Download Purchase Prices

• Value Revisited
• Reducing Costs
• Describe the concept of value and its
dimensions.
• Understand the relationship among AP price,
EP cost and value.
• Cost out standardized recipes.
• 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.
• Introduction
– Value has many dimensions
– Appearance doesn’t affect wholesomeness
– You must assess the appropriate quality for the
intended use…
– Your
: determine exactly
what the quality should be and ensure you receive
it every time for the best possible AP price
• 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
• 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
Specifications Revisited:
Here’s where you determine what
it is that you need!
• 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
• 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
• 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
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.)
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
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
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
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
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
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
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
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.)
• 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
• 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
• 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?
• 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
• 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
• Discounts
– Quantity discount
– Volume discount
– Prime-vendor discount
– Cash discount
– Promotional discount
– Forklift discount
– User discount
• Discounts
– Introductory discount
– Trade-show discount
– Freight-damaged discount
– Odd-hours discount
– Proprietary-brand discount
• 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
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
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
• 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