Managing product cost is easy. Isn’t it? No way. In my career, I have learned that many factors affect product cost. Today, I will discuss product utilization and the factors involved in optimizing it.
Optimizing product utilization is a terrific way to decrease cost. Two keys to increase product utilization are purchase tracking and inventory management.
Purchase Tracking
Purchase tracking is a basic exercise meant to exploit good forecasting and kinesthetic learning by internalizing and managing numbers daily. It is an activity by which purchases are recorded against a budget with the goal of maximizing product utilization and preventing over/under purchasing. It provides instant feedback on where costs are heading.
Steps to the daily tracking of purchases include:
*Prepare a proper sales forecast weekly;
*Calculate how much should be spent to meet the cost budget for the week. For example, food sales are forecasted at $30,000 for the week and the cost goal is 30%, the budgeted food cost dollars are $9,000 ($30,000*30%). Assume inventory is level;
*Use a tracking tool to record purchases and reduce the amount of the budget;
-Record purchases separated by vendor
-Record purchases by cost account
*Once the budget for the week has been spent stop purchasing. Use the budget as a checkbook, when the budget runs out it’s gone; and
*Increase/decrease the budget if sales are higher/lower than forecast.
These seem so simple, yet often times some of these steps are overlooked. When done correctly this method of tracking purchases can be extremely effective.
Inventory Control
Keeping tight control of inventory is key number two. Not only does tight inventory lead to better product utilization but it also leads to more cash available to the owner. Inventory is an investment. A good rule of thumb is to keep five to seven days sales of food inventory on hand and 30 to 45 days in beverage. Too much inventory leads to increased likelihood of theft, waste, and inferior product quality, too little leads to inefficient purchasing decisions and stock outs. The idea is to ensure your inventory is at the lowest possible level without being “sold out”.
Count inventories on a weekly basis (there is much debate about weekly inventory but trust me it is the best). Keep daily inventory on all high-end food and beverage (steak, seafood, bottled wine) and reconcile usage to sales. Keep great track of your inventory and you will see decreasing costs.
If you control purchasing and inventory you are guaranteed to increase product utilization and decrease cost. To discuss in more detail or for assistance please feel free to contact me at rbraa@c-h.com.
