Expert Advice on Hospitality Topics

An Effective Inventory Control System is an Integral Part of the Purchasing Procedure

Posted by Nick Kaoukis on Fri, May, 13, 2011 @ 11:05 AM
By Douglas R. Brown
Atlantic Publishing

Part 2: Perpetual Inventory

The perpetual inventory is a check on the daily usage of your main entree items from the freezers and walk-ins. This is for tracking expensive items, such as meat, seafood, chicken, cans of caviar, etc. When completed, the perpetual inventory will ensure that no bulk products have been pilfered from the freezer or walk- ins. Computer software programs and some POS systems will track this information for you. The following is an example of a Perpetual Order Form:

perpetual inventory resized 600

  • List all the food items that are listed on the Sign-out Sheet and Yield Form. In the "Size" column, list the unit size in which the item is packaged. The contents of most cases of food are packed in units such as 5-pound boxes or 2-pound bags. Meat is usually packed by the number of pieces in a case and the case's weight. The size listed on the perpetual inventory must correspond to the size the preparation cooks are signing out of the freezer and walk-ins.
  • In the "Item" column, enter the number of each item listed. For example, if shrimp is packed in 5-pound boxes and you have two 50-pound cases, there are 20 boxes. Enter 20 in the "Item" column. Each number along the top corresponds to each day of the month. At the end of each day, count all the items on hand and enter this figure on the "=" line. Compare this figure to the "Amount Ordered or Defrosted" column on the Preparation Sheet; these amounts must be the same as the total number of each item on the "-" line. If there were any deliveries, place this total on the "+" line.
  • Theft. Theft can occur when someone removes a box of shrimp from the case, for example. The person then reseals the case with the other boxes to hide the gap.
  • Check the invoices every day for the items delivered that are in your perpetual inventory. Ensure that all items signed off as being delivered are actually in the storage areas. Should there be a discrepancy, check with the employee that signed the invoice. The number of items you start with (20) plus the number you received in deliveries (5), minus the amount signed out by the preparation cooks (1), must equal the number on hand (24). If there is a discrepancy, you may have a thief.
  • What to do if you suspect theft. Should you suspect a theft in the restaurant, record the names of all employees who worked that particular day. If thefts continue to occur, a pattern may develop among the employees who were working on all the days in question. Compute the perpetual inventory or other controls you are having a problem with at different times of the day and before and after each shift. This will pinpoint the area and shift in which the theft is occurring. Sometimes, placing a notice to all employees that you are aware of a theft problem in the restaurant will resolve the problem. Make it clear that any employee caught stealing will be terminated.

Purchasing Kickbacks and Gifts

Unfortunately, the food service industry is notorious for kickbacks. It is even more unfortunate that these kickbacks or gifts are essentially paid for by you in the form of higher prices. Here are some ideas to help keep kickbacks out of your store:

  • Purchasing and receiving must be done by different employees. The person ordering should not be the same person receiving and checking the items.
  • Kickback policy. Develop a general policy and list it in your employee handbook that employees cannot receive anything for free from a vendor or potential vendor.
  • Change positions. People become complacent over time; move positions around.
  • Check on prices of expensive items like meat and seafood yourself.

Topics: inventory managers, Food Costs, food inventory, inventory counting, controling costs, inventory control, Food control

Controlling Food Inventory to Generate Maximum Profits

Posted by Nick Kaoukis on Thu, May, 05, 2011 @ 11:05 AM
Placing Food OrdersBy Douglas R. Brown
Atlantic Publishing

Part 6: Purchasing and Ordering--Procedures and Practices

Purchasing and Inventory Software

Purchasing and inventory software is readily available to restaurant operators. Many larger organizations are using inventory control software that saves a significant amount of time and money. Most managers are used to the monthly grind, standing in the walk-ins counting eggs, butter pats and frozen chickens. With inventory control software, managers can use a laser scanner, similar to the ones used in grocery stores, to scan bar codes. The software can also be linked to your distributors and you can place your orders electronically based on the inventory. 

  • Consider placing your orders online. Almost all distributors now have systems in place to order online. The advantages are numerous: it reduces ordering errors, it's convenient, there may be discounts, and most systems build a customer database based on what you have previously ordered making re-orders easy. A list of vendor Web sites follows:
  • Use written purchase orders (PO). A PO is a written authorization for a vendor to supply goods or services at a specified price over a specified time period. Acceptance of the PO constitutes a purchase contract and is legally binding on all parties. Utilizing POs will enable you to know what was ordered, the quantity, and the price. If you are using software to record the invoice and receipt of inventory, the program will restock and adjust pricing automatically. In addition, your perpetual inventory will be updated. Purchase orders from software programs can easily be faxed or e-mailed into the vendor, saving time and money.
  • When purchasing food, avoid more expensive name brands wherever possible. Of course, you want to make sure you're buying quality ingredients for your food, but are your customers really likely to tell the difference between a "name brand" and an "industrial brand"?
  • Local growers. Talk to local fresh-produce suppliers to see if you can't get fresher, cheaper, better-quality fresh produce direct from the grower. Why pay a supplier to get the fruit and vegetables that are shipped to their central warehouse, then shipped back to you, when you can just drive 10 minutes down the road and enjoy food right off the tree or vine? You can also use this as a promotional device. If you use local produce, let your customers know!
  • Cooperative purchasing. Many restaurants have formed cooperative purchasing groups to increase their purchasing power. The cooperatives purchase items that are commonly used by all food service operators. By joining together to place large orders, restaurants can usually get substantial price reductions. Some organizations even purchase their own trucks and warehouses and hire personnel to pick up deliveries. This can be advantageous for restaurants that are in the proximity of a major supplier or shipping center. Many items, such as produce, dairy products, seafood and meat, may be purchased this way. Chain restaurants have a centralized purchasing department and, often, large self-distribution centers.
  • Make sure you shop for purveyors. Don't rest once you've found one. Comparison shop on a continual basis.
  • Look at vendors' product labels for box strength. This will tell you where the product came from. Most manufacturers won't ship more than 100 miles away from their plants. The further away that a supplier is located, the more shipping will cost.
  • Consider planting your own herb and/or vegetable garden. Great food starts with using the freshest herbs and vegetables and the best way to do that is to grow them yourself! The techniques for growing your own are not difficult. With a little planning, you can build your own 24-hour supply of garden-fresh herbs. Even a small garden can infuse your kitchen with heavenly aromas and striking flavor. What a great way to lower your food cost and separate yourself from the competition! You can buy seeds online at:


Topics: Food Costs, profit, food inventory, purchasing

Controlling Food Inventory to Generate Maximum Profits

Posted by Nick Kaoukis on Wed, Apr, 20, 2011 @ 14:04 PM
By Douglas R. Brown
Atlantic Publishing

Part 3: Controlling Inventory LevelsFood Inventory

The first step in computing what item to order and how much you need is to determine the inventory level, or the amount needed on hand at all times. This is a simple procedure, but it requires order sheets. To determine the amount you need to order, you must first know the amount you have in inventory. Walk through the storage areas and mark in the "On Hand" column the amounts that are there. To determine the "Build to Amount," you will need to know when regularly scheduled deliveries arrive for that item and the amount used in the period between deliveries. Add on about 15 percent to the average amount used; this will cover unexpected usage, a late delivery or a backorder from the vendor. The amount you need to order is the difference between the "Build to Amount" and the amount "On Hand." Experience and food demand will reveal the amount an average order should contain. By purchasing too little, the restaurant may run out of supplies before the next delivery. Ordering too much will result in tying up money and putting a drain on the restaurant's cash flow. Buying up items in large amounts can save money, but you must consider the cash-flow costs.

  • A buying schedule should be set up and adhered to. This would consist of a calendar showing:

               -Which day's orders need to be placed.

               -When deliveries will be arriving.

               -What items will be arriving from which company.

               -Phone numbers of sales representatives to contact for each company.

               -The price the sales representative quoted.

  • Post the buying schedule on the office wall. When a delivery doesn't arrive as scheduled, the buyer should place a phone call to the salesperson or company immediately. Don't wait until the end of the day when offices are closed.
  • A Want Sheet may be placed on a clipboard in the kitchen. This sheet is made available for employees to write in any items they may need to do their jobs more efficiently. This is a very effective form of com­ munication; employees should be encouraged to use it. The buyer should consult this sheet every day. A request might be as simple as a commercial-grade carrot peeler. If, for example, the last one broke and the preparation staff has been using the back of a knife instead, the small investment could save you from an increase in labor and food costs. 



This article is an excerpt from the Food Service Professional Guide to Controlling Restaurant & Food Service Food Costs, authored by Douglas R. Brown, published by Atlantic Publishing Company. This excerpt has been reprinted with permission of the publisher. To purchase this book go to:

Atlantic Publishing Company

Topics: inventory, Food Costs, food inventory

Controlling Food Inventory to Generate Maximum Profits

Posted by Nick Kaoukis on Mon, Apr, 04, 2011 @ 20:04 PM
By Douglas R. Brown
Atlantic Publishing

Part 1: Tips on Establishing an Airtight Food Cost-Control System

The BasicsRestaurant Inventory Costs

Controlling food cost is basically about two concepts: First, ensuring that all food and revenue is accounted for and utilized in the most efficient manner. Second, ensuring that every ounce of food purchased is sold at the maximum allowable price. The following sections will present a system of cost controls. Combining these controls with basic procedures and policies will enable you to establish an airtight food cost-control system.

Getting Organized

Organization is the easiest and cheapest manner of generating productivity and reducing food costs. The mere act of putting instructions on paper or giving your staff a checklist, instead of having to hold their hand through a process, can save your company thousands.

  • Organizational and structure component charts. Use organizational charts to know and understand who does what in your restaurant on a daily, weekly and monthly basis. How can this structure improve? Are jobs allocated in the most productive manner possible? Written job descriptions are good tools to use for this. (You can find examples of job descrip­tions and a questionnaire for writing job descriptions at Atlantic Publishing offers a complete set of restaurant job descriptions on computer disk at
  • Use checklists for yourself. Create a checklist of items you perform every day and organize your time. Of course, variations from this checklist will always occur, but you will cover the basics a lot faster with a guide in hand. This will save you and your staff time and confusion.

What Does Your Food-Cost Percentage Really Mean?

Johnny's steak house has a food cost of 38 percent; Sally's steak house has a food cost of 44 percent. Which is a more efficient operator? Which is more profitable? Your restaurant has a food cost in January of 38 percent; in February it is 32 percent. Did you operate more efficiently the second month? The answer to these questions is: we just don't know. There is not enough information to determine this from the figures; we need to know what the food-cost percentage should have been as well.

  • Importance of food-cost percentages. Don't become overly concerned over food cost percentages, they are truly meaningless unless you know what your food-cost percentage should be for the given time in question. Remember, you get paid in and deposit dollars into the bank, not percentages.
  • Weighted food-cost percentage. Once your food cost is calculated, you must determine your weighted food-cost percentage. A weighted food cost percentage will tell you what your food cost should have been over a given period of time if all procedures and controls in place operated at 100- percent efficiency. We will show you how to determine a weighted food cost in a later article.

Food Cost-Controls--Get it Right

In order to control food costs, you must first know what your costs are. Accurate record keeping is essential in implementing a cost-control system.

  • Controlling large operations. The larger the distance between an owner or manager and the actual restaurant, the greater the need for effective cost-control records. This is how franchisers of restaurant chains keep their eyes on thousands of units across the world.
  • Give managers information. Many managers of individual operations assume that since they're on the premises during operating hours, a detailed system of cost control is unnecessary. Tiny family operations often see controls the same way and view any device for theft prevention as a sign of distrust towards their staff. This is shortsighted because the main purpose of cost control is to provide information to management about daily operations.
  • Theft prevention. Prevention of theft is a secondary function. Cost controls are about knowing where you are going. Furthermore, most waste and inefficien­cies cannot be seen; they need to be understood through the numbers.
  • Definitions. You must be able to understand the numbers related to food cost and be able to interpret them. To do this effectively, you need to understand the difference between control and reduction:
  1. Control is achieved through the assembly and interpretation of data and ratios on your revenue and expenses.
  2. Reduction is the actual action taken to bring costs within your predetermined standards. Effective cost control starts at the top of an organization. Management must establish, support and enforce its standards and procedures.

Get Computerized

No matter what type or size of food service operation you run, our advice is to get your operation computerized. It's extremely difficult to compete successfully without utilizing technology, at least to some degree. Today the investment for a basic computer and accounting software is less than $2,000 and could be as little as $1,000. The investment will deliver immediate savings in accounting fees and your ability to get true insight into your business.

  • Utilize the same chart of accounts to compare your operation with others. Ratios enable you to compare the operating data of a specific hotel or restaurant to the average for a group of similar establishments. You may, for example, compare the food cost and food sales of a particular restaurant with the average sales and costs of restaurants of a similar size.
  • Operations report. The National Restaurant Association publishes a report entitled 'The Operations Report," an annual survey based on operator income statements that is conducted jointly by the association and the accounting firm of Deloitte & Touche. The report provides detailed data on where the restaurant dollar comes from and where it goes for four categories of restaurants: three types of full-service operations (with per-person check sizes under $10; between $10 and $25; and $25 and more) and limited-service operations (fast food). You can use this report to compare your operation to others.
  • Four-week accounting period. Companies typically close their books and prepare financial statements at the end of each month. The problem for retail businesses such as restaurants is that there are uneven numbers of days and uneven numbers of the type of days in a month. For example, you may have an extra Saturday in a month which would skew sales numbers upwards. Consider using a four-week accounting period so you can compare apples to apples.
  • POS (point-of-sale) systems are crucial for reducing loss. The most widely used technology in the food service industry is the touch-screen. The POS system is basically an offshoot of the electronic cash register. Touch-screen POS systems were introduced to the food service industry in the mid-1980s and have penetrated 90 percent of restaurants nationwide. (See Chapter 9 for more information on POS systems.) 


This article is an excerpt from the Food Service Professional Guide to Controlling Restaurant & Food Service Food Costs, authored by Douglas R. Brown, published by Atlantic Publishing Company. This excerpt has been reprinted with permission of the publisher. To purchase this book go to:

Atlantic Publishing Company

Topics: Restaurant Inventory, Food Costs, food inventory