1 / 31

Chapter 5 Purchase Prices How Do I Get the Best Dea l?

Chapter 5 Purchase Prices How Do I Get the Best Dea l? . Chapter Outline. Value Revisited Reducing Costs. Learning Objectives. Describe the concept of value and its dimensions. Understand the relationship among AP price, EP cost and value. Cost out standardized recipes.

atara
Download Presentation

Chapter 5 Purchase Prices How Do I Get the Best Dea l?

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Chapter 5Purchase PricesHow Do I Get the Best Deal?

  2. Chapter Outline • Value Revisited • Reducing Costs

  3. Learning Objectives • Describe the concept of value and its dimensions. • Understand the relationship among AP price, EP cost and value. • Cost out standardized recipes.

  4. Learning Objectives (cont.) • Compare the AP prices and EP costs from multiple vendors. • Ability to suggest a variety of methods to increase overall value. • Ability to create a variety of ways to reduce AP prices.

  5. Value Revisited • Introduction • Value has many dimensions • Appearance doesn’t affect wholesomeness • You must assess the appropriate quality for the intended use… • Your Quality Control Focus: determine exactly what the quality should be and ensure you receive it every time for the best possible AP price

  6. Value Revisited • Introduction (cont.) • Also true of Supplier Services: focus on what you have to have • Vendors may not give you all of the services or price breaks you want

  7. Value Revisited • Introduction (cont.) • To increase overall value and reduce AP prices • Know what you need • Keep a good head for numbers • Don’t be influenced by sales pressures

  8. Value Revisited Specifications Revisited: Here’s where you determine what it is that you need!

  9. Value Revisited • Standard Recipes Revisited • Just as critical as specifications • Highlights expensive ingredients • Recipes should be written with AP amount for each ingredient • Calculating and adding AP prices for all ingredients and dividing by number of servings the recipe makes gives the cost for one portion

  10. Value Revisited • Standard Recipes Revisited • You must cost out as many recipes as there are potential vendors for the items in that recipe • The yield percentages may be different for different vendors • Different grades of product from the same vendor may give different yield percentages

  11. Value Revisited • Standardized Recipes Revisited • When you find an AP price variation, order from the vendor who is truly less expensive • Don’t want to do the tests on all ingredients? • Track the most expensive ingredients – check AP prices and convert to EP costs for vendor comparisons • Average restaurant kitchen has 600 to 800 ingredients in stock but only 20 to 25 account for almost 80 percent of total food purchases

  12. Value Revisited Standard Recipes Revisited Example – Three vendors sell brisket by the pound Vendor A: $3.79/pound; 75% yield percentage Vendor B: $4.25/pound; 90% yield percentage Vendor C: $4.15/pound; 82% yield percentage (everything else is similar: delivery schedule, bill-paying procedures, etc.)

  13. Value Revisited Standard Recipes Revisited AP price ÷ Edible Yield Percentage = EP cost per unit Vendor A: 3.79 ÷ .75 = $5.05 (EP) Vendor B: 4.25 ÷ .90 = $4.72 (EP) Vendor C: 4.15 ÷ .82 = $5.06 (EP) Vendor B would get your business based on EP cost per pound

  14. Value Revisited Practice Problem Fresh Poultry: $4.50/pound (AP), 75% yield percentage What is its EP cost per pound? 4.50 ÷ .75 = $6.00 per pound Note: the EP cost per unit is almost always higher than the AP price per unit

  15. Value Revisited Practice Problem Ranch Dressing: 90 edible yield percentage; 1½ ounce (EP); $8.25 per gallon (AP price) Calculate the EP cost for one serving 8.25 ÷ .90 = $9.17 EP cost per gallon 9.17 ÷ 128 (ounces per gallon) = $0.07 $0.07 × 1.5 = $0.11 EP cost per serving

  16. Value Revisited Practice Problem Beef tenderloin: $12.45/pound (AP price); 70% edible yield percentage Calculate the EP cost for a five-ounce serving $12.45 ÷ .70 = $17.79 EP cost per pound 17.79 ÷ 16 = $1.11 EP cost per ounce 1.11 × 5 = $5.55 EP cost per serving

  17. Value Revisited Practice Problem Pinnacle Vodka: 90% servable yield; 45 ml serving size; $27.95/1.75 liter bottle (AP price) Determine the cost of a servable portion of vodka? $27.95 ÷ .90 = $31.06 $31.06 ÷ 1,750 ml = $0.018 Servable Portion cost per serving = $0.018 × 45 ml = $0.81

  18. Value Revisited Practice Problem 32 Pounds of Turkey: $2.40/pound (AP); $1.43 (EP) How many servings can you get from the 32 pounds of turkey? 1 portion is to $1.43 as X portions is to $76.80 X = (1 ÷ $1.43) × $76.80 X = approximately 54 servings

  19. Value Revisited Practice Problem 30 pounds of a food item @ $5 per pound (AP); EP cost is $1.52 per serving How many servings are available for sale? 30 pounds × $5 = $150 1.52 ÷ 1 = 150 ÷ X X = 150 ÷ 1.52 = 99 servings

  20. Value Revisited Practice Problem Total amount used in recipe: 50 pounds of meat, 4 quarts of sauce How many will a single recipe serve, if the serving size is 9 ounces? 50 pounds × 16 ounces per pound + 4 quarts × 32 ounces = 928 ounces or 103 servings (approx.)

  21. Value Revisited • Cutting calculation time • Track the 25 most expensive ingredients in the kitchen • Buy products that guarantee a “100%” yield (some may be too expensive) • Be cautious when adding convenience foods

  22. Reducing Costs • Reduce Product Quality (a bit scary) • Reduce Portion Size (better than reducing quality and can be an “invisible” change) • Use Substitute Products (a test of your culinary skills) • Look at trade publications • Visit relevant web sites

  23. Reducing Costs • Evaluate the Use of Convenience Foods • May be expensive • Does your multi-item menu require the use of convenience foods? • One-Stop Shopping • Saves on administrative costs • Are you buying convenience?

  24. Reducing Costs • Trade-Outs • Work best when done directly-not through an intermediary • Provide Your Own Support Functions • Direct buying (from large manufacturer or farmer) • Shipping may cost more than vendor markup • Returns may be a challenge

  25. Reducing Costs • Co-Op Buying • Theory – large order of several small operators will qualify for reduced AP price • Administrative costs may overshadow savings • Buying clubs are an option

  26. Reducing Costs • Discounts • Quantity discount • Volume discount • Prime-vendor discount • Cash discount • Promotional discount • Forklift discount • User discount

  27. Reducing Costs • Discounts • Introductory discount • Trade-show discount • Freight-damaged discount • Odd-hours discount • Proprietary-brand discount

  28. Reducing Costs • Ask and you might receive • Negotiating is a two-way street: what do you have to give? • Ask – What are today’s promotions? • Monk fish on sale? Think of the ways you could use it… • Ask for an enhancement such as a few dozen dinner rolls to go with your breakfast pastries • Never let a vendor get too comfortable with you as a customer

  29. Reducing Costs Practice Problem Restaurant waste -- $783 each month Budget – 14% profit on sales revenue How much additional revenue must be generated to recoup the waste? 783 ÷ .14 = $5,593 (approx.) per month or $67,116 (approx) per year

  30. Reducing Costs Practice Problem Restaurant waste -- $783 each month Budget – 5% profit on sales revenue (industry standard) How much additional revenue must be generated to recoup the waste? 783 ÷ .05 = $15,560 per month or $187,920 per year

  31. Reducing Costs • How Do Vendors Figure Out What AP Prices to Charge? • AP price as a function of the cost of doing business • AP price as a function of competitive pressure • AP price as a function of supply and demand • AP price as a function of retail value • AP price as a function of buyer pricing

More Related