Purchasing, Receiving, Storage, and Issuing Control

Purchasing

• Factors to consider when purchasing food:
  • Quality
  • Price
  • Shopping location
  • Quantity to buy
    • Exact quantities or estimates
    • Impact of packaging size

Factors for Selecting the Right Product

• Quality
• Processing Equipment and Staff Skills
• Storage Space and Type
• Shelf Life
• Brand and Mission
• Cost and Value

Product Specification ('Spec')

• Defines acceptable parameters for a product.
• Eliminates miscommunication between buyer & seller
• May list product characteristics such as:
  • Quality
  • Yield grade
  • Size
  • Processing
  • Brand name
  • Origin
  • Degree or ripeness
  • Color
  • Pack size
  • Container type

Purchase Specification

• A purchase specification is the product specification plus the delivery schedule and credit terms.

Choosing Purveyors

• Service
  • Should be flexible, reliable, easy to work with, willing to correct errors, with a helpful salesperson and reasonable payment/ credit terms.
• Product
  • Must be able to supply products to spec and in a safe, wholesome form.
• Pricing
  • Should be competitive in general (factoring delivery charges, too).

Calculating Purchase Quantities

• The process for determining quantities to order differs for perishables (short shelf-life) and non-perishables (long shelf-life)
  • Forecast: prediction of expected customers
  • Menu Mix: prediction of number of sales of each dish, often as a percent of total plate sales

Purchasing Quantities for Perishables

• Order only enough to get through to the next delivery to minimize spoilage, but with a small buffer.
• Consider current inventory and forecast sales.
• $Predicted Item Sales = Forecasted Guests \times Menu Mix Percent (as a decimal)$

Summary of Steps for Perishables

• $Order = forecast ingredient need – inventory expected$
• on hand at delivery
• $Inventory expected on hand at delivery = current inventory – expected inventory usage$
• Conduct current inventory count
• Calculate expected inventory usage between order placement and order receipt
• Calculate forecast ingredient need for order period

Two Non-Perishable Methods

• Periodic Inventory
  • Counting inventory only at regular intervals (week, bi-week, month)
• Perpetual Inventory
  • Keeping a constantly current database of inventory by updating inventory sheets or cards every time a product is removed from or added to the storeroom.

Periodic Inventory Purchasing System

• $quantity needed for upcoming order period = quantity currently in inventory + safety net quantity$

Which Inventory Method to Use

• Perpetual Inventory offers better control but requires a dedicated employee in the storeroom to record every product removal and addition.
  • Usually affordable only in large operations.
• Smaller businesses without a dedicated storeroom clerk usually use the periodic inventory system.

Make-Buy Analysis Factors

• To decide when to make a product from scratch vs. buying it premade:
  • cost of ingredients (cost per portion)
  • labor (direct labor cost)
  • energy cost in the decision-making process
    • (about $.25/hour for an oven)

Make-Buy Analysis

• $Cost \ per \ portion = \frac{recipe \ cost + direct \ labor \ cost + energy \ cost}{number \ of \ portions}$

Other Variables in Make- Buy Analysis

• Is quality of the two products similar or is one noticeably worse?
  • If customers sense decline in quality, business will decrease
• Does the restaurant have the space and equipment to make the product from scratch?
  • A necessary major financial investment to make something from scratch may negate cost savings

Review of Purchasing Key Terms

• Product Specification
• Purchase Specification
• Menu Mix
• Purchasing Quantities for Perishables $Predicted Item Sales = Forecasted Guests \times Menu Mix Percent$
• Periodic Inventory System
• Perpetual Inventory System
• Make-Buy Analysis $Cost \ P/Portion = \frac{(recipe \ cost + direct \ labor \ cost + energy \ cost)}{number \ of \ portions}$

Receiving, Storage, and Issuing Control

Checking Products and Invoices

• Check math on extensions
• Confirm Price and Quantity (including pack size) on Invoice match Order and Bid Sheets
• Confirm Product Quantity matches Invoice
• Confirm Product Quality matches Chef’s Standards

Invoice Adjustments and Approvals

• For poor quality or quantity:
  • notify driver
  • request credit memo
  • make note on invoice
  • have driver initial
  • notify purchaser to speak with the purveyor
  • do not sign invoice until issue is resolved
• For incorrect pricing:
  • notify purchaser and chef
• For shorted items:

Approving the Invoice

• May use invoice stamp to confirm invoice checked, extensions checked, and invoice paid
• One copy for receiver, one for driver
• Once invoice is accurate, receiver signs it

Receiving Clerk’s Daily Report

• List of all items received on a given day
• Includes quantities and prices
• Sorts items as
  • Directs (go to kitchen)
  • Stores (go to storeroom)
  • Sundries (non-consumable)
• Easier to track daily food and beverage costs
• Send with invoices and credit memos to accounting

Requisitions and Issuing

• Open Storeroom
  • employees gather products themselves
• Closed Storeroom
  • employees make written request for products; request filled by storeroom clerk or manager
• Requisition
  • the written request (on paper or electronically) for products from storeroom
• Issuing
  • the process of releasing requested products from storage to an employee

Closed vs. Open Storerooms

• Closed Storerooms
  • Pro: More control
  • Con: More costly, requiring high labor costs for a storeroom manager or clerk.
• Open Storerooms
  • Pro: Less costly
  • Con: Less secure

Requisition and Issuing Process

• Employee writes requisition; manager signs.
• Storeroom clerk fills requisition orders.
• Clerk records costs per unit and extended costs, date, and department on requisition
• Employee picks up filled order and signs requisition
• Physical inventory is conducted periodically and reconciled against prior inventory, deliveries, and requisitions

Transfers

• A transfer is issuing or receiving food from another department or business unit.
• Transfer form looks like requisition form but lists departments issuing and receiving
• Sent to cost control manager with requisitions

Conducting Inventory

• 1 person counts and 1 person records
• Use blank sheets or printed inventory lists
• Can use handheld scanners
• Completed sheet includes name, quantity, unit, and extended price for each item
• Do when restaurant is closed and no deliveries are scheduled

Valuing Inventory

• NOTE: Price per unit is not always obvious, since prices may change with each order.
• $Extension = Number \ of \ Units \times Price \ per \ Unit$

Valuing Inventory Techniques

• FIFO
• LIFO
• Actual Cost
• Weighted Average

FIFO (First In, First Out) Method

• Assumes cost is based on most recent invoice and only progresses back in time if there is more inventory than can be accounted for with the latest invoice.

Weighted Average Method

• $Price \ per \ unit = \frac{total \ amount \ spent \ on \ an \ ingredient \ over \ the \ inventory \ period}{total \ number \ of \ units \ of \ that \ ingredient \ purchased \ during \ the \ same \ period}$

Actual Cost Method

• The Actual Cost Method uses the price written on each unit at the time of storage.
• Inventory sheet must have multiple lines per product as identical products with different unit costs must be counted separately
• If inventory is properly rotated, this method is the same as the FIFO method

Inventory Turnover Rate Formula

• \qquad Average Inventory = $\frac{Opening \ Inv + Closing \ Inv}{2}$
• Inventory Turnover = $\frac{Cost \ of \ Food \ Sold}{Average \ Inventory}$

Inventory Turnover Rate

• Ideal rate is for inventory to turnover every 1-2 weeks.
• To convert monthly inventory turnover rate to days to turnover the inventory…
• Days \ to \ turnover \ inventory = \frac{# \ of \ days \ in \ the \ month}{Inventory \ turnover}

Benefits of Quick Turnover

• Helps control theft, as stolen items are noticed quickly
• Ties up less money in inventory
• Reduces chance of spoilage
• Reduces space needed to house inventory

Review of Receiving, Storage, and Issuing Control Key Terms

• Directs, Stores, and Sundries
• Open Storeroom vs Closed Storeroom
• Requisitions vs Transfers
• Valuing Inventory $Extension = number \ of \ units \times cost \ per \ unit$
• Weighted Average Method Price \ per \ unit = \frac{total \ $ \ for \ ingredient \ over \ the \ inventory \ period}{total \ units \ purchased \ during \ the \ same \ period}
• Inventory Turnover Rate formula