Product Specification Development

Posted by: seva Procurement on Apr 24, 2014 at 5:56 pm |

Too often, the terms “food purchasing” and “food procurement” are used interchangeably within our industry. There is, in fact, more than a semantic difference between these two terms within the context of the food service industry. Whereas food purchasing generally refers to the ordering, payment and receipt of goods and services, the idea of food procurement encompasses both the process of product selection and the establishment of purchasing specifications that must proceed purchasing and form the foundation of any food cost control and food purchasing program. The following article will focus on the selection process and establishment of product specifications and how they perform a critical function in food cost control, price and quality management.

To be upfront, it should be noted that properly establishing standard purchasing specifications is a time consuming project that requires thought, creativity and attention.   However, if properly executed, food purchasing specifications offer many highly valuable benefits to food and beverage businesses.  Among the top benefits, standard food purchasing specifications help:

  •     Maintain quality control and ensure both product and menu item consistency
  •     Ensure that an operator’s product expectations are effectively communicated to suppliers
  •     Enable an effective product bid process (though bidding and “cherry picking” are not recommended procurement strategies)
  •     Improve the efficiency of organizational purchasing procedures by providing executable guidelines to employees that lack product level expertise, enabling them to execute purchasing and receiving functions designed by the key operational experts
  •     Enable multi-unit operations to maintain consistent product quality and pricing across all revenue centers
  •     Ensure that the correct product is being purchased, given its specific intended use
  •     Create barriers between purchasing employees and supplier representatives to help prevent the coercion and influence of purchasing decisions in favor of supplier interests
  •     Ensure that product pricing is not inflated due to product quality and standard specifications that do not match the product’s intended operational use.
  •     Ensure that every menu item delivers optimal profit by ensuring that each ingredient has the lowest possible cost based on the desired product specifications
  •     Support effective menu development by assigning accurate product costs to planned menu items based on the product specifications that are required to execute the menu items.

While there are many operational and financial benefits inherent to creating purchasing specifications, the bottom line is that they drive both pricing and quality consistency, resulting in increased top line revenue and bottom line profit.  While skipping this step is tempting because of the time and detail required to establish, codify and communicate purchasing standards, doing so will lead to purchasing decisions being driven by either operational employees without the financial and culinary expertise necessary to make these decisions, or by distributor representatives making judgment calls on behalf of the business.   To be fair to suppliers, a distributor representative is often given only general guidelines regarding product standards.  Based on this information and their knowledge of the business, representatives will slot the product that they believe will be most acceptable to the operator.  While it is very probable that the product will be acceptable, it is also very possible that it may not be the best possible product considering its exact operational use, resulting in increased and unnecessary costs.

Specifications are the exact qualitative and quantitative product characteristics that are required by an operation.  It is important, however, to distinguish between product requirements and product preferences.  While our objective here is not to pass judgment on what criteria a business uses to determine their specific quality standards, it should be noted that the more restrictive purchasing specifications are, the more expensive a product can possibly become.  Therefore, including preferences in purchasing specifications can have significant food cost implications.  It is highly recommended that operators take the additional time to consider whether a specific characteristic is a preference or requirement and then include only requirements in the purchasing specifications.

When establishing purchasing specifications, the best place to begin is a methodical and systematic examination of the possible specification components for given products.  To complete this process, it will very likely be necessary to consult key operational employees familiar with the preparation of menu items and products, as well as suppliers and various other industry resources.  Specifically, there are various trade organization and governmental agency resources available that provide product specification information, such as the USDA website.

The following information has been designed to outline what we believe to be the most critical product specification standards, as well as to briefly explain how various operational considerations can impact this selection process.  Our goal in this article is to communicate the importance of developing detailed, written product specifications.   It is critical that these specifications are written in a standard format so they can be used for both supplier communication and internal employee training and reference.  To assist with the creation of these specification sheets, Food Buyers Network provides a very basic template that you can use to create your own specifications.  While this template is very basic and can easily be created on your own, it may serve as a starting point for creating and codifying your own product specifications. Before attempting to create these sheets, however, we recommend that you read through the following information that we have put together.

Typical Product Specification Considerations:

The intended use of a product is possibly the most important specification that should be considered.  The intended use of a product is aimed at understanding how a specific product will be utilized within an operation.  The importance of establishing the intended use of a product can be seen by the following example.  Countless times we have examined invoice data for hotels that offer fresh squeezed orange juice as part of their breakfast offering and have uncovered that these operations are receiving premium, “fancy” oranges from their supplier to be used for the juice.  Unfortunately, the increased cost of purchasing these higher quality oranges was wasted due to their operational utilization.  While operators rarely return a product for being too good, many times they should do just that.  Every product purchased that is a higher quality than what is necessary based on the product’s intended use results in inflated prices and lost profit.  It would be similar to ordering a Brandy & Coke made with Louis XIII cognac.  Sure, the quality of the cognac is great, but no one could ever recognize this high quality because it was prepared with Coke.  In our previous hotel example, it would be advisable for the operation to use a #2 orange, or one of similar quality, that is just as well suited as the most beautiful orange for the purposes of making orange juice, but at a substantially reduced cost.

The product name is a relatively easy step to complete in the specification process, but a critical one.  It is never sufficient to simply create standards based on the generic product names, but rather by using the most specific name possible.  For example, a correct specification sheet would not call for olive oil, but rather “extra virgin olive oil.”  Often times the specific name includes information that is also addressed in other specification components.

Brand or manufacturer is not necessarily a specification that operators should include on a purchasing specification.  While establishing brand as a specification can significantly increase product consistency, it also limits the competitive benefits of being able to source products from various suppliers.  That being said, an operator may wish to specify the exact brand that they require for a specific product to ensure consistency on key items.  Further, if an operator has sufficient volume to negotiate a deviated price contract with a single manufacturer for a specific product, this would be highly recommended and should, therefore, be included in the purchasing specifications.

USDA quality grade is the most commonly used specification among food service professionals.  While USDA grades can be an excellent way of setting quality and pricing standards, these grades rarely address all the needs of purchasing specifications because there are significant quality ranges within each USDA grade.

Size specifications can have significant impacts on product quality and pricing and should be included in any purchasing specification standard.   With pre-portioned meats, operators can specify the exact weight of the portioned product.  For those operators that break down or pre-cook their own meats and proteins, it is recommended that operators provide suppliers with the acceptable weight range of the product to ensure consistent yields.  For example, a restaurant that purchases whole chicken WOGS to cook and pick their own chicken meat for use in recipes will experience significant yield issues if the supplier reduces the size of the birds, resulting in substantial profitability losses.  Meats are not the only type of product that requires size specifications.  Almost all products are available in various sizes, all with both quality and pricing implications.

Acceptable trim or waste is a highly important purchasing specification that can be used to maintain yield rates and percentages.  Many fresh products can have waste or trim specifications assigned to them to ensure receipt of products that consistently deliver acceptable yields.

Package size, while seemingly unimportant, can have both pricing and quality implications.  On one hand, smaller packaging typically increases the product cost and, on the other hand, purchasing products packed in larger, bulk units can lead to spoilage, theft and waste.

Type of  package in not a critical issue for many products, but should be considered when writing purchasing specifications.  From a quality perspective, there may be particular packaging that delivers higher quality standards that an operator may want written into a specification.  For example, Cryovac™ meat products.

Processing,  preservation and packaging methods should also be taken into consideration.  Fresh, refrigerated, frozen and canned are several of the typical processing methods that are commonly included on purchasing specifications.  While processing and preservation methods have pricing implications, they have an even more substantial impact on the quality and taste profile of a product.

Point of origin can sometimes be overlooked, but may be important for certain products, based on their intended use.  Many products vary in taste, quality and price, depending on their point of origin.  Seasonality should also be considered when determining a desired point of origin.  An operator may want to select Florida oranges during certain times of the year and California ones during others, for example.  Not setting a point of origin can create quality inconsistencies, but this may be acceptable to prevent limiting a product to a particular region, thereby increasing its cost.

Degree of ripeness can be a critical specification to include in purchasing standards to increase yields and reduce waste, as well as greatly assist with daily operations.  There is nothing more frustrating, for example, than preparing for a lunch shift and realizing that you are out of guacamole and that the recently received avocados are unripe.

Preparation methods and procedures indicate the form in which a product will be processed, packaged and delivered.  For example, products may be delivered raw or pre-cooked, sliced or whole, pre-shredded or in a block, etc.  These specifications are rarely overlooked by operators, but that does not mean that this decision always receives sufficient attention.  As a general rule, the more value that is added to a product through increased processing or production, the higher the as purchased price will be.  However, depending on the cost of preparing the raw product in house, the net cost of a value added product might still be less than buying unprocessed products.   In addition, purchasing these value added products can have effects on both consistency and shelf life and should be considered during the process.

Color is a relatively straightforward specification and our recommendation is that if you expect a certain color for a given product, then make sure that it is included in the specification so that suppliers and receiving employees know what to expect.

Shelf life can be very important to purchasing specifications.  Based on the processing procedure of a given product, similar products can have varying shelf lives.  Tortillas, for example, can have short or long shelf lives, depending on the amount of preservative used in the production process and whether they are a shelf stable or refrigerated product.  Depending on usage quantities and storage space, shelf life should be considered when determining purchasing specifications.

Chemical standards are becoming more important as the demand for health-oriented products increases.  The increase in the demand for organic products is also driving many operators to include these in their specification standards.

Cost parameters are critical in creating food cost control procedures and protecting the menu item pricing structure.  When designing a menu, setting these limitations is an excellent way to begin to narrow down the field of available products.  The acceptable price range can be created based on the anticipated price point of the menu item and the profit margin goals.   If these parameters result in the available products not meeting the quality needs of the operation for a particular menu item, then this indicates that a re-working of the menu item is necessary to adjust the profit margin goals or menu item price point.  In other words, creating specifications is critical in establishing and developing a menu that achieves profitability, quality and market pricing requirement goals.

How to Determine the Right Specifications for Your Operation:
Company Goals, Philosophy & Vision:
Company goals should typically be the driving force behind most specification decisions.  The quality of products and their corresponding specifications should be inline with a company’s vision, as well as their branding and marketing efforts that support and communicate this vision to the public.

Production, Preparation & Cooking Systems:
Determining the correct product to purchase requires a consideration of the facilities and equipment that will be available for use in production and preparation, as different equipment can have varying effects on products with differing specifications, resulting in unintended quality or yield results.

Product Utilization:
One cannot create purchasing specifications in a vacuum.  A food service operation exists through the sale of many menu items and treating the development of these items completely independently of other items will produce inefficiencies that manifest in execution complexity and excessive product inventory—both leading to loss of profitability.  When designing a menu and determining purchasing standards, it is recommended that menu item development seek to cross utilize products as much as possible to reduce inventory items and waste.  While this is not always possible, selecting a broader product specification that will enable a product to be used in multiple dishes, rather than ordering two similar products with slightly varying specifications, will result in a more efficient and profitable operation.

Marketing & Menu Requirements:
This seems obvious, but many operations sometimes fail to take into consideration their marketing and menu design.  It is important to keep these in mind when writing your specifications, as it is critical that the products purchased represent commitments communicated to the public through marketing and menu statements.  If your menu, for example, lists all steaks as choice cuts, then an operator will need to either use that specification or re-write the menu.

Storage Facilities:
While not a very exciting consideration, it is a very practical one.  Where a product is going to have to be stored can significantly impact the spec that is selected.  It is very possible that space limitations in storage areas, such as freezers or walk-in coolers, will drive operators to select products that fit with these limitations.

Employee Skill Levels:
It is critical that operators consider the effect that specific specifications will have on internal preparation and operational procedures.  Specifically, a determination needs to be made as to whether the employee skill level is sufficient to manage products with certain specifications.  For example, buying a whole veal leg can save operators significant money on the as purchased cost, but only if someone on the staff knows how to break it down.

Menu Item Price Limitations:
Menu item price limitations are critical to menu development and are sometimes overlooked by operators.  At times, operators design a menu item by selecting ingredients, pricing them out and then multiplying the cost by three.  While this is an over simplification of the practice, it does underscore the fact that operators sometimes fail to consider the significant market implications of menu item pricing.

Before a menu can be designed, factors such as location, competition and concept need to be considered.  Based on these factors, the number of menu items and the correct price point spread can then be established.  Following this menu marketing and development strategy enables the drafting of menu items at specific price point slots.  It is important to consider the specific price point slot of any given menu item and how it relates to market competition, as well.

From there, product selection and specification should be determined for each menu item to deliver the profit margin goals at the targeted price point of each menu item.  If the product specification process results in the inability to achieve these goals, then an operator should rethink the inclusion of the menu item or try and rework the menu item pricing structure without undermining the overall menu pricing strategy that has been developed.

Service Style:
Finally, the service style of a business should be considered.  Based on this consideration, specifications may need to be adjusted to improve product quality and consistency.  For example, operations that find it necessary to pre-cook batches of fries rather than cooking to order may want to require a chemically coated fry that increase the window hold time.