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FSI 3206

FSI 3206. Food purchasing, Cost control and Menu Planning. outline. TQF3. Learning Outcomes. 1. Summarize the four basic functions of management. 2. Understand the role of cost control in the success of an operation.

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FSI 3206

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  1. FSI 3206 Food purchasing, Cost control and Menu Planning

  2. outline • TQF3

  3. Learning Outcomes • 1. Summarize the four basic functions of management. • 2. Understand the role of cost control in the success of an operation. • 3. Recall five areas in which basic math skills are used in a foodservice operation.

  4. Functions of Management Goal and Objectives Monitoring the performance of the operation against its plans. The operation must Define its expected results Have a plan in place to achieve those results Provide the resources that enable it to meet its goals Modify its structure, methods, or tools, as needed, to meet its plan and measure the results Task, Staffs and report Directing staffs to meet the goals and objectives set in the plan.

  5. What is controls? • Maintaining the necessary restrictions and accountability over the resources of a business operation. • Control Cycle in Management

  6. Managerial Attributes • Managers must 1. Professionalism 2. Effective time management 3. Acceptance of responsibility

  7. Cost control • Why is cost control so important? Sales – Cost = Profit / Loss Cost = Sales – Profit/Loss

  8. Calculations as a Cost-Control Function • Math skills are used in • Standardizing and converting recipes • Purchasing food and supplies • Determining staffing needs • Determining selling prices • Forecasting the amount of food to produce • Controlling inventory • Preparing budgets • Analyzing customer satisfaction and other quality measures • Evaluating sales results

  9. Basic math review

  10. Determining selling price • Cost percentage of food is 30% • The ingredients used to prepare a menu item cost 10 bath • The operation want 10 Baht to account for no more than 30% of selling price. • What should the selling price be to achieve this goal? 10 Baht = 30% X X = 10*100 30 X = 33.33 Baht

  11. Comparing product Price • 1. considering Pack size • Case contains 12 two pound bags and cost 20 Baht • Bulk case that weighs 30 pounds and cost 23 Baht • Which product is the least expensive per pound? 12 bag per case * 2lb.per bage = 24 lb. per case Find price per case : Price per case / weight per case 20 baht/24lb. = 0.83 baht per lb. 23 baht / 30 lb = 0.77 per lb.

  12. Comparing product Price • 2. considering Product yield • Product yield is the amount of a product that is usable after trimming, cooking or other processing. • Fresh or un cooked beef roast at $1.77 per pound. Suppose that after the fat is trimmed from the fresh roast and it is cooked, the product yield is 75% of purchased weight – 25% of the product was lost in trimming and cooking. • Precooked beef roast at $2.30 per pound. It has a higher product yield of 97% • Which is the better price per pound? X = $1.77 / 0.75 X = $2.36 per lb. X = Purchase price Product yield % X = $2.30 / 0.97 X = $2.37 per lb.

  13. Determining food or labor cost per meal served • If an operation serves 100 meals at lunch and the food cost to prepare those meals was $500, What is the food cost per meal served? • If the labor cost to prepare the lunch meals is $600, What is the labor cost per meal? Food cost per meal = Cost of food to Prepare Meals Number of Meals served Labor cost per meal = Labor Cost Meals Served

  14. Variance Calculations A restaurant is budgeted to spend $1,000 on cleaning chemicals for the month of September. It actually spent $900. What is the Variance and What is the percentage difference? Sales - Cost = Profit Budget - Actual = Variance Variance Amount *100 = %Difference Budgeted Amount

  15. Quality Measures • A quality measure is means to rate the level of perceived value placed on the parameter being evaluated. For example, customer satisfaction • Suppose a customer survey yields a total of 90 responses, and 65 of them rated the restaurant as “Excellent”. • What is the percentage of “excellent” Reponses? Find: 65 =0.72 90 Then: 0.72 * 100 = 72%

  16. 1.1 Importance of Accountability and control • food and beverage profit margins are under constant pressure from rising costs of doing business and increased competition. Consequently, a food and beverage operation’s income must be sufficient to cover daily departmental operating costs including: payroll, operating supplies, uniforms and employee labor costs to name a few. Additionally, overhead departmental expenses include: utility bills, taxes, insurance sales, rents and marketing expenses. Therefore, the F&B cost control environment takes on greater importance in terms of managing expected financial returns. • A profitable F&B operation is an operation that has solid controls and procedural guidelines designed to minimize waste, theft and perishability of raw materials. • The budget process anchors the operation in expected financial goals and performance expectations. • Maximizing F&B profits requires minimizing waste, theft and spoilage, as well as balancing labor costs.

  17. 1.1 Importance of Accountability and control • The four main components that appear to drive the hospitality industry are foodservice, lodging, travel, and gaming. • The lack of accountability and control is evident in the vast amount of business failures. • There are essential six items and activities to form an evaluation process 1. Income statement 2. Uniform systems of accounts 3. National standards 4. Cost-volume profit relationship 5. Controllable and noncontrollable expenses 6. Operating budget

  18. Income statement • The elements of most income statements are: sales, cost of sales, gross profit, other income, controllable expenses, noncontrollable expenses, and net income before taxes. • Revenue (รายรับ) – Expense (รายจ่าย) = Profit and Loss (กำไร/ขาดทุน)

  19. Income statement

  20. Income statement

  21. What to control? • Food cost • Beverage cost • Labor cost • Other cost

  22. ABCD classification • Some facilities use an ABCE classification for securing products. • To classify require 1. Type of operation 2. Location of operation 3. Level of usage 4. Convenience 5. Internal system

  23. Business Failure • Lack of working capital • Inexperienced managers • Inability to control operational procedures • Competition • Employee theft • Wrong location • Wrong concept • Inadequate Inventory control • Poor credit practices • Too much personal income • Wrong attitude • Not knowing yourself • Unrealistic expectations • Lack of planning

  24. Overview • - For an organization to be successful the managerial function of control must be applied • - Management should set the standards then continually monitor, try to improve and control operational procedures in each area. • - The business plan is the first step of the control cycle. • - To enhance profitability, and for managers to be able to control an operation, employees and management must work toward the same organizational objective and goals, which can only be established through a sound business plan and a well90designed mission statement.

  25. Business Plan: An analysis of the Operation • - Plan for success = Plan to fulfilling a need • - Feasible Plan = Successful operation • - Business plan can become out of date because of changing environmental conditions. • Customers • Technology • Competition • Internal factors ex. Loss of key employees

  26. Business Plan: An analysis of the Operation • - Mission Statement which describes the nature and expectations of the business. A clear and concise mission can assist in providing direction for management. • - Three main contribution derived from mission for manager, employees, and guests. • - Written to support business and mission. • - Means feasible and by all means costs effective. • - A team concept. Mission Goals and objectives Empowerment and Involvement

  27. Business Plan: An analysis of the Operation - The presentation of the team relationship. - Flat - Multilayered - GM must response in implementation of policy and control procedure. Also the control activities and adhered to on day-to-day basic. - Need supervisor to response in each departments. - supervisor should have positive view of operation and support managerial cost control methods. Organizational structure Supervision of departments

  28. Market, Competition, and Economics: An Analysis of the External Environment Market • - The hospitality market is so competitive that all operations are constantly looking for new advantages and niches. - To stay abreast of changes in the marketplace and to remain aware of what the competition is doing an organization must continuously scan the environment. - What is the important things that the business need to scan? - The laws of supply and demand control the success of failure of an operation. - The basic laws of economics must also be considered when designing menus. Competition Economics

  29. Setting Standards • Setting standards id an importance step • Without established standards employees will not have any direction for controlling cost and providing consistency to the operation. • standard must be established and met for an operation to fully utilize its resources

  30. Menu selection and Pricing • - Menu is the blueprint of the facility. • - When the operations set the mission, a theme is set for the restaurant and the menu can then be developed to complement the blueprint. • - Without a menu, the equipment needed cannot be properly purchased, the cost of food cannot adequately be projected, and labor cannot be precisely scheduled. • - Menu can dictate the location of the business and equipment for the business. The location, equipment, and type of service will then influence the amount of labor.

  31. Purchasing • The management should control in 4 main issues • 1. Quality • 2. Quantity • 3. Time • 4. Price What is the PO? How it relate to PR?

  32. Receiving • - The correct products with the quality that was specified and in the amount requested must be received on time at the price requested. • - Receiving personnel must have a copy of the specification to ensure that the quality, form, shape, and size of the products are correct. • - Receiving personnel must have equipment such as thermometers, scales, a cut etc.

  33. Storing • - Product must be stored as quickly as possible to prevent deterioration and theft. • - FIFO means first in – first out • - All products should have a specific storing and location in the storage room.

  34. Issuing • - Means to removed the product from storage. It needs the signed of the management of the supervisor to issue. • - To control the issuing procedure, the management is often overlooked is products that have been issued but have not been used. If this allowed to occur, eventually manager need to control.

  35. Production • This is the response of kitchen and bar department. • Wasteful and dishonest activities can cost an operation monetary resources though loss of sales and in replacement items.

  36. Service • It is a difficult task for managers because it is labor intensive. • The most important position is the Front line staffs who meet the customers. • Empowerment can solve the service problem.

  37. Sales and cash control analysis • - Sales volume can be divided into 2 categories : Cash and Count of customer. • - POS system

  38. Labor cost control • - Utmost importance to a hospitality operation. • - Training and job rotation are essential to consistency, continuity, and survival of the business. • - Schedule – routine check, inspect and monitor operational procedures. • - Ghost employee

  39. Other costs • Managers must be made aware that there are other activities that they must monitor even though all figures are balancing and the facility may be generating a profit. By controlling all costs, an operation can maximize the amount of profit that can be generated.

  40. Guide line for standards • - Standards must be established for all areas of an operation. Standards must be set for all revenue centers and support centers. • - 4 guidelines for the effective standards • 1. Measurability • 2. Attainability • 3. Improvement • 4. Feedback

  41. Relevancy of Standards • - Standards must be based on operational expenses and anticipated profit for the facility for which the standards are to be implemented. Because there are many factors which make each business differ. • Food cost % should not above 35 - 40% • Beverage cost % should not above 20 - 25% • Labor cost % should not above 25 - 30% • Other cost % should not above 5%

  42. Setting standards for food and beverage operations

  43. Setting standards for equipment and supplies • Proper equipment standards can enhance the menu and enable employees to maintain other standards. • Standards in equipment include identifying the correct intended use of the equipment and utilizing the capacity of the equipment; therefore, when building a restaurant, it is always recommended that a menu be established before equipment is purchased.

  44. Industry standards • The industry standards are often subcategorized by • Sales volume • Asset value • Geographical location

  45. Action Plan • Five major steps guide • Implementing standards • Measurement of standards : the audit • Feedback • Corrective action • improvement

  46. Your turn • Q & A • Suggestion

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