BHMCT- 602 Food & Beverage Management

BHMCT-602 Food & Beverage Management

Food Cost Control Cycle

                                                                        CLASS – BHMCT- 6^th semester

CONTENTS :

·         PURCHASING

·         PURCHASING PROCEDURE

·         METHODS

·         LEVEL OF TECHNIQUES

·         PERPETUAL INVENTORY

·         MONTHLY INVENTORY

·         PRICING OF COMMODITIES

·         COMPARISON OF PHYSICAL INVENTORY

Educational Objective Addressed:-

·         Purchasing Control – To make them understand about Purchasing, What is Purchasing control? Why a Purchasing control to be done?

·         What are the main points to be considered while purchasing? Aim of Purchasing and a brief overview of duties and responsibilities of Purchasing Manager

·         Different types of food purchase? What is Quality Purchase? Points to be considered during purchase.

·         Food quality factor for different commodities.

·         What is yield? and test to arrive at standard yield.

·         What is standard purchase specification? Advantage of standard yield and Standard purchase specification.

·         Purchasing procedure and Different method of food purchasing

·         What is the source of supply / Purchasing by contract, Periodic Purchasing, open Market Purchasing Standard Order Purchasing,Centralised Purchasing,

·         What are the Methods of purchasing in Hotels , Different Purchase order forms

·         Ordering Cost, Carrying Cost, Economic order quantity, Practical problems..

_____________________________________________________________________________________

Pre – Requisite :

• Knowledge of F&B Operations
• Knowledge of Food and Beverage Costs.
Calculation of Food Cost.

Purchasing can be defined as a function concerned with the search, selection, and purchase receipt. Storage and final use of a commodity in accordance with the catering policy of the establishment. This suggest that the person employed to purchase food and beverages for an establishment will be responsible for not only purchasing but also for the receiving , storage  and issuing of all commodities as well as being involved with the purpose for which items are purchase and the final use of them.

Policies                                     -     Determining which market segment is aimed at.                            Determine price to be paid for purchase and price that items are to be sold at                            Determines the quality to be purchased Menu                                           -   Determine the choice of items available to customers Volume  Forecasting                  -   Determine thw quantity to be purchased Requisition                                   -       Indicate the particular requirement of each outlet Purchasing                                    -   select suppliers ,contracts quantities to be purchased,specification for in                                                                                  individual   items ,Ensure continuity of supply. Receiving                                     -        Inspects for quantity and quality Storing                                         -        Current storage for each item,maintain of stock record,Security of items,                                                       t                                                                         Current stock levels, Correct issuing. Production                                      -         Preparation of itms purchased Selling                                             -     Provision of satisfactory products at the correct selling cost Control                                             -           The measurement of performance of all oulets involved                                               Feedback of information to mangaement

Purchasing Control:--

The primary objective in the purchasing of food is to obtain the best quality of merchandise based on specification established for each hotel at the lowest possible price. Below are some requisites for effective purchasing:

·         A qualified and honest purchase agent

·         A sound set of standard purchase specification

·         Effective buying method and procedure

·         Centralized purchasing – only one person buys all the food ,beverage and supplies of any kind

·         The executive chef should be consulted in all purchase pertaining to his department

·         All major purchase – such as direct importations – have to be authorized by the management

·         A perpetual record of purchase unit price will be instituted.

·         The purchasing agent will develop and establish a record of standard purchase specification

·         The purchasing agent should use a “ daily price quotation ‘sheet in order to maintain competitive buying.

AIMS OF THE PURCHASING POLICY:

Purchasing policies for any establishment plays a vital role to ensure the proper purchase of the required commodity.

Aims of the purchasing policies are as follows:

·        It helps in selection of right supplier/purveyor from the market (By inviting tender notices/quotations for the supply of required items in the daily newspapers to select the best supplier from the markets.)

·        To ensure the purchase of right kind of commodity that is demanded by the user department. For this Purchase specification is made in which all the relevant details of that particular commodity are mentioned.

·        To ensure the delivery of required stuff on time. For this user departments need to send the requisition to the purchase department well on time. Also the purchase department should inform in advance about the time required for the delivery of individual stuff to the user department well in advance so that they can send their requisition at right time\

·        It also helps in formulating the parameters for the proper receiving, storage and issuing of items.

·        It ensures a proper control over theft, spoilage etc. in the purchase department.

JOB DESRIPTION OF THE PURCHASING MANAGER

·        Resposibility for  the management of the purchasing office,the receiving ,storage and cellar area

·        The Purchasing of all commodities.

·        Conducting Market surveys.

·        Purchase specification, Requisition and purchase order.

·        Inviting quotation

·        Sample testing

·        Knowledge of lead time for supply of goods.

·        Ensure continuity of supply of all items to user departments.

·        Efficient items.

·        Purchase of imported goods.

·        Finding Cheaper and more efficient source of supply .( but for the same quality )

·        Keeping up to date with all the markets being dealt with and evaluating new products.

·        Research in to products, markets, price, trends, etc.

·        Co- - ordinating with productive departments to santardize commodities and themselves reduce stock levels.

·        Co-ordinate with kitchen.

·        Liaison with production, control, account and marketing departments.

·        Petty Cash for spot purchase

·        Reporting to senior management.

YIELD TESTING

Yield testing is very essential before buying any food stuff .Yield testing is an indispensable preliminary for purchasing of food stuff and for choosing the most appropriate cooking methods.These lists are carried out to establish  actual yields.It help in identifying the gastronomical properties of foods.A restaurant may obtain several different kind of soups base , a panel will create each soup base with regard to taste ,flavor,texture and other properties finally test are undertaken to establish the moist economical method of preparation.

Method of calculating yield

Calculatie the total cost of the item and divide the same by yield percentage to find out the cost of the items. The next step is to cost the recipe fully and to continue to do so at regular interval to see how cost are changing.Usually additional cost @ 5 percent of preparation cost is added to cover the cost of following items in order to find out the dish cost :-

·         Normal waste in kitchen

·         The provision of rolls and butter and other free items, such as amuse queule.

·         The cost of staff meals.

Standard Yield

The term yield mean the net weight or values of a food items after it has been processed from raw or as purchased weight or value and made.

It is the usable part of a particular food product after its initial preparation and cooking. In large food and beverage outlets as large quantities of food per weeks are purchased, therefore standard yield may be available for items such as meat, fish, vegetables etc.

The main objectives of standard yields are to establish:-

·         A standard for the quantity and number of portions obtainable from specific items of food.

·         A standard for comparison with operating result and measuring the efficiency of the production departments.

·         An objective method of evaluating standard purchase specification.

·         A standard cost factor for the items of food.

It also assists in :-

·         Menu, Costing and pricing.

·         In converting forecast requirements in to raw material requirements.

The various tests to arrive at standard yields are:-

-          Raw food test: to determine the best cost and weight for fruits and vegetables for specific use.

-          Caused food Test: to determine the yield on actual cost after considering weight, quality, uniformity.

-          Butchering test: to determine actual portion costs of meat, poultry, fish and sea food after waste, trim and by products have been considered.

-          Cooking test: to determine the final portion cost after cooking, slicing and service less have been considered.

Developing Standards and standard procedures for purchasing

The primary purpose for establishing control over purchasing is to ensure a continuing supply of sufficient quantities of the necessary foods, each of the quality appropriate to its intended  use, purchase at the most favorable price.

Standards must be developed for the: - quantity, Quality and price at which food is purchased.

Establishing Quality Standards

Before any intelligent purchasing can be done someone in management must determine which foods, both perishable and nonperishable will be required for day-to-day operations. The basis for creating a list of these foods is the menu

It is important that the food controller in cooperation with the other members of the management team, draw up the list of all food items to be purchased, including those specific and distinctive characterstics that best describe the desired quality of each, these carefull written descriptions are known as standard purchase specification.

Standard Purchase specification

For proper and effective control, purchase specification should be used in all purchasing. It will bring uniformity and consistency in buying, which ultimately keep maintaining the required cost of the product. Each qualification would be determined by the purchase officer,executive chef and food and beverage manager as per the catering policy ,the menu requirement and its price range.The copies of the specification  should be kept by the purchase department.Food production department and food and beverage department ,receiving department,the storeman ,the receiving clerk , all senior catering staff  and send to all the approve suppliers.

A purchase specification may be within in a standard form. It must contain:-

·         Definition of each item.

·         Grade on brand name of the items.

·         Weight ,size or count

·         Unit against which price

·         Special note for the commodity.

Objectives of Purchase Specification:

·         To force owners or manager to determine exact requirements in advance for any products.

·         To establish a suitable buying standard for a particular commodity for the hotel.

·         To furnish to the suppliers in writing in specific terms the requirement of the hotel.

·         To help in settling the price of a commodity.

·         To obtain a standard product//material for the food and beverage department.

·         To obtain a standard product so that measurement of performance of departments can be more accurate.

·         To eliminate the need for detailed verbal description of a product each time it is ordered.

Preparation of standard specification has following advantages:

·         Establishing a buying standard of a commodity so that a standard product is available for the customer

·         Inform the supplier in writing by drawing or photograph or description precisely what is required.

·         Provide detailed information to receiving department and store as to the standard of food to accept.

·         Makes staff, chef, food and beverage manager, and other staff, aware of the differences that can occur on the size ,weight ,quality and quantity  of the product.

·         The specification act as an aide memoire to all concerned of what was agreed

 Purchasing Procedure

              The purchase procedure will depend upon the nature ,size ,standard ,location of the establishment,the forecast of the future requirements indicates the purchase procedure .However the full purchase procedure could be broken down in to the following steps :-

·         Purchase requisition form

·         Selection of the source of supply

·         Entering into a contract with the supplier.

·         Acceptance of food and beverage raw material.

·         Transfer of commodities to ordering department or to stores or cellar.

Selection of a Supplier:

In case a new supplier is to be selected a great deal of exercise and detailed enquiries be made as regards to –

·         Details about the firm reputation.

·         Information of other customers of their products.

·         Recent price list.

·         Trade term and conditions such as cash discount, trade discount, group or company discount.

·         Details about other customers.

·         Sample of products for living purpose /quality of the product.

·         A visit to n new firm

·         Minimum order level

·         Delivery procedure.

·         Order procedures.

·         Part deliveries or standing orders.

On selection the suppliers are put on an approved (Suppliers List”

Periodically the evaluation of their performance could be done using a rating system based on :-

·         Price performance

·         Quality performance

·         Delivery performance

Purchasing method

There are variations in purchasing methods. Basically because of location and availability of merchandise ,however some of the methods practice in most of the food and beverage establishments are describe below :-

Contract Purchasing

A contract is entered with a supplier for the commodities to be supplied at regular intervals usually at advantageous price.A contract is a legal document and the condition of the contract should be carefully prepared preferably by the solicitors of the firms. There are two common types of contracts:-

·         The Specific period contract: It aims at determining the source of supply and the prices of goods for a slated period say three or six months. This type of contract is suitable for items which have fairly stable price such as bread, butter, milk, cream etc.

·         The quantity contract : It aims is to secure continuity of supply of a given quantity of an essential item at an agreed price over a particular trading period .This type of contract is most suitable for fruits, vegetables etc.

Clauses of a purchse contract

·         The period

·         Estimated quantities

·         Reservation of the establishment to decide a contract between suppliers.

·         Purchase specification.

·         Removal of rejected food by supplier

·         Containers chargeable.

·         Power to purchase to default

·         In case of dispute – an agreed party.

·         Indemnity against damage

·         Prevention of corruption

·         the place of delivery

·         invoices

·         payment of invoice

·         Service of notice to break a contract.

-          Periodical Purchasing

The requirements of the establishment are periodically estimated and regular orders are placed on  a weekly/fortnightly basis to  ensure that this met /monthly basis. This method ensure that stocks are being kept at regular level.A master quotation list is prepared and on the basis of periodical requirements the price quoted and the storage space available, the orders are placed .This form of buying is mostly used in grocery type commodities.

-          Daily market List ?daily market quotation by requirement

Thia method is usually used for purchasing perishable goods on a daily basis. A list of approved supplier is prepared ,A daily market list is prepared by the executive chef on the basis of quick stock taking of the food.On receipt of Daily Market List the purchase office contracts on telephone ,each approved suppliers and ask to quote price for each of the items required. The quoted prices are entered on the daily market list and a decision is takenby the purchase officer as to where o place order of each item.

Market Purchasing  - The requirements of the establishment are estimated.Quotation are aasked from the various suppliers of commodities.The quantity and prices are compared and orders are placed to the firm keeping in mind the price and quantity of provisions.

-          Cash and Carry Method

This is the most suitable method for small and medium sized establishments. There is a complex freedom for purchasing from the market at competitive price and the buyer can personally check the quantity and taste of the items. However the caterer has to pay cash for all items purchased and has to provide his own staff and transport to collect the items from the place of purchase.

-          Paid Reserve Method

This method is used when it is necessary to ensure the quantiy of supply pf an item for the menu which is of particular importance for a specialty restaurant/establishment, such as jumbo size prawns,frozen fillet of beef etc

-          Cost plus method

This method is more suitable for welfare catering institution such as hospital, boarding houses etc. The approved supplier is paid exactly the same price that he paid for the commodities plus an agreed percentage to include the cost of handling, delivery charges and margin of profit.

-          Totally Supply method

There are some suppliers who are able to offer a full supply service of all commodities. A food and beverage establishment may agree for such supplier .This system has the advantage of only having to negotiate with one supplier as reduced volume of paper work and fewer deliveries.

Centralized purchasing System

This system is very popular in chain operation. In this system the requirements of each individual unit are relayed to a central office. The central office determines total requirements of all units and then makes total purchase either for delivery to the individuals unit by the dealer or for centralized delivery. The decision as to centralize purchasing is taken by the top management. The main advantage of central purchasing are –

·         Volume purchasing which lead to lower price.

·         Opportunity to obtain desired quality because of greater choice of markets.

·         Purchase as per specifications.

·         Maintaining a large inventory which ensures constant supply to individual units.

·         Check and control over individual unit’s food purchaser.

There are some disadvantages of the system which are:-

·         Each unit must accept the standard items in stock

·         Units have little freedom to purchase for its own particular needs.

·         Unit cannot take advantages of local” special “st reduced prices.

·         Since menu arestandardised there is a limited freedom to individuals unit to change the menu.

Once a supplier is choosen the following points must also be considered before order are placed : -

·         Classification of products

·         Purchase order must be confirmed in writng.

·         Responsibility of purchasing

·         Stock life of products.

·         Money available to market purchasers – cash flow

The quantity regarde will depend upon :-

·         Existing stock level

·         Expected volume of business

·         Current market price and trends

·         Ta riffs

·         Storage space available

Periodic order Method

Non perishable items have longer shelf life than perishables. These items require in –frequent ordering and leave the steward free to attend to perishables. The steward establishes with the advice of management periods for ordering purpose – once every week , or every two weeks or once in each month.The steward review the entire stock of non – perishables items and determines how much of each to order :-

Items required for the upcoming period --- items presently on hand +items wanted on hand at the end of the period to last until the next delivery  = items to be ordered.

The items to be ordered as calculated may be round up to the next highest in view of the standard purchase unit.

Economic order quantity is the level of inventory that minimizes the total inventory holding costs and ordering costs. The framework used to determine this order quantity is also known as Wilson EOQ Model. The model was developed by F. W. Harris in 1913. But still R. H. Wilson is given credit for his early in-depth analysis of the model

Underlying assumptions

1. The ordering cost is constant.
2. The rate of demand is constant
3. The lead time is fixed
4. The purchase price of the item is constant i.e no discount is available
5. The replenishment is made instantaneously; the whole batch is delivered at once.

EOQ is the quantity to order, so that ordering cost + carrying cost finds its minimum. (A common misunderstanding is that formula tries to find when these are equal.)

Variables

• Q = order quantity
• Q ^* = optimal order quantity
• D = annual demand quantity of the product
• P = purchase cost per unit
• C = fixed cost per order (not per unit, in addition to unit cost)
• H = annual holding cost per unit (also known as carrying cost) (warehouse space, refrigeration, insurance, etc. usually not related to the unit cost)

The Total Cost function

The single-item EOQ formula finds the minimum point of the following cost function:

Total Cost = purchase cost + ordering cost + holding cost

- Purchase cost: This is the variable cost of goods: purchase unit price × annual demand quantity. This is P×D

- Ordering cost: This is the cost of placing orders: each order has a fixed cost C, and we need to order D/Q times per year. This is C × D/Q

- Holding cost: the average quantity in stock (between fully replenished and empty) is Q/2, so this cost is H × Q/2

.

To determine the minimum point of the total cost curve, set its derivative equal to zero:

.

The result of this derivation is:

.

Solving for Q gives Q* (the optimal order quantity):

Therefore: .

Note that interestingly, Q* is independent of P, it is a function of only C, D, H.

Carrying cost

In marketing, carrying cost refers to the total cost of holding inventory. This includes warehousing costs such as rent, utilities and salaries, financial costs such as opportunity cost, and inventory costs related to permissibility, shrinkage and insurance.^[1]

When there are no transaction costs for shipment, carrying costs are minimized when no excess inventory is held at all, as in a Just In Time production system.^[1]

Excess inventory can be held for one of three reasons. Cycle stock is held based on the re-order point, and defines the inventory that must be held for production, sale or consumption during the time between re-order and delivery. Safety stock is held to account for variability, either upstream in supplier lead time, or downstream in customer demand. Psychic stock is held by consumer retailers to provide consumers with a perception of plenty.

 BEVERAGE CONTROL

·         Purchasing

·         Receiving

·         Storing

·         Issuing

·         Production Control

·         Standard Recipe

·         Standard Portion Size

·         Bar Frauds

·         Books Maintained

·         Beverage Control

The word Beverage is derived from the Latin word “Bever” which means rest from work. After work one tends to feel thirsty due to fluid loss through perspiration and one is inclined to drink water or other potable beverages.

 Definition: Beverages are potable drinks which have thirst quenching, refreshing, stimulating and nourishing qualities.

By refreshing one means the replenishment of fluid loss from the body due to perspiration. Stimulation results in increased heart beats and blood pressure. This is due to the intake of spirits, tea and coffee. Nourishment is provided by the nutrients in the beverages

Beverages can be classified as:

 1) Non-Alcoholic Beverages  2) Alcoholic Beverages

 1) Non-Alcoholic Beverages: As the name indicates these beverages do not contain any molecule of alcohol and they have the thirst quenching, refreshing, stimulating and nourishing qualities.

2) Alcoholic Beverages: Any beverage that contains 0.5% of alcohol by volume to 76 % of alcohol by volume is considered to be an alcoholic beverage. The beverages with higher then 76 % of alcohol by volume are known as “medicines”, such as anesthetics. The only consumable alcohol is ethyl alcohol rest all other alcohols are poisonous.

Important Terms: Beverage contributes significant share in the Business profit & requires less manpower, thus requires special attention. Beverage sale is an important & valuable source of income with in an establishment.

An effective cost of beverage sale is essential. In order for the smooth beverage movement effective control is required.

The problem of effective control of beverages is essential in order to avoid misuses. From the point of receiving to storeroom & from their to the bar there should be complete a strict follow through process in order to avoid any discrepancy or misuse of the beverage.

Objective Of beverage Control:-

Some Major objective of Beverage control is to:-

1. Avoid Misuse
2. Analyze the income & expenditure.
3. To maintain the standards
4. To Maintain the Standard Operating Procedures
5. Pricing Factor
6. Prevention Of waste
7. Preventing fraud
8. Management information
9. To achieve maximum Profitability

Problems in Beverage Control:-

 Beverage control tends to be difficult, some of the major reasons are as follows:-

1.      Unpredictable volume of business

2.      Unpredictable Menu Mix

3.      Short cycle of Catering Operations

4.      Departmentalization

5.      Improper  inventory

6.      Careless Attitude towards work  responsibility

7.      Bar fraud

Definition of Control: it is a Process used by managers to direct, regulate, and restrain the actions of people so that the established goals of an enterprise may be achieved. In other words control can be defined under the following heads, i.e to

• Measure the performance
• Note the deviation
• Take corrective action
• Establishing standards
• Establishing procedures
• Training
• Setting examples
• Observing and correcting employee actions
• Requiring records and reports
• Disciplining employees
• Preparing and following budgets

Fundamental Of controls: -

Effective control system & procedures consist of three broad phase i.e

1.    Planning Phase

2.    Operational Phase

3.    Management control Phase

1. Planning Phase: - Planning is an important factor that needs to be considered in controls. If we work on the planned policies it helps to increase the level of profitability & market share. Within planning there r three basic policies that should be considered i.e.

Financial Policy

 Marketing Policy

Catering Policy

2. Operational Phase:- It is necessary to define the policies in order to control the day to day catering activities.

The operational phase is in five major stages of control       cycle i.e.

1.      Purchasing

2.      Receiving

3.      Storing

4.      Preparing

5.      Selling  

4.      Management Control: - This is the final phase of Food & Beverage  control which is in three main stages:

1. F&B cost reporting

2. Assessment

3. Correction

Method OF beverage Control:

IN today world there are various method depending upon the size of the organization. Each of the different method in use can be classified under the six basic types of beverage control:-

Bar cost system

Par stock or bottle control system

Inventory or ounce system

Banqueting & Function bar

                                          Beverage Movement chart

PURCHASING

 

                                               RECEIVING

 

STORING

 

ISSUING

 

PRODUCTION CONTROL

STANDARD RECIPE

 

STANDARD PORTION SIZE

 

BAR FRAUDS

 

BOOKS MAINTAINED

 

BEVERAGE CONTROL

                                             Purchasing Control

Purchasing is defined as a function concerned with the search selection, purchase, receipt, storage & final use of commodity in accordance with the policy of the organization. Purchasing in not a separate activity .

Purchasing can be defined as a function concerned with search, selection, purchase, receipt, storage and final use of commodity. This means that the person employed for purchase function is also responsible for the receiving, storage and issuing of all commodities as well as involved with the purpose of purchase and final use of commodities. The purchasing function is vitally important in control cycle.

The main duties of Purchasing personnel:

• Responsibility  for the management of purchasing office, receiving, storage and cellar areas.
• The purchase of all commodities.
• Ensuring continuity of supply of all items to user department
• Finding cheaper and more efficient sources of materials without compromising quality.
• Keeping market information about new products and market trends, price trends etc.
• Coordinating with production department to standardize commodities and reduce stock levels.
• Liaison with production, control, accounting and marketing departments.
• Reporting to senior management.

The Purchasing procedure:

• A requisition form from authorized member of staff.
• The selection of source of supply
• Entering in to a contract with the supplier in writing after negotiating the price to be paid and a delivery performance.
• The acceptance of the goods ordered and adjustments or any discrepancies in quality or quantity.
• The transfer of commodities to the ordering department or a storeroom.
• A sound purchasing policy should be implemented for best results

While purchasing the five prong should be taken into consideration :-

·         The right Product

·         The right quantity

·         At the right Price

·         At the right time

·         From the right source

Responsibility of purchasing can be defined as assigned as any one of several person in F&B operation depending upon organizational structure & management policies. Primary purchase of establishing control is to ensure a continuous supply of sufficient quantities of necessary beverages. So it is essential to develop a standard procedure of effective purchasing.

Standard must be developed for  the following :

·         Quality of beverage purchasing

·         Quantity of Beverage Purchasing

·         Price at which beverage is purchased.

Types Of beverages purchased:

1.    ALCHOLAIC

2.    NON - ALCHOLAIC

                   

Alcholic Beverages : These r those beverages which contains alchoal in them i.e ethyle alchoal which is suitable for human consumption.Some had more & some had less %age .

There r three classification of Alchoal Beverage

1. Beer
2. Wine
3. Spirits

The above mentioned r subsequently different from others.

I. Beverage Purchasing

It is important to implement Beverage Controls. There r three Primary purpose of beverage purchasing control.

1. To maintain an appropriate supply of ingredients for producing beverage product.
2. TO ensure that the quality of ingredients purchased is appropriate for use
3. To ensure that ingredients are purchased at optimum price.

Responsibility of Beverage Purchasing:

The nature & size  of establishment often decides whom to be made responsible for beverage purchasing. In small organization it may be handled by the owner itself ,wereas in large organization it may be dedicated to the Purchasing manager in collaboration with the beverage manager.

Establishing Standard for beverage Purchasing:

 Standard must be developed for the following:

1. Quality
2. Quantity
3. Price

1. Quality Standard:  Any kind of alcoholic beverage purchased for the bar is divided into two classes’ i.e.  {CALL BRANDS & POURING BRAND}.

Call Brands r those which r those beverages which r requested by the customer specifically.

Pouring brands r those which r identified by the management keeping in view the cost factor ,Customer preference & many more things. Once a particular brand is identified as Pouring brand than all the rest brands r considered as Call Brand .

2.  Quantity Standard: Beverage Products r not highly perishable if stored properly.However there r some beverages which needs special attention like Canned beers,Draft beers,Some wines. In general Pershiability is not a critical factor in establishing quality standard for beverage .

There r eight principle factors used to establish quantity standards for beverage purchasing :

·         Frequency with which management choose to Place order

·         Storage space Available

·         Funds available for Inventory purpose

·         Delivery schedule set by purveyors

·         Minimum order requirement set by purveyors

·         Price discount for volume order

·         Special Price available

·         ‘Limited Availability of some items

2. Price Standard: After the establishment of quality standard & appropriate purchase quantities r in shape, the next step is to ensure that all beverage purchase to be made at optimum price Any discussion of price standard is complicated somewhat by laws that vary from state 2 state..

3. In general states r divides into 2 groups ……

1.License State       2.Control state

In LS wholesaler are permitted to sell alcoholic beverages directly to the organizations. Which results in competitive pricings of brands in market

In CS government hold the network in his own hands & sells the alcoholic beverages through its own network of stores ,which results in control over prices.

Establishing Standard Procedure For Beverage Purchasing:

Having established standard for purchasing beverages the next step is to establish standard procedure. The main aim of standard  procedure is :

1. To Determine Order Quantities(Periodic order Method &Perpetual Method)
2. To Process Order

Periodic Method : This method requires  that order dates be fixed so that there r equal operating periods between order dates. ordering may be done weekely or any other regular schedule ,depending upon decision of management  with respect to such considered as frequency of ordering ,storage space to be devoted to beverages ,& funds available for inventory purposes as well as on deliveary schedule & the anticipated consumption of beverages.

Keeping in view the business volume in periodic system for each beverage Par stock needs to be maintained .

Self Label

Item                                                          J W Blacklabel

Size                                                           1000ml

Par Stock                                                 24 bottles                             

Anticipated Usage                               12 bottles

                          {Example of Anticipated usage & Par stock}

The formula for calculating is :      par stock                         24 no

                                                      (-) Current Inventory                        10no

                                                      =   Purchase Quantity         14 no

·         Count the Inventory

·         Subtract the inventory from par stock

·         Obtain the purchase  quantity

Perpetual method:  This method requires fixed purchase quantities & variable order dates. Its is maintained on Perpetual inventory cards on which all purchase & issue r recorded carefully & in timely manner.Nowadays theses card r maintained in software database which is helpful & easy to maintain. The Perpetual inventory is normally maintained in location other than beverage store room.In order to use this method several heads need to be maintained i.e par stock/ Reorder point / reorder quantity.

                                Perpetual Inventory Card

                                      Hotel XYZ

Item : Talisker Single malt                              Par stock: 32

Size:   750ml                                                   Reorder Point: 14

                                                                        Reorder quantity: 24

Date           Order                    Quantity       In         out         Balance     

1/9/10                  #77                      112                   112              

2/9/10                                                                                   6                     106

3/9/10                                                                                   4                       102

4/9/10                                                                48

5/9/10                                                                                         25                      125

                             

Purchase Request Form

Hotel –XYZ                                     Standard Purchase Request Form
QUANTITY	ITEMS	BOTTLES/CANS/PINTS	PURCHASE UNIT	SUPPLIER
05	London dry	750 ml	Case	Brinco& Co.
02	Foster Beer	330ml can	Case	Ashleay & Co
Requested By………………….                                           Approved By…………….. Date ……………………………..                                          Dated……………………..

Standard Purchase Order

Hotel XYZ,                                                                                                    Dated: 1/9/2010 Moradabad                                                                                                                      Order No.  CNN 4577 To: Brinco & Co Supplier East of Kailash Hills New Delhi- India Attention Plz: Kindly Supply the Below Listed VIA  CONTAINER /TRUCK
Quantity	Purchase Unit	Bottle/can size	ITEMS	Unit Price	Total Amount
4	Case /12 pcs	1000 ml	J.W.Swing	Rs.1000	Rs.   48000
8	Case/12 pcs	330ml	Foster	Rs.200	Rs.   19200
				TOTAL	Rs.  67,200
ORDERED BY:……………………………………

                                            Receiving Beverage:

 It is similar in many ways to food receiving. However as the value of beverage purchases and the ensuring profits from the sale of beverages are high, it is important that due attention is given to the receiving of beverages.

Basically there are three main points to be considered

• Quantity Inspection
• Quality Inspection
• Clerical Inspection

Following points should be taken care of while receiving the beverages:

1.      The quantity of beverages delivered should matches with the quantity ordered. This requires a methodical approach to checking the goods against the purchase order and the delivery note. Items should be in the standard units of crates, cases etc. with standard contents of the specific size. Crates and cases should be opened to check for such things as empty, missing or broken bottles.

2.      The quality inspection is simple, but requires a thorough and methodical approach. It involves such things as checking the brand name and label on each item, the alcohol proof, the vintage and shipper, against the delivery note and purchase order.

3.      The prices stated on the delivery note are in accordance with the negotiated prices shown on the purchase order form.

4.      When the quantity and the quality (or both) delivered is not in accordance with the purchase order, or an item is omitted from the order, then a request for the credit note is raised by the receiving clerk or cellar man. 

5.      An accurate record is made in the goods received book recording details of the delivery.

6.      An accurate record is kept of all chargeable empties delivered and returned.

7.      Deliveries of beverages are timetabled with the suppliers, often to an afternoon, when receiving and cellar staff is normally not so busy and the receiving area is free from other deliveries

8.      Call to Attention of Both management & the delivery driver regarding:

·         Any thing broken or leak

·         Broken Seals & Missing Labels

9.      Record the Invoice in on Beverage receiving Report

10.  The person responsible for storing need to be intimated regarding the delivery had been received.

                                                      III.Storing Beverage:

 Once the beverages are received they must be removed immediately to the cellar and a tight level of control maintained at all times.

Storing control is done to achieve three imp objectives:

• To prevent Pilferage
• To ensure accessibility whenever needed
• To preserve quality

There are four main points to be considered:

a)     Stock records – It is necessary to decide what records are to be kept.

b)     Pricing of issues: the method of pricing of the various types of issues must be decided up on so that there is consistency within the operation. Although there are many ways to price the issues, it is common to use one or more of these methods: actual purchase price, selling price, simple average price, weighted average price, and standard price.

c)     Stocktaking – the point considered here is the level of stock to be held, rate of stock turnover, dealing with discrepancies, identification of slow moving items, etc.

d)     Clerical procedures- there is a need to determine what documentation is necessary, for example requisitions, record cards, bin cards, stocktaking report, etc.

The storage of beverages is ideally separated into five areas as follows:

1.      The main storage area for red wines and spirit held at a dry and draught-free temperature of 55-60^◦ F (13-16^◦C). This area is also used for the general collection and preparation of orders for the various bars and the storage of the keg beers when there is reasonable turnover.

2.      A refrigerated area of 50^◦ F (10^◦ C) for the storage of white and sparkling wines.

3.      A further refrigerated area of 43-47^◦ F (6-8^◦ C). This is really necessary when the turnover of keg is slow as otherwise they may be stored at 55-60^◦ F (13-16^◦ C).

4.      An area held at a temperature of 55^◦ F (13^◦ C) for the storage of bottle beer and soft drinks.

5.      A totally separate area, from those above for the storage of empty bottles, kegs and crates. This area need to be as tightly controlled as the beverage storage area, not only because of the returnable value of the crates and bottles etc. but to prevent free access by the bar staff when an “empty for full” bottle method of issuing is in operation.

The merchandise is unpacked in the cellar and stored correctly (table wines with an alcohol content of less than 16% by volume are stored on their sides, bottles of fortified wines, vintage port, spirits are stored upright) on shelves or racks in the same order as on the standard bottle code/bin list. The objectives for preparing a standard bottle code / bin list is to eliminate the confusion of bottle sizes, spelling of names and different brands, and to establish an appropriate starting point for the control of beverages. All requisitions, inventories, wine lists etc. are related to the code/ bin list. An extract from a list could be as follows: 

·         Bin Number 100-149 English Table Wines

·         Bin Number 150-199 Imported white wines

·         Bin Number 200-299 Imported Red wines

·         Bin Number 300-399 Sparkling wines

·         Bin Number 400-419 Scotch and Irish Whiskies

·         Bin Number 420-449 Gin

To avoid confusion the letter M is assigned for Magnums, H for half bottles, S for split bottles.

Sample Bin Card :-

Hotel XYZ,                                                            Moradabad Name of Article:  Talisker Single Malt                                                       Stock No. 1453                                                                                                                        Bin no.     1177
Date	In	Out	Balance	Date	In	Out	Balance
1/9/2010	48	-	48
11/9/2010	-	12	36
Name & signature of Store Keeper                                                Date & Time:

Issuing Beverage

Issuing control is maintained in hotel operation to achieve basically two objectives:

·          To ensue the timely release of beverages from the inventory

       (LIFO & FIFO) as desired

·          To prevent the misuse of Alcoholic  beverage between release from inventory & delivery to bar

It is important for the managers to monitor & adhere the laid standard for a smooth flow of Beverage issue

·         Issue quantity must be carefully set

·         Beverage must be issued to only authorized persons

Establishing Standards is essential in terms of beverage issuing, as it is necessary to follow it at the same time

Below mentioned two points are the appropriate standards for Beverage Issuing

• Establishing par stocks for Bar
• Setting up requisition system

Sample bar Requisition:

Hotel XYZ  Moradabad Dated:  1/9/2010                                                                  Outlet name:  Alleantore                                                                          Day: Monday
Quantity	Name of Article	Unit cost	Total cost
12	Bombay sapphire
10	Glenlivet Whiskey
04	Trump Vodka
Requisition done by: ………….                                           Issued By:………………….    Approved By: ………………….                                            Received By:……………..

Beverage Production Control

Control over beverage production is established to achieve the following

• To ensure all the drinks are prepared in accordance to the management specifications
• To guard against excessive cost that can develop in the production process.

Beverage production is established for the quantities of ingredients used in the drink preparation in order to assure that the ingredients are used in appropriate proportion, which further will result in controlling the cost.

For e.g While preparing MOJITO cocktail the selling price is set as per the cost of ingredients involved in building up the cocktail.

Beverage production control is established for:-

·         Establishing Quality standards 

·         Establishing standard procedures

·         Establishing standard portion cost

·         Establishing Standard sale Prices

·         Training for Production

·         Monitoring Production performance & taking corrective action

·         To follow standard recipes in accordance  to the pre determined service ware

Standard Bar recipe Card:-

Hotel XYZ                                                      Standard cocktail Recipe Card
Cocktail :  Martini                                                                                                        Bar Recipe No. #123      Selling price: Rs.725 Drink Cost: Rs. 145 Cost Percentage: 5%                                                                   Designed for : Barman
Ingredients	Quantity	Cost
London dry gin	60 ml	120
Dry Vermouth	15 ml	20
Cocktail olive	3no	5
TOTAL	75ml	145
Glassware: Bohemia Crystal Martini  Glass – 3oz. Procedure:    Chill the glass. Take the ingridents pour in the Boston shaker ,add crushed ice & shake well. Take the martini glass ,strain the liquor gently in the glass. Take the olives ,wash them & arrange them in a cocktail stick & put in in the glass Serve the drink with a cocktail napkin on side.           (Dir. Food & Beverage)                                                                          (Beverage Manager)

Beverage Production Control

Beverage production is established for :-

Ø  Establishing Quality standards 

Ø  Establishing standard procedures

Ø  Establishing standard portion cost

Ø  Establishing Standard sale Prices

Ø  Training for Production

Ø  Monitoring Production performance & taking corrective action

Ø  To follow standard recipes in accordance to the pre determined service ware (Glassware).

Objective Of Beverage Control: - Control over beverage production is established to achieve two Main Objective:-

1.      To make sure all the drinks prepared for the customer should be prepared in accordance to the Pre-defined specifications

2.      To act as a guard against excessive cost, that can be a barrier in the development

Further beverage production control is maintained in the organization

1.      to establish standard & standard Procedure for production .Common E.g is Standard Cocktail recipe Card.

2.      Establishing quality standard & standard procedures e.g are Jigger, pourer, Automatic pourer, standard glassware.(E.g Standard Recipes, Maintaining Portion cost, Maintaining standard selling price

Standard Recipe

Standard  recipe  is  a  formula  for  producing  a  food  or beverage  item. It  has  detail  list  of ingredients, required quantity  and  proportions, specific  preparation procedure, portion  size  garnish, portioning  equipment,  presentation style  and  service standard, serving dish, accompaniments etc

Advantages of Standard Recipes:-

Ø  Consistency

Ø  Yield calculations

Ø  Requirement of equipment

Ø  Time management

Ø  Indenting and receiving

Ø  Supervision

Ø  Potential cost

Ø  Guidelines for quality of materials required

Standard Recipes are developed in order to :-

Ø  Determine The Desired Yield

Ø  List Ingredients In The Order Of Use

Ø  Ingredient Weights

Ø  Use Of Utensils

Ø  Time And Temperature

Ø  Re-Test The Recipe

Standard Portion Size

A standard portion is the quantity of a particular food/Beverage item that will be served to the customer in a potion what he/she had ordered.

REASON OF ESTABLISHMENT OF PORTION SIZES:

1.         Buying pre-portioned food items

2.         Buying food items in bulk and portioning them

Importance of Standard Port ionizing:-

1. Uniformity of portion sizes enables us to achieve adequate food quality standards.
2. Strict adherence to predetermined portion sizes is essential for effective cost control.
3. Portion sizing contributes to the gross profit of the business

Beverage sales Control:-

In an organization beverage sales control is maintained in order to the achieve the three objectives:-

1.    Optimizing the number of sales

2.    Maximizing the sales

3.      Controlling the sales

Optimizing the number of sales by

                                                                                                                                                 

Socializing       Conducting Business      Eating       Seeking Entertainment         Killing time

Maximizing Profit by

 

               

Establishing Drink Prices          Influencing customer selection                      Controlling Revenue

 

           B     Working with Open cash drawer

           A       Under ringing sales

           R     Overcharging customers

                   Undercharging customers

            F     Over pouring

            R     Under pouring

                                                                                                    A    Diluting Bottle contents

          U   Allowing outside liquor

                                                                                    D Charging fr drinks which r not served

                                                                                                                                  Drinking on the job

 

BREAK EVEN ANALYSIS

a.    Breakeven Chart

b.    P V Ratio

c.    Contribution

d.    Marginal Cost

e.    Graphs

A. Break Even Chart:-

Definition:  Break even analysis is an tool which ca be used in any operation pertaining to business volume.

Break even analysis informs when a business starts to earn profit, based on the business estimated sales.

With the help of break even one can determine that if the sales figures are declining than he/she as a manager needs to watch & reduce the factor wherever possible. It tells to make every effort to promote sales more than normal.

A Break even analysis is presented in a graphical form in shape of Break Even Chart, Normally the unit of products /items r plotted on the horizontal axis & cost/sales/profits/losses/ on a vertical axis. The total sale at any point is the selling price per unit multiplied by number of units sold. The Point where the  total sale & total cost line intersects is the BREAK EVEN POINT.

Limitation of break even point:

1. Break-even analysis is only a supply side (i.e. costs only) analysis, as it tells you nothing about what sales are actually likely to be for the product at these various prices.
2. It assumes that fixed costs (FC) are constant. Although, this is true in the short run, an increase in the scale of production is likely to cause fixed costs to rise.
3. It assumes average variable costs are constant per unit of output, at least in the range of likely quantities of sales. (i.e. linearity)
4. It assumes that the quantity of goods produced is equal to the quantity of goods sold (i.e., there is no change in the quantity of goods held in inventory at the beginning of the period and the quantity of goods held in inventory at the end of the period).
5. In multi-product companies, it assumes that the relative proportions of each product sold and produced are constant (i.e., the sales mix is constant
6. The break-even point for a product is the point where total revenue received equals the total costs associated with the sale of the product
7. A break-even point is typically calculated in order for businesses to determine if it would be profitable to sell a proposed product, as opposed to attempting to modify an existing product instead so it can be made lucrative. Break even analysis can also be used to analyze the potential profitability of an expenditure in a sales-based business.

B. Profit Volume Ratio (P.V ratio):-

The relation ship in between contribution & sales would be expressed in terms of PV ratio. When the variable cost are divided by sales we get variable cost ratio.

If the variable cost is subtracted  form one we get the  P.V ratio.

FORMULA:-          PV ratio             =1-VC/ Sales

                       Contribution ratio

For e.g In a Menu Comparison of PV ratio of different dishes can be done to find out which one is more profitable.

Ø  Higher the PV ratio , More will be the profit

Ø  Lower the PV ratio lesser will be the profit

Another way of expressing PV ratio is to calculate the %age of contribution to sales.

The PV ratio expressed in terms f %age will be calculated …..

            {P.VRatio= Sales - Variable Cost /Sales * 100}

C. Contribution :-

In an operation it is possible to determine sales volume needed to cover given fixed cost of unit sales price & variable cost per unit is available for analysis .The difference between sale value & marginal cost of sales(variable cost) is known as contribution margin.

For e.g Each cover   in a restaurant is required to contribute  to a fund  which is total of all fixed overheads, the balance if any is profit or loss.

Formulas are:-   

                                             Contribution = Fixed Expenses+ Profit /Loss

                                                                              OR

                                             Contribution = Selling Price – Marginal cost

D. Margin of safety-(MOS ):-

Margin of safety is the excess of actual or budgeted sale over the break even sales.

Larger the margin safer the operations.

Margin of safety= Actual Sales – Break even sales

                                          OR

                             Profit/PV ratio

Margin of safety ratio = Actual sales – break even sales / Actual sales

When both MOS & PV ratios are low the operation should think of the possibilities of improving these with the help of following steps:-

1. Increase the selling Price
2. Increase the production
3. Reduce the Fixed & Variable cost
4. Substitute the Present menu dishes with some Profitable dishes.

Menu Engineering

ØDefinition and Objectives

ØMethods

ØAdvantages

Definition of Menu Engineering:-

Menu engineering. is, a process that analyzes the entire menu (Analyzes each and every items on the menu items individually) as a measure of profitability.

Menu engineering is about taking a more structured approach to building & monitoring a menu. The 2 key elements required for menu Engineering are

1.    Contribution

2.    Popularity of Each item ,

The physiology behind Menu engineering is the visual perception of a menu engineer, who has to place item that an owner wishes to sell more of within certain selection of a menu called sweet pots.

In General M.E is a step by step process to assist the management in evaluation of Current & future menu pricing, content & design decisions.

Menu Engineering is concerned with:-

ØAnalysis of a menu item

ØAnalyzing menu Mix

ØClassifying the Menu Items

ØCustomer demand

ØMenu mix

ØContribution margin

Role Need & Importance of Menu engineering:-

Menu engineering examines the sales history for each dish on the menu, their selling price and cost price. It then relates their profit margins and their menu mix percentages to see which items are proving popular and those which are profitable.

The main role of ME is to effectively aces train the reason why a menu item is not popular ,based on :-

Ø  Price sensivity

Ø  Profile & positioning

Ø  Cultural consideration

Ø  Seasonality.

Apart of that some major operational aspect to perform the exercise of menu engineering is to :-

1. Maximize item contribution margin
2. Keep item popularity above average
3. Maximize menu contribution margin
4. Helps in deciding the price of new menu item

Popular Terms used in Menu Engineering:-

Ø  MM = Menu mix (Popularity)

Ø  CM = Contribution Margin

Ø  ACM = Average Contribution Margin

Item classification of Menu Engineering

 In order to judge & classify certain items & there movements certain Parameters with classification & rating had been established in order to keep the business movement accurate.

1.    Stars:-High contribution margin (CM) high popularity

{Stars are extremely popular & have a high contribution margin. Stars are basically signature dishes on the Menu}.

2.    Plow horse:-Low Contribution Margin, high Popularity

{Plow horse are high in Popularity & but low in contribution margin. Such item in the Menu moves well but doesn’t increase the revenue.

3.    Puzzle:- High Contribution Margin, low Popularity

{Puzzles are low in Popularity & higher in contribution, such dishes are very difficult but have high profit margin.

4.    Dog :-Low contribution margin, low Popularity

{Dogs are low in popularity & low in contribution margin; basically they are difficult to sell & are not profitable. 

 

P

O

P

U

Dogs

L

A

R

I

T

Y

                                                             Profitability

      

How to do Menu Engineering:-

The simplest approach to menu engineering is:  

Ø  The actual number of each dish sold to establish popularity, presented as a percentage, to enable comparison between different time periods

Ø  ·The actual cash difference between dish cost and selling price to establish contribution, Because the cost difference is often much greater on main courses than starters, side dishes or deserts, it is wise to separate courses so that similar items are compared. 

Sample chart of Menu Engineering:-

 

.

Menu Engineering Pricing Method:

Take Cost of new menu item

Add ACM

Example:-

Cost of new item = Rs 50 / Average CM = RS 514/-

Suggested Selling Price Rs 514+Rs 50 = Rs  564/-

Modifying the menu after menu Engineering is a part of this Tool. Some basic steps which is found working are as follows:-

1.    Dish promotion  2.Re-positioning   3.Retention

Ø  Dish promotion is used where analysis shows that low sales are caused by a lack of customer awareness.  Blackboard and tent-card promotions were used by many chains in order to increase sales of profitable items, but not of popular dishes

Ø  A second approach to improving sales is through repositioning the item on the menu card or display.  Attention may also be given to the best choice of words used to describe the dish. Ingredients and methods of cooking can also play a part in improving dish popularity.

Ø  Managers should select from menu engineering methods, those that best suit their circumstances.  Often, the smaller the scale operation requires this simpler method of menu analysis.  Large scale, multi-site chains with a limited product range, such as the fast food sector, may require sophisticated, computerised menu analysis. 

Ø  The menu engineering technique is a simple approach, and it can give a clear picture of what is, or is not, selling.  But, bare in mind that it is management judgement that will determine the success or otherwise of the result.

Frequently asked Questions :

Q.1 : Define Purchasing ?

Q.2 :Explain Purchasing Controls ?

Q.3. What are the basic aims and objectives of purchasing Controls?

Q.4 What is Yield Testing ?