This is the first in a series on Food Cost Control, following the guidelines set forth in the Forty Thieves of Food Cost article. There will be a total of 7 mini quizzes (some yet to be created), each one being associated with a specific sub-section of the Forty Thieves. The first section deals with controlling Purchasing. Here is what the Forty Thieves guidelines say:
- Purchasing more than needed
- Purchasing for too high a cost – no bid system to get best price
- No detailed Specifications – quality, weight, type
- No purchasing budget
- No audit of invoices and payments
- Too many vendors
How controlling purchasing helps control your food cost
Of course controlling your purchases makes sense. If you run a blue collar sandwich shop you better not be purchasing foie gras or wagyu. But how do you actually implement an intelligent food purchasing program? Hopefully these guidelines will help in creating a useful tool for your establishment.
Purchasing more than needed
Although this is obvious, here are some of the nuances which go along with over purchasing:
- The most obvious, excess product can result in spoilage and waste
- You may decide to sell specials at a discounted rate in order to move product before it goes bad
- Extra product increases the chance that FIFO (first in, first out) will not be followed and you will lose product due to improper rotation
- Excess product increases the opportunity for theft and decreases the chances of its detection
Purchasing for too high a cost – no bid system to get best price
The natural tendency to want to be “nice” or “friends” with people will conflict with the need to operate a business and make purchases based upon business needs. Having no bid system in place will certainly make it harder to make your salesmen competitive in their pricing. Having a bid system in place forces your vendors to compete to get your business based best price for best product. Remember, it is NOT about getting the Best Price…it is about getting the Best Product at the best price (who cares if you got a killer deal if the product is dog shit!).
Here are some things to remember:
- If no one is bidding on your product purchases then you are paying the highest price
- You should have 2-4 vendors bidding on your business for items such as produce, beef and seafood
- Even if you have a contractual broad line vendor agreement, keep them honest by accepting bids from competitors
- Do NOT simply buy based upon the lowest price
- Buy according to best quality at best price
- If you have to choose between quality and price… choose quality if it is measurable (don’t serve dog shit!)
- Purchase according to your demographics and budget…you are not going to purchase Wagyu beef tenderloin to serve at Denny’s
Bid Sheet and Order Sheet Template Download
Here is a free download for a Bid Sheet (courtesy concept by Chef Charles Kaye). It is in Excel (2010 version) and has several additional tabs with alternate Order Sheet templates.
No detailed Specifications – quality, weight, type
Detailed specs for products are clearly needed in order to maintain consistency in recipes. But detailed specs are also needed in order to maintain consistency in quality and price. Product specs can be as simple as naming the pack size that you require, or it may include pack size and a specific quality from a specific vendor. For instance, if you butcher your own Halibut then a 20/40 fish has a better yield than a 10/20 fish and the difference in yield will affect your food cost. How about your New York steaks? Are they an end-to-end cut or are they a center cut? Are they select, choice, or prime grade? If you are on vacation or sick, does your crew know which quality and spec to order? Is it clearly labeled on your ordering sheets?
Detailed product specs can:
- help minimize customer complaints and comps due to wrong product served
- make recipes more consistent
- make cost analysis and food cost more consistent
- make portion sizes more consistent
- make quality more consistent
- ensure consistent ordering when you are not there
- ensure consistent ordering when your purchaser or salesman is gone (and someone else places the order)
- make it harder for an unscrupulous salesman to con you
No purchasing budget
A purchasing budget establishes, in theory, how much food you can purchase in order to meet your budgeted food cost as measured against forecasted sales. It’s important to remember that this number is based upon sales. So if you do half the amount of forecasted sales but spend all of your budgeted purchasing dollars than your food cost is in the tank. Likewise, if your sales are above forecast then you will need more dollars in order to purchase food for those additional customers. Use the same percentage in order to calculate your purchase budget.
If your actual sales are significantly (+5%) above the forecasted sales, and your manager or regional manager is giving you a hard time about purchasing above the purchasing budget amount, then run the numbers, make sure your percentage of purchases is in line with the budget. Present that info saying you are hitting the budget percent for purchases. If they still give you a hard time then they are either ignorant or pricks. The percentage is the most important part of this tool. I consider this to be one of the “lesser tools” in the food cost control tool kit. It can be helpful if things are way out of line, or if you want to fine tune things. But if your food cost is generally in line, then don’t bother with this one unless you have a problem.
Things to remember:
- Purchasing budget equals forecasted sales times budgeted food cost percent for the month
- Example: forecasted food sales of $200,000 x cost budget of 35% = purchasing budget of $70,000
- Use the Declining Balance Sheet to help track your daily trend against the purchasing budget
- The most important part of this tool is hitting the %, not the number
No audit of invoices and payments
If you are in the habit of simply signing invoices at delivery and writing a check when the bill is due then a food cost problem could be hiding here. An audit (verification) of invoices and payments should always occur with all invoices and payments. It can save you money. An actual invoice audit in accounting terms is more detailed than this, but here are the basics you should check.
- Check invoice items delivered against your PO or order sheet
- Did you get what you asked for?
- Is it the right spec?
- Did you get subbed or outed on an item?
- Did something get rejected when it arrived? Where is the credit for that item?
- Verify that items with a bid price are at the price you were bidded
- If non-food items are on the invoice be sure they are properly coded for your budget and general ledger (i.e. equipment coded to kitchen equipment, etc.)
- Verify that the totals are correct both in the extensions and in the grand total
- Verify payment against invoiced amount
- Are any/all credits and adjustments accounted for?
- Verify payment against invoiced amount
- Are any/all credits and adjustments accounted for?
Too Many Vendors
While too few vendors stifles competition, too many strangles it. You have X dollars in purchasing power for each type of vendor (broad line vendor, produce, beef, etc). If you cut that dollar amount into too many small pieces then the business the vendor receives may not be worth the discounted price you want. As a general rule, 2 to 4 vendors bidding for each segment of your business is best (based upon the volume you do). That does not mean that you will only have 3 or 4 vendors. Some things you can only get through a specialty vendor and they may be the only viable source for that product. I like to receive 3 bids for fresh seafood and beef, 4 bids for fresh produce, and have a contract agreement for food staples through a national broad line vendor. And it is worth mentioning again, I purchase by defining my quality expectation first and then seeking best price for that quality. Best price should ALWAYS be secondary to best quality for the price range.
Comments from before Site Migration
Lovely Article, the Declining Balance Sheet concept is just awesome, this specifically helps me where I have a fixed budget available for the entire month as a corporate caterer and since small time player, we do not get fixed rates that easily from a vendor.
This will definitely help me plan my menus much better in a way I can then keep my customer satisfied and my pockets in good shape as well 🙂 Cheers
Awesome stuff, truly well explained, understood it all. Unfortunately some big companies go with who they can get the best price – and kick back, where by negating quality and at times stifling cost control, and this can be across the board with all meats/poultry/seafood/fruit and veg/dry goods. So you have to be careful and plan really well to stay within budget, resisting as stated serving dog shit. Great article keep it up.
Thank-you Jazzy! You are so correct, a community is a place to learn, and as we learn from each other we all benefit.
I thought this was a great informative tool, and there should be more of this on a reguar basis. Isn’t this one of the reasons we are joined asa community? Educating one another only helps us as entrepreneur, and as workers whether for a large or small employer. We have the right to rxpress our best each and every day.
I want learn more about… Purchasing and Costing Systems.. anybody can help me out…thanks
do you have a vendor maintenance log that tracks repairs with dates, vendor, repair costs and area for description of service completed?
I don’t have one posted online yet, but I am working on one. It should be posted by the end of February 2021 at the latest.