Expert Advice on Hospitality Topics

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:

• 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.

Revise your existing issuing procedures. You'll be surprised at how much cost trimming you can achieve in this area. Issuing procedures are particularly vulnerable to employee theft and wastage. Establish a simple issuing procedure that focuses on reducing costs. Keep the following basic records:

• End of shift. Bartenders need to record the name of each liquor, wine and beverage emptied during their shifts. They should also note the number of empty bottles and the size of the bottles. Make bartenders responsible for this activity. They will feel accountable.

• Manager authorization. Managers should check empty bottles against the beverage requisition form at the end of each shift. It is much easier and more cost-effective for resolving any problems immediately than letting minor queries develop into major problems at a later date.

• Issuing replacement stock. Either the manager or the bartender is the best person to return empty bottles and the completed requisition form to the storeroom. The person replacing the empties should check all the information on the requisition and issue replacements, bottle for bottle.

• Breakage. It is important to account for breakage each time the requisition form is completed. Not only does it give you tighter control over cash flow, it also helps identify potential (and costly) problem areas - sooner rather than later.

• Daily cost keeping. Calculate, on a daily basis, the total cost of inventory issued. This should be viewed as a separate management or administrative function. It provides an essential "cross-check."

• Computerized issuing. A manual issuing procedure works well in many small establish­ ments. But, if you have the resources, opt for a computerized system. It will quickly repay your investment. For information about computerized solutions, contact:

Track Inventory - Track Costs

In order to control inventory, you need to know exactly what stock you have/had and where it is or when you sold it (known in the trade as "cradle-to-grave" accounting). To operate a cost-effective tracking procedure, it is crucial that you document all liquor, wines and beverages as they progress through the inventory cycle. Choose whatever tracking method works best for your establishment, but don't think you can do without some form of system. You can't. On a positive note, however, developing such a system is one of the best ways of keeping a tight rein on expenditure. Follow this six-step guideline and you shouldn't go wrong! There are several cheap, off-the-shelf forms that you can use to help you with your record keeping.

• Step 1: Purchase order. The purchase order is the first form in the cycle. It provides a detailed record of every item purchased.
• Step 2: Perpetual inventory. This second form tracks the movement of liquor, wines and beverages from the storeroom to various locations within the establishment. It also tracks each product's turnover rate. The perpetual inventory is also used for accounting purposes.
• Step 3: Requisition form. This records the actual transfer of inventory from the storeroom to a specific location within the operation. This form is also used to record breakage.
• Step 4: Bar par form. This records the quantity of each brand of liquor, wine or beverage currently stocked behind the bar.
• Step 5: Depletion allowance form. This form is used to track the amount of spillage and wastage and to record any complimentary drinks.
• Step 6: Physical inventory form. Used primarily when completing end-of-period accounts, it records the result of physical stock audits.

Monthly and Annual Inventory Control

Daily inventory control is the first, essential step towards keeping costs in check. In fact, no business can function without daily records. But, look ahead. To maximize control of overall costs, establish sound monthly and annual inventory procedures. Drain every dime out of your liquor, wine and beverage inventory -long-term!

• Monthly inventory. Month-end figures are crucial for determining the financial success of your operation. Devise a simple monthly inventory sheet and use it, without fall.
• Physical count. Carry out a monthly physical bottle count. Check totals against the perpetual inventory figures.
• The "Cyclops." This handheld scanner reads the Universal Pricing Code (UPC). It can really speed up the monthly stock check!
• Weighing scale. Use a precision liquor-weighing scale. These devices are extremely fast and easy to use. They can calculate to within 1/40 of a fluid ounce.
• Annual inventory. Use annual inventory figures to review overall costs. For example, now is the time to consider price increases or to discontinue lines that are no longer cost-effective.
• Resolve queries. Merely recording monthly and annual inventory figures is not enough. Resolve any discrepancies immediately. It all adds up!

The purchasing department is the linchpin when it comes to reducing costs. It is much easier to control costs in this area than anywhere else in the operation. The bottom line is that astute buying techniques offer the best opportunity for a business to increase its overall profits.

• Monitor market trends. An upsurge in popularity of a certain beverage can lead to increased competition amongst vendors. Play them off against each other occasionally. Negotiate. You have nothing to lose!

• Welcome new ideas. Purchasers should always be on the lookout for new ideas and new ways of reducing costs. Don't close your door to sales rep­resentatives. They may genuinely have something of interest to your establishment. Consider their promotional discounts.

• "Opportunity buys." Don't rule them out. Take a look at items that may soon be discontinued or overstocked merchandise where a supplier has simply miscalculated demand. You could make big savings.

• Cooperative purchasing. Consider "pool" purchasing with other enterprises. It can give you added purchasing power.

• Change purchase unit size. Buy drinks in larger volumes. This can trim costs considerably, particu­larly in the case of liquor purchases where sell-by dates tend to be more generous.

• Place multiple orders. Consider buying your full range of drinks from one wholesaler. It may offer you amazing reductions, especially if it's keen to do business with you on a repeat basis.

As a purchasing manager, it is important to set standards. Decide up front exactly what types of drinks you need to purchase and the conditions under which you will place an order. These are your purchase specifications.

• Consult fellow members of staff. Their input is important. Of course you want them on your side, but oftentimes, it is they who know best what will sell (and what won't!).

• Purchase specifications must reflect the image of your establishment. Consider your target audience, the standards it demands and the price it is prepared to pay.

• Keep a written copy. It represents your establish­ment's overall purchasing standards and rules. It doesn't have to be a lengthy document; a few bulleted points will do.

• Purchase specifications should focus on the following areas: quality, quantity, consistency, reliability of vendors and availability of merchandise.

• Document your purchase specifications to vendors. Vendors need to be reminded of the standards you expect from them. Specs are also useful in the event of a dispute.

• Back up your purchase specification document with an additional product information list. Tabulate the information in chart format. Include information such as brand, country of origin, alcohol content (where applicable) and, in the case of wines, year and vintage. Use it to jog your memory when writing out purchase orders or placing orders by phone. This type of handy list can also help you spot "substitutes" when you receive the goods!

This area of purchasing offers a great scope for cost reductions. Unfortunately, it is often neglected. Do so at your peril! Many well-devised purchasing plans fall at this last hurdle. Don't marginalize this important procedure.

• Check merchandise thoroughly. Even when you are in a hurry, it is vital to check all received merchandise carefully. It may be your only (and last) chance to identify problems. Most vendors have a time limit written into their contracts for notifying them of discrepancies and shortages.

• Adopt a "checklist" approach. The person receiving the merchandise needs to do the following:

-Verify the supplier

-Check quality

-Check quantity

-Check price (if applicable)

-Note any discrepancies on the receiving note

-Sign and date, only when satisfied with the above

• Follow up any queries. Contact the vendor (preferably in writing), outlining any shortages, discrepancies or other problems, immediately. Most problems are quickly resolved. But stating your dissatisfaction, in writing, is a wise move. Sometimes queries become wrangles and you can end up with a long, drawn-out dispute on your hands. It's good to have something in writing!

• Tie up paperwork. Tedious, but important! The person who receives the goods or a designated member of staff needs to mark all invoices with some form of "Received" stamp, noting the date of receipt and who received the merchandise.

• Introduce a random audit of your receiving process. Identify any problem areas before they get out of hand! A basic audit should compare quantity and quality of merchandise delivered with the original purchase order. Carry out a volume or unit count of liquor, wines and beverages. Also, double-check that cases contain the number of bottles stated on the "outer." Finally, check that all documentation has been accurately processed.

Keep Purchasing Procedures Simple

Whatever the size of your operation, certain repetitive purchasing procedures are unavoidable. At the very minimum, a buyer has to complete a purchasing requisition, a purchase order, a shipping instruction, a receiving report and carry out some form of quality control. Purchasing procedures, however, exist for a good reason. Save time, effort and money by simplifying them.

• Change your attitude. Instead of viewing purchasing procedures as an irritation, think of them as a support system. Accurate documentation in this area has rescued many a business  from the jaws of liquidation.

• Concentrate on basics. Buyers should always have adequate purchasing procedures in place. The key, however, is to avoid overkill. If a certain procedure in the buying cycle is irrelevant to your establishment, get rid of it. A written requisition, for example, may not be necessary if you regularly "call off stock ordered on a contract basis. Adapt and be flexible.

• The purchasing requisition. Save time. Establish a pared-down requisition procedure that identifies ongoing requirements and automatically triggers the purchasing cycle.

• The purchase order. No skimping here! The purchase order is a legal contract between purchaser and vendor. Even in small organiza­tions, the purchase order needs to be put in writing. Get it right. It can save time, hassle and money in the long run. A computer-generated purchase order considerably reduces human error.

• The shipping instruction. Keep it simple. This piece of documentation is merely a confirmation of instructions from the buyer to the seller. Whether handwritten or computerized, the shipping instruction needs only to contain simple information. It should include the purchase order number for the shipment, and it, too, should be numbered for record-keeping purposes.

• The receiving report. Again, simplify. Although an important document in the purchasing cycle, it only needs to contain basic information: the quantity and condition of the merchandise, whether the merchandise tallies with the original purchase order, a record of stock shortages, the recipient's signature and the date of receipt.

Define Your Purchasing Duties

It is all too easy to get bogged down in the day-to-day activities of purchasing. Remind yourself, occasionally, of your areas of responsibility. It helps you to focus on doing a good job.

• Don't lose sight of your overall goal. Your responsibility, as a purchasing manager, is to maximize value so that your establishment gets the most for its money. No more, no less.

• The cycle of duties. Always bear in mind that a purchaser's areas of responsibility cover an entire cycle of activities: identifying the needs of the establishment, planning, sourcing merchandise, purchasing, receiving, storing and issuing.

• Control. Effective management and control of the purchasing cycle, with a constant eye on costs, is your number-one duty.

• Dealing with vendors. The purchasing department (even if you are a one-man band) is responsible for all external dealings with vendors. The purchaser should be able to handle all vendor-related queries.

• Avoid taking your purchasing problems onto the "shop floor." Front-of-house personnel will not appreciate interruptions while they are trying to please customers. Apart from emergencies, keep all purchasing queries for later.

• High standards. It is the purchaser's duty to make sure that all merchandise purchased is fit for its purpose and of a consistently high quality. High standards = good value.