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Inventory Reports
OH 5-1

Red Lobster – Brigida & Erin

Ted’s Nebraska Grill – David Campbell

Blue Sushi – Brandon Thomas

McKenna’s – Meredith Beaver

Omaha Hilton – Stephanie Hatch

Stephanie Gigax

Red Robin - Kyle Shoemaker

Village Inn – Jessica Thomas

Michelle Hood
Key Term Review
 Approved supplier
 Distributor sales
 Beverage alcohols
 Furniture, fixtures,
list
 Bid buying plan
 Capital expenditures
 Cost-plus purchasing
OH 5-2
representative
and equipment
(FF&E)
 Goods and services
needs assessment
Key Term Review continued
 In-process inventory
 Perishable products
 Nonperishable
 Perpetual inventory
products
 One-stop shop
buying plan
 Par
OH 5-3
 Physical inventory
 Pilferage
Key Term Review continued
OH 5-4
 Plan of action (POA)
 Purchase requisition
 Procurement process
 Ready-to-go
 Purchase order
 Receiving
Key Term Review continued
 Request-for-bid
 Spoilage
 Request-for-price
 Stockless purchasing
 Route salespeople
 Storage area
 Shelf life
regulations
 Value-added
products
OH 5-5
Inventory Control
5
OH 5-6
5-6
 Inventory and Purchasing
Chapter Learning Objectives
 Calculate correct order quantities.
 Estimate appropriate timing of orders.
 Explain perpetual and physical inventory
systems.
OH 5-7
Managing Inventory Volume
Most important components of inventory
management:
 Knowing what products to order
 Knowing when to order them
OH 5-8
Inventory Turnover
 A measure of how quickly food in storage
is used.
 The operation’s ordering procedure should
reflect the inventory turnover rate of the
operation.
 Average annual turnover rate for full service
 Food—20
 Liquor—8.5
OH 5-9
Percentage of Sales Volume
Two inventory level rules-of-thumb:
 Inventory values should equal no more than
1 percent of total annual sales volume.
 Inventory values should not be more than
approximately one-third of the average
monthly product sales.
OH 5-10
Optimal Inventory Level
Optimal inventory levels can be calculated by
utilizing:
 The par stock approach
 The Levinson method
OH 5-11
Calculating Product Usage
Step 1 – Calculate customer forecast
Customer count last period
+ (Customer count last period x % increase expected)
Customer count forecast for this period
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Calculating Product Usage continued
Step 1 – Calculate customer forecast
Customer count last period
– (Customer count last period x % decrease expected)
Customer count forecast for this period
OH 5-13
Calculating Product Usage continued
Step 2 – Calculate popularity index of the
items
Number of customers
choosing a specific
entrée
OH 5-14
Total
Popularity
÷ entrées = index of
sold
specific entrée
Calculating Product Usage continued
Step 3 – Calculate supply needed
Customer count
forecast for
period
Popularity
x index for
item
=
Forecast
product
usage
5,200 x .20% = 5,304
5,304 x 0.41 =
OH 5-15
2,175
Calculating Product Usage continued
Once forecasted supply has been determined, use
one of the following inventory calculation methods.
 The par stock approach
 The Levinson method
OH 5-16
The Par Stock Method
Step 1 – Request and accept the supplier’s stated
delivery schedule.
 In most cases, the buyer cannot alter
this schedule without incurring
significant additional expense.
OH 5-17
The Par Stock Method continued
Step 2 – Determine par levels for each item
 Par levels are affected by:
 Frequency of vendor delivery
 Available storage space
 Product perishability
OH 5-18
The Par Stock Method continued
Step 3 – Calculate the order quantity.
 Subtract the amount on hand (current
inventory) from the established
par level.
OH 5-19
The Levinson Method
Step 1 – Request and accept the supplier’s stated
delivery schedule.
Remember—the buyer cannot generally
alter this schedule without additional
expense.
OH 5-20
The Levinson Method continued
Step 2 – Determine par levels for each item.
Recognize that product usage between
order and delivery dates must be
estimated.
OH 5-21
The Levinson Method continued
Step 3 – Forecast the amount of each item needed.
Determine raw pounds (or other
appropriate measurement) needed by
computing:
 Portion factor (PF)
 Portion divider (PD)
OH 5-22
The Levinson Method continued
Portion factor (PF) computation
16 oz
OH 5-23
÷
Amount needed for
one serving
=
Portion
factor
The Levinson Method continued
Portion divider (PD) computation
PF x Edible yield percentage = Portion divider
OH 5-24
The Levinson Method continued
Order size computation
Number of
forecasted
servings
OH 5-25
÷ Ingredient’s PD
= Order size
The Levinson Method continued


OH 5-26
Given the following data, compute the number of cases needed to
serve 1,575 customers:

Ingredient: Iceberg lettuce

Serving size: 4 ounce

Edible Yield: 75 percent

Minimum weight: per case: 36 pounds
Given the following data, compute the number of liters needed to
serve 250 customers

Ingredient: Gin

Serving size: 55 milliliters

Servable Yield: 95 percent
Evaluate Edible Portion Costs of Ingredients
 Given the following data, determine the EP cost for one
serving of each ingredient:
Ingredient
Edible Yield
Serving size
AP Price/#
a)
Raw Corned Beef Brisket
50%
4 oz
$1.38
b)
Raw Corned Beef Round
75%
4 oz
$1.45
c)
Cooked Corned Beef Brisket
90%
4 oz
$2.98
d)
Cooked Corned Beef Round
95%
4 oz
$2.45
OH 5-27
Evaluate Edible Portion Costs of Ingredients
 Given the following data, determine the EP cost for one
serving of each ingredient:
Ingredient
Edible Yield
Serving size
AP Price/KG
a)
Fresh Raw Spinach
60%
90 grams
$1.75
b)
Frozen Leaf Spinach
100%
90 grams
$2.95
c)
Frozen Chopped Spinach
100%
90 grams
$3.25
OH 5-28
Inventory Costs
 The best operators compute economic order
quantity (EOQ).
 The EOQ is the most cost-effective amount
to order.
 The EOQ can be computed in dollars (EOQ
in dollars) or number of units (EOQ in number
of units).
OH 5-29
Food Costs
AP price ÷
AP price
OH 5-30
÷
Edible yield
percentage
PD
=
EP per product unit
= EP per serving
Food Costs continued
Standard cost
Total standard cost
=
EP per serving of all
items on the plate
Menu price
Standard
÷
cost
OH 5-31
Percentage of
menu price
=
Menu selling
price
Inventory Control Methods
 Perpetual inventory management
 Physical inventory management
OH 5-32
Inventory Loss Control
Managers can minimize inventory losses by:
 Installing proper locks
 Prohibiting employee loitering near receiving and
storage areas
 Ensuring that accounts are credited properly
 Clearly marking paid invoices as “PAID”
 Comparing invoices with purchase orders
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How Would You Answer
the Following Questions?
OH 5-34
1.
The (Levinson method/par stock) approach is the ordering
method which is most widely used.
2.
AP price divided by edible yield percentage equals
A.
Standard plate cost
B.
Menu price
C.
EP per product unit
D.
Percentage of menu price
3.
A __________ inventory system is based upon a theoretical
count of inventory items.
4.
Marking paid invoices as _________ can help operators reduce
inventory loss due to theft or pilferage.
Key Term Review
 As purchased (AP)
 Economic order
 Bin card
 Edible portion (EP)
price
 Capital cost
 Carrying cost
 Customer count
forecast
OH 5-35
quantity (EOQ)
cost
 EP per product unit
 EP per serving
Key Terms Review continued
 Forecasted
usage/supply of a
particular item for
this period
 Historical usage data
 In-process inventory
 Inventory turnover
OH 5-36
 “Just in time” (JIT)
inventory
management
 Levinson method
 Management
information system
(MIS)
 Menu price
Key Terms Review continued
 Opportunity cost
 Optimal price
 Order size
 Par stock approach
 Percentage of sales
volume
OH 5-37
 Perpetual inventory
management
 Perpetual inventory
system
 Physical inventory
management
Key Terms Review continued
 Popularity index
 Portion divider (PD)
cost
 Portion factor (PF)
 Storage cost
 Reorder point
 Total annual costs
 Standard cost
OH 5-38
 Standard serving
Chapter Learning Objectives—
What Did You Learn?
 Calculate correct order quantities.
 Estimate appropriate timing of orders.
 Explain perpetual and physical inventory
systems.
OH 5-39