Restaurant cost control contains volumes of work relating to the food
service cost control trifecta: food, labor and alcohol costs. While
there are invaluable cost control systems and theories presented in
these works, operators often find it difficult to implement such
procedures, as they need to balance their time between running the
daily operation and managing cost control systems and procedures—of
course, these two things are certainly not mutually exclusive. Key Item
Management, however, is a relatively simple method of effectively
managing food cost without a tremendous time investment. While it is
not recommended that an operator limit their food cost control efforts
to only Key Item Management, it is probably the best place to begin and
also the most important food cost control system to stay current with.
Presented here are the basics of Key Item Analysis and Key Item
Management.
Step One: Identify your key items. The best way to achieve this is by
requesting a descending purchase recap from your distributor(s). This
report will rank all purchases during a specified time period in
descending order based upon the total dollar amount spent for each
item. It is recommend that operators focus on no more than the top ten
items identified on this report for the purposes of a Key Item Analysis
during the first attempt at this process. Focusing on only the top ten
items makes the task manageable, while still having a significant
impact on food cost. Think of this methodology as the food cost 80/20
rule.
Step Two: Examine Key Item purchasing specifications. While product
specifications are an inherent part of the process described in step
three, they are also so critical that they deserve specific analysis
and attention. When examining key items, operators need to question the
factors that have influenced the current purchasing specifications.
Manufacturer and brand, quality specifications, trade and federal
grades, fat content, unit size, case size, production region, receiving
condition and many more specifications all have cost implications on a
given product. In general, the more lenient the specifications are for
a particular product, the cheaper the landed cost will be for an
operation. However, the less strict an operator is with specifications,
the less consistent the product will also be. Therefore, the benefits
of reducing a key item cost in this manner need to be weighed against
the potential effect on product quality and consistency. That being
said, an operator should examine all available specifications for a key
item and determine which are important for the intended use. Once these
specifications are determined, operators will be more effective in
managing key item product costs, as described in the next paragraph.
Often times, operators will realize that certain specifications have
been assumed by the distributor. Other times, operators may simply be
unaware of the varying product specifications that are available,
therefore, they many not be taking advantage of potential
opportunities. Operators should be sure to pay particular attention to
case sizes, package sizes and the use of split cases. By merely
adjusting these packing specifications, operators can experience
significantly lower landed costs. It is worth noting at this point that
when determining key item specifications, care must be given to how a
particular specification will affect the edible portion cost. What
might appear to be a better price for a particular product based upon a
spec change might, in fact, be more costly in the end. Meat grades and
fat percentages are a good example of this. This is of critical
importance to operators with Prime Rib as a key item.
Step Three: Manage the price paid for each key item. Depending on what
the item is, operators may be able to negotiate contracted prices for
key items. Whenever possible, it is recommended that operators
negotiate contracted prices for key items to simplify the purchasing
process. A good contracted price might not always bring the landed cost
of the product in below bid pricing at a given point in time, but on an
annualized average the contracted price should have a net positive
effect on purchasing. Because key items inherently represent
significant purchasing volumes, an operator may be able to negotiate
with a broker or manufacturer to get manufacturer price deviations that
will be passed on through the distributor. This method of negotiation
should be examined to see whether it is possible, as it rarely has
negative impacts on the distributor and, therefore, has fewer potential
downsides. If a price deviation is negotiated through a broker or
manufacturer, it will typically be available through the vendor of your
choice. Therefore, even with manufacturer price deviations in place, an
operator may still want to bid out the item to several distributors to
keep their mark-up on these items in check. For many operators, bid
pricing is the method of choice for purchasing decisions. This method
is also commonly referred to as “cherry picking.” While this method can
work, operators are required to actively examine bids and stay vigilant
that distributors are not passing their lost profits from bids onto
other, non-bid items. If an operator negotiates a purchasing contract
with a particular distributor, they need to look at both a market
basket report, as well as the pricing structure for the key items under
the contract. A cost plus contract could seem to be a great deal, until
you realize that a particular vendor is unable to be competitive on
certain key items because of their particular market share and case
movement sizes.
Step Four: Complete a yield analysis for all key items whose edible
portion cost is different than the “as purchased” cost and for all key
items that are utilized in sub-recipes or prep recipes. Key items that
are utilized in these two ways can translate into significant,
unnecessary food cost expense if yields are not tracked and managed to
ensure consistency. Once acceptable yield standards have been
established, continuous monitoring of yields should occur to ensure
compliance to production and purchasing specifications. The most common
issue with yields among the key item category for operators occurs with
meats. Meats that are cooked off prior to portioning or that are broken
down in house can often times have huge yield variances that can play
havoc with food cost. The following paragraph deals with managing menu
item profit margins with respect to key items, but before establishing
accurate menu item costs, accurate yields need to be established to
determine the accurate edible portion costs.
Step Five: Manage the profit margin for menu items that utilize key
items as ingredients. This process is relatively easy, but requires
some initial time investment, as well as a bit of ongoing effort. To
analyze the profit margin and menu item food cost, recipe cards should
be created for each menu item. Based upon the results of the recipe
cards, operators should determine if the profit margin and food cost
are acceptable according to an operation’s standards. If menu items
that utilize your key items have a disadvantageous pricing structure,
an operation will always struggle with achieving a desired food cost.
It is highly recommended that an operator execute menu engineering for
menu items that utilize key items, although simply using and updating
recipe cards to keep tabs on shifting profit margins will also have a
positive effect. Operators should be certain that recipe cards utilize
the edible portion cost of particular items, rather than the “as
purchased” cost. Not to beat a dead cow, but operators that serve Prime
Rib need to be very careful and vigilant during this step.
Step Six: Complete an ideal usage for your key items. By comparing
actual key item usage against ideal usage, operators can identify
operational issues effecting key items. Operators can easily determine
ideal key item usage by multiplying menu item sales counts located on a
product mix report by the standardized key item portion for that
specific menu item. This process should be repeated for all menu items
that utilize the key item and the sum of these represents the ideal
usage for the key item. Comparing this ideal usage with the actual
usage that can be determined utilizing purchasing data and inventory
extensions will reveal the usage variance for key items. Ideally, the
usage variance should be zero. While this is often an impossible goal
for all but value-added, convenience items, operators should examine
all key item variances that are above established tolerance levels and
create a strategy to reduce the variance.
Step Seven: Attack the usage variances! Once the ideal usage comparison
previously described has been completed, an operator should begin
attacking the identified variances above the tolerance threshold. I
have included a few of the common problem areas when trying to attack
key item usage variances. First, check current yields against the
established acceptable standards. These variances can be due to
improper training and production procedures, as well as a change in the
key item specifications. For example, flank steak that is cooked off
and pre-portioned will have a decreasing yield as the fat content in
the flank steak is increased due to improper purchasing or distributor
error. Second, operators should increase the awareness of key item
variances within the operation. It is not enough to see the variance on
paper, but rather habits in the field need to be tweaked and adjusted
if this variance is to be corrected. Raising awareness should include
staff training on what the proper recipe specs are and how to execute
portion control. Raising awareness and communicating concerns often
goes a long way to help reduce variances. Third, make sure that there
are portion control systems in place to control portioning and that all
necessary supplies are in place. It does no good to tell a cook to put
1/2 cup of cheese on a pizza if he does not have a 1/2 cup, or if he
refuses to use it. Fourth, execute sensitive inventories. Store
managers should do beginning and ending inventories for key items that
have variance issues and compare the actual usage from these
inventories against the product mix by following the procedures set
forth above. Operators should also make sure that accurate inventories
are being taken and that purchases are being accurately recorded. It is
recommended that when trying to identify key item usage variances that
operators do not use too small of a sampling period. The larger the
sampling period, the greater the accuracy of the result. I recommend
that quarterly variance analysis be executed at first to identify usage
variance trends that require further investigation. Following this
method will eliminate wild goose chases that end up being a result of
poor inventory figures, rather than actual usage variances.
In conclusion, it is a well-know fact that the food service business
can be one of both stress and excitement. Operators often find
themselves trying to prioritize and balance their time amongst the
competing needs required by the operation. Executing the key item
analysis and key item management techniques described above have helped
many operators balance their time constraints with the need for
implementing effective food cost control systems.
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