Presentation on theme: "Controlling Food Costs in Purchasing and Receiving"— Presentation transcript:
1 Controlling Food Costs in Purchasing and Receiving 5Controlling Foodservice CostsOH 5-1
2 Chapter Learning Objectives Explain how a specification becomes a control in the purchasing function.Explain the parts of a purchase specification and a purchase order.Explain various purchasing methods and their effect on the price of goods.Calculate a yield test that identifies the difference between as purchased (AP) price and edible portion (EP) cost.Identify factors that affect the purchase price of goods.Instructor’s NotesIndicate that these objectives (competencies) drive the information in the chapter and in this session.
3 Chapter Learning Objectives continued Distinguish between perishable and nonperishable goods and their relationship to the purchasing cycle.Calculate the par stock amount of an item to order.Calculate the amount to purchase, using EP amount and yield percent.Calculate the amount of goods to purchase for catered events.Calculate a butcher test, or meat yield test.Describe proper procedures for receiving goods.Instructor’s NotesDefine the difference between “purchasing” and “receiving.”Ask the following question: “In what different ways must these two processes be coordinated?”
4 Who Purchases? Purchasing agent Manager Chef Head cook Trusted staff memberThe buyer maintains quality standards!Instructor’s NotesAsk students to identify characteristics of effective purchasers.
5 Who Purchases? continued The buyer is responsible for ensuring that quality standards are met during the purchasing and delivery process.Instructor’s NotesExplain that a food’s quality is typically at its highest when it is delivered to the restaurant, and usually declines after that.Ask students, “How do buyers know the quality levels established by management?”
6 The Food Specification Is a control deviceLists the product’s nameLists its intended useIdentifies the desired brand and gradeIdentifies the desired sizeIdentifies the desired varietyIdentifies packing requirementsDetails delivery requirementsExplains payment termsInstructor’s NotesAsk students what they would want their supplier to do if he/she could not deliver an ingredient they had purchased.Discuss the concepts of “acceptable substitutions” and “or equal” products.
7 The Food Specification continued Specifications should describe exactly what buyers want to buy.Instructor’s NotesAsk students how important they believe extensive product knowledge is for a food buyer.Ask students how important they believe it is for suppliers to have extensive product knowledge.
8 Purchase OrdersThe official written record of the items the buyer wants to purchaseInstructor’s NotesAsk students for ideas about why it is important that restaurant purchasing agents keep accurate records of what they have purchased.Ask students, “What information should a buyer write down when he or she makes a purchase?”
9 Purchase Order Information A unique identification numberThe name and address of the restaurantDate of the orderSignature of the buyerThe supplier’s contact informationDate of deliveryThe name, quantity, and delivery unit of each item orderedTotal (extended) cost of the orderInstructor’s NotesPoint out that other types of information that may be noted on the purchase order include delivery and payment terms.Mention that cost “extensions” (price x quantity) should not be taken for granted, even if they have been generated by a computer.
10 Purchase Methods Competitive quotes Standing order One-stop shop Cost-plusSealed bidsCommissaryInstructor’s NotesExplain that a restaurant’s size may have a significant influence on the purchase method utilized.Review the “pros and cons” of each system in Exhibit 5f (page 66 in the chapter).
11 What to Buy Avoid buying the “cheapest.” Use purchase specifications. Buy at the best cost from sellers who meet or exceed the purchase specifications.Consider both AP price and EP cost.Instructor’s NotesAsk students to identify characteristics that would make a “lowest cost” bidder undesirable as a supplier partner. Answers—poor sanitation by delivery persons, sporadic and/or late deliveries, and excessive invoicing errors.
12 Two Kinds of CostsAs purchased (AP)—the cost of food as delivered to the restaurantEdible portion (EP)—the cost of food as served to the guestInstructor’s NotesAsk students to identify foods in which the AP price and EP cost would vary greatly. Examples—fresh fish, poultry, and roasted, bone-in meats.
13 AP vs. EP FormItems, such as fresh whole fish, will weigh much less in their EP form than in their AP form.Instructor’s NotesAsk, “Which form of the fish is shown in this picture—as purchased (AP) or edible portion (EP)?”Note that menu item food costs are based on EP cost, not AP price.
14 Calculating EP Cost Two steps Step 1 – Calculate product’s yield percentage.Edible portion (EP) weight÷As purchased (AP) weight=EP percentage÷0.842 or 84.2%Instructor’s NotesExplain that AP ingredients must be cleaned, peeled, trimmed, and sliced to determine their actual EP yield.Indicate that EP yield is influenced by the quality of product purchased in AP form.Point out that in this example, 9.5 pounds of unpeeled onions yielded 8 pounds of prepared onion.
15 Calculating EP Cost continued Step 2 – Calculate EP cost.Example—the EP cost of one pound of onionsAs purchased (AP) price÷Edible portion (EP) percentage=Edible portion (EP) cost$0.39/lb AP ÷$0.46/lb EPInstructor’s NotesExplain that EP cost, not AP price, is the “real” cost of an ingredient used to determine a menu item’s food cost.Ask, “What is the ‘real’ cost of one pound of onions in this example?”Ask, “Why is it important that the buyer know the EP cost of an item as well as the AP price of that item?”Point out that by knowing both the AP price and the EP cost, a buyer is in a better position to make decisions about which purchasing method to use and from which supplier to purchase each item.
16 Other Factors Affecting Purchasing Management complacencyPayment historyGift acceptance policiesInstructor’s NotesAsk students if they believe managers should be allowed to accept gifts from suppliers. If so, what, if any, limitations should be placed on the value of the gifts?Ask students the following question, “Do you think a manager’s purchasing decisions are influenced by the acceptance of gifts and favors from suppliers?”
17 When to Buy Purchase perishable items daily or every few days. Purchase nonperishable items weekly or monthly.Instructor’s NotesAsk students to name some highly perishable items that are served where they work or have worked.Ask how the long the items could stay in peak condition after they had been delivered to the restaurant.
18 Perishable Product Purchases Determine the amount of product that will be used between deliveries.Count what is on hand.Subtract the amount on hand from the amount that will be used.The result is the amount to purchase.(Note: Some managers purchase a small “extra” or “cushion” amount in case sales levels exceed forecasts.)Instructor’s NotesAsk students to cite factors that could influence the size of the perishable food “cushion” that is maintained by a manager. Answers include the item’s shelf life, its cost, the restaurant’s storage capability, and the importance of avoiding outages of the item.
19 Nonperishable Quantity to Purchase Most common method is par stock method.StepsDetermine quantity (par stock) that must be on hand between orders for each item.Before ordering, take inventory.Subtract on hand quantity from par stock quantity.Difference is quantity to orderInstructor’s NotesPoint out that the par stock method works best for restaurant and foodservice organizations that have a menu that does not change frequently.Explain how par stock is determined.Review the steps in using par stock to determine the quantity to order.
20 Calculating How Much to Buy Need ten pounds of onions.Yield percentage of onions is 84.2%.How many pounds will you buy?EP amount needed÷Yield percentage=AP amount to purchase÷11.87, or 11.9Instructor’s NotesWalk students through the calculation of AP amount when the EP amount is known.Note that the quality of the item must be carefully checked at time of receiving to help assure that the quality of product ordered is, in fact, the quality of product received and available for processing by the restaurant’s staff.Point out that an alternate way to calculate the amount to purchase is to calculate the purchase factor and to multiply the EP amount needed by that factor.Explain that the purchase factor computed is for the very specific AP form of ingredient that is detailed in the restaurant's specifications.Walk students through an example of computing the purchase factor and then using that factor to determine the AP amount ÷ (EP%) = 1.19 purchase factor; 10.0 lb (EP needed) x 1.19 = 11.9 lb (AP amount). Point out the similarities.
21 Catering PurchasesStep 1 – Determine the servings per purchasing unit (SPU).Purchasing unit÷Portion size=Servings per purchasing unit (SPU)Instructor’s NotesRemind students that the purchasing unit and the portion size must be in the same unit of measure. For example, if the portion size is in ounces, the purchasing unit must also be in ounces.
22 Catering Purchases continued Step 2 – Determine the purchase factor.Recall the formula for EP percentage.SPUxEP percentage=Purchase factor (PF)Instructor’s NotesRemind students that EP% is the percentage amount left from an ingredient after it has been cleaned, washed, trimmed, sliced, etc.Edible portion (EP) weight÷As purchased (AP) weight=EP percentage
23 Catering Purchases continued Step 3 – Determine the amount to purchase.Number of guests to serve÷Purchase factor (PF)=Amount to purchaseInstructor’s NotesIf applicable, ask students to look at page 78 in the chapter to review the math from the example listed there.If desired, provide additional examples.
24 Butcher Test Also known as “yield test” Used to determine EP meat costsResults vary, based upon the AP quality of meat purchasedMeasures losses fromFat removalBone removalTrim and packaging removalPortioningInstructor’s NotesExplain that, in some restaurant segments, the increased use of convenience foods has reduced the need for conducting butcher tests.Ask students to identify the types of restaurants that likely still utilize butcher tests.Before moving to the next section, ask students if they have any questions about the information discussed about purchasing.State, “The next section discusses the processes a restaurant uses in receiving the items it ordered.”
25 Steps for ReceivingStep 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.Instructor’s NotesAsk about the types of tools that should be readily available to those responsible for receiving food. Answers should include: scales, calculators or adding machines, box cutters, and protective clothing.Ask, “Why must the receiving person check the products against both the purchase order and the specifications?”
26 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.Instructor’s NotesAsk students to identify steps in the receiving process in which employee or supplier theft could be of real concern to managers.
27 How Would You Answer the Following Questions? A purchase order is best prepared by the (buyer/ seller) of the items to be purchased.With effective purchasing techniques in place, a restaurant's EP costs can often be lower than its AP costs. (True/False)EP weight divided by AP weight results inAP percentageAP costEP costEP percentageA butcher’s test is a test of (yield/quality).Instructor’s Notes;Answers:BuyerFalseDYieldNote: indicate that the last part of this discussion will provide a review of definitions for the key terms used in the chapter.
28 Key Term Review As served (AS) Butcher test Buyer Commissary Competitive quotesCost plusInvoiceInstructor’s NotesAs served (AS)—amount available to serve to the customerButcher test—process in which a wholesale cut of meat is broken down into a retail cut and the trim, bone, and waste are analyzed and recorded to arrive at an EP cost for the retail cutBuyer—person who purchases products for the restaurantCommissary—purchasing method used by chains and franchised units; orders from individual units are consolidated, and the commissary purchases the total quantity needed from preferred suppliersCompetitive quotes—purchasing method in which the buyer gives suppliers a market quotation sheet indicating items and applicable quantities to be purchased. Suppliers then provide a price quote for the items.Cost plus—purchasing method in which a restaurant’s purchases are invoiced at the supplier’s cost plus an agreed-upon markupInvoice—bill that accompanies the delivery of products
29 Key Term Review continued Market quotation sheetNonperishable goodsOne-stop shopPar stockPerishable goodsPurchase orderQuotesInstructor’s NotesMarket quotation sheet—standardized form that is given to two or more suppliers who are then asked to provide a price quote for the items neededNonperishable goods—products that have a relatively long shelf lifeOne-stop shop—purchasing method in which most, if not all, of an operation’s products are purchased from one supplierPar stock—the level of inventory that must always be in stock in the restaurantPerishable goods—products with a relatively short shelf life (usually one to three days)Purchase order—form listing products to be purchased, agreed-upon price, required delivery date, and other important information that a buyer sends to a supplier as confirmation for a purchaseQuotes—prices cited by a supplier for a specific product
30 Key Term Review continued Sealed bidSpecificationStanding orderYield chartYield percentageYield testInstructor’s NotesSealed bid—prices provided by a supplier who does not have knowledge of the prices proposed by other bids because each bid is submitted in a “sealed envelope”Specification—document listing the product name, its intended use, grade, size, and other product characteristics that represent the quality standard of the item as established by the buyerStanding order—purchasing method in which a par stock is established by the operation and then that level of inventory is maintained by the supplierYield chart—listing of the EP weight of products (as opposed to their AP weight) and an average yield percentageYield percentage—the EP weight of a product divided by its AP weightYield test—analysis done to determine the difference between a product’s AP weight and its EP weight
31 Chapter Learning Objectives— What Did You Learn? Explain how a specification becomes a control in the purchasing function.Explain the parts of a purchase specification and of a purchase order.Explain various purchasing methods and their effect on the price of goods.Calculate a yield test that identifies the difference between AP price and EP cost.Instructor’s NotesAsk students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.
32 Chapter Learning Objectives— What Did You Learn? continued Identify factors that affect the purchase price of goods.Distinguish between perishable and nonperishable goods and their relationship to the purchasing cycle.Calculate the par stock amount of an item to order.Calculate the amount to purchase, using EP amount and yield percent.Instructor’s NotesAsk students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.
33 Chapter Learning Objectives— What Did You Learn? continued Calculate the amount of goods to purchase for catered events.Calculate a butcher test, or meat yield test.Describe the proper procedures for receiving goods.Instructor’s NotesAsk students to do a personal assessment of the extent to which they know the information or can perform the activity noted in each objective.