is where I spent most of my time……There were on-going inventory taking issues, recipe issues, improper forecast, improper service records, incorrect or missing ACI’s, recipes not being followed.…….it really turned out to be a training experience. BUT…I need this much……I put it on my salad bar everyday….According to your inventory usage, you have 14 days of broccoli on hand. You get delivery 3 times a week. The most you need is XX BUT…what is we are busier than forecasted for, ….I need extra… (Even though the person forecasting already built in a cushion, there is a pad on the item, …they still wanted to order more….)

How to have enough without running out:

From my Assistant Director of Retail Operations: “Let’s look up your busiest day. Add 10% on top of that. You get daily deliveries, there is no reason you should ever have more then XX on hand.”

From one of the articles: “The goal is to not reduce inventory to the point that you run the risk of constantly running out of product. It’s about reducing the amount of “excess” inventory that 98-100% of the time you don’t need and won’t use before the next delivery.”

Quotes I found myself repeating frequently:

The results – not what expected!

Dining Halls:We did not reduce our inventory levels in the 2 dining hall when comparing the values to the fall semester or the previous spring. We had the traditional decrease from the beginning of the semester to the end.

Why? As mentioned earlier, these were low volume dining halls with major menu changes. As an example, one of the dining halls switched to using all fresh vegetables instead of frozen and both began to offer higher cost price center of plate items.

Due to the low volume, their didn’t turn over inventory quickly – especially pricier, odd-ball items.

Revenue Labor ExpenseUnit YTD Prior Year % Diff Unit YTD Prior Year % Diff Unit YTD Prior Year % DiffUSM $3,936,860.28 $3,201,001.78 22.99% USM $1,975,540.72 $1,992,227.77 -0.84% USM $1,557,953.86 $1,628,362.80 -4.32%

                       

Unit YTD Prior Year % Diff Unit YTD Prior Year % Diff Unit YTD Prior Year % DiffBookworms $526,876.87 $414,419.08 27.14% Bookworms $191,893.47 $107,908.69 77.83% Bookworms $209,598.14 $216,300.83 -3.10%

Coop Cafe $337,210.24 $291,253.13 15.78% Coop Cafe $142,445.84 $102,740.86 38.65% Coop Cafe $153,462.12 $182,254.80 -15.80%

LePetit $112,112.35 $108,579.47 3.25% LePetit $103,328.96 $58,262.04 77.35% LePetit $57,060.72 $131,843.53 -56.72%

Chem Cafe $175,540.50 $150,225.99 16.85% Chem Cafe $42,237.43 $23,945.28 76.39% Chem Cafe $73,929.10 $91,878.90 -19.54%

Lu's Cafe $42,332.64 $41,175.62 2.81% Lu's Cafe $28,645.41 $20,595.34 39.09% Lu's Cafe $25,366.74 $29,314.57 -13.47%

Up & Atom $228,678.13 $196,178.30 16.57% Up & Atom $56,413.48 $30,173.14 86.97% Up & Atom $108,014.52 $103,264.22 4.60%

Wilburs $186,134.26 $185,765.18 0.20% Wilburs $68,068.52 $243,789.04 -72.08% Wilburs $85,499.58 $118,525.21 -27.86%

Beanery   $0.00 #DIV/0! Beanery   $0.00 #DIV/0! Beanery   $0.00 #DIV/0!

Total $1,608,884.99 $1,387,596.77 15.95% Total $633,033.11 $587,414.39 7.77% Total $712,930.92 $873,382.06 -18.37%

Even though there were other changes made that affected these numbers, we all agreed that decreasing their inventory contributed to the overall decrease.

The results – our coffee shops did show improvement!

It was quite a learning/training/education experience. We addressed so things that were not originally indented. It was getting the managers to think differently about what was in their stockrooms and their orders.

The phrase I find myself constantly saying: If you are constantly changing you modify delivery screen, figure out why and fix it. (Although I may steal Jason’s cartoon …)

Sometimes it felt like we were playing whack-a-mole – We’d take care of one issue, and another one would pop up.

THE RESULTS

In Conclusion:

• 6-7 days of inventory on hand is feasible for us, but exception parameters need to be identified for lower volume dining halls and shops.

• We have set up training in August for our staff that takes inventory.

• If adding a high cost/low usage item to a recipe – how long that item is going to be sitting on a shelf need to be taken into consideration.

• Another interesting point that one of the articles made was about buying in bulk. It stated that you save more money and maximize use of every product if you keep you inventory low.

• Thinking differently about inventory levels is the first step.

Sites used:

http://www.restaurantowner.com/public/377.cfm http://www.foodcostwiz.com/2007/07/food-inventory-levels.html http://www.quartermaster.army.mil/jccoe/Operations_Directorate/MAD/FMAT_Inventory_Management_Presentations.pdf   https://view.officeapps.live.com/op/view.aspx?src=http%3A%2F%2Fwww.quartermaster.army.mil%2Fjccoe%2Fpublications%2FFood_Advisors_Corner%2FInventory_Management.pptx http://www.accounting4management.com/maximum_limit_or_maximum_level.htm  

Questions?