OH 5-1

Inventory Reports 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

OH 5-2

Key Term Review

Approved supplier list

Beverage alcohols

Bid buying plan

Capital expenditures

Cost-plus purchasing

Distributor sales representative

Furniture, fixtures, and equipment (FF&E)

Goods and services needs assessment

OH 5-3

Key Term Review continued

In-process inventory

Nonperishable products

One-stop shop buying plan

Par

Perishable products

Perpetual inventory

Physical inventory

Pilferage

OH 5-4

Key Term Review continued

Plan of action (POA)

Procurement process

Purchase order

Purchase requisition

Ready-to-go

Receiving

OH 5-5

Key Term Review continued

Request-for-bid

Request-for-price

Route salespeople

Shelf life

Spoilage

Stockless purchasing

Storage area regulations

Value-added products

OH 5-6

Inventory Control

Inventory and Purchasing

5OH 5-6

OH 5-7

Chapter Learning Objectives

Calculate correct order quantities.

Estimate appropriate timing of orders.

Explain perpetual and physical inventory systems.

OH 5-8

Managing Inventory Volume

Most important components of inventory management:

Knowing what products to order

Knowing when to order them

OH 5-9

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 5-10

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 5-11

Optimal Inventory Level

Optimal inventory levels can be calculated by utilizing:

The par stock approach

The Levinson method

OH 5-12

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

OH 5-13

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 5-14

Calculating Product Usage continued

Step 2 – Calculate popularity index of the items

Number of customers choosing a specific entrée

÷Total entrées sold

= Popularity index of specific entrée

OH 5-15

Calculating Product Usage continued

Step 3 – Calculate supply needed

Customer count forecast for period

x

Popularity index for item

= Forecast product usage

5,200 x .20% = 5,304

5,304 x 0.41 = 2,175

OH 5-16

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 5-17

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 5-18

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 5-19

The Par Stock Method continued

Step 3 – Calculate the order quantity.

Subtract the amount on hand (current inventory) from the established par level.

OH 5-20

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 5-21

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 5-22

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 5-23

The Levinson Method continued

Portion factor (PF) computation

16 oz ÷ Amount needed for one serving = Portion

factor

OH 5-24

The Levinson Method continued

Portion divider (PD) computation

PF x Edible yield percentage = Portion divider

OH 5-25

The Levinson Method continued

Order size computation

Number of forecasted servings

÷ Ingredient’s PD = Order size

OH 5-26

The Levinson Method continued

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

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/#

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 5-28

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 5-29

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 5-30

Food Costs

AP price ÷ Edible yield percentage = EP per product unit

AP price ÷ PD = EP per serving

OH 5-31

Food Costs continued

Standard cost

Menu price

Standard cost ÷ Percentage of

menu price = Menu selling price

Total standard cost = EP per serving of all items on the plate

OH 5-32

Inventory Control Methods

Perpetual inventory management

Physical inventory management

OH 5-33

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

OH 5-34

How Would You Answer the Following Questions?

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.

OH 5-35

Key Term Review

As purchased (AP) price

Bin card

Capital cost

Carrying cost

Customer count forecast

Economic order quantity (EOQ)

Edible portion (EP) cost

EP per product unit

EP per serving

OH 5-36

Key Terms Review continued

Forecasted usage/supply of a particular item for this period

Historical usage data

In-process inventory

Inventory turnover

“Just in time” (JIT) inventory management

Levinson method

Management information system (MIS)

Menu price

OH 5-37

Key Terms Review continued

Opportunity cost

Optimal price

Order size

Par stock approach

Percentage of sales volume

Perpetual inventory management

Perpetual inventory system

Physical inventory management

OH 5-38

Key Terms Review continued

Popularity index

Portion divider (PD)

Portion factor (PF)

Reorder point

Standard cost

Standard serving cost

Storage cost

Total annual costs

OH 5-39

Chapter Learning Objectives— What Did You Learn?

Calculate correct order quantities.

Estimate appropriate timing of orders.

Explain perpetual and physical inventory systems.