quality as an improvement philosophy: management of employee turnover rate

Restaurant Operations Management: Principles and Practices © 2006 Pearson Education, Inc. Ninemeier/Hayes Upper Saddle River, NJ 07458

Quality as an Improvement Philosophy: Management of Employee Turnover Rate

OH – 16.1

(Food Servers’ Turnover Rate)Current

1 Year 5 Years Goal

Long-Term Future

50% 40% 20% 10%


Effective Restaurant Managers:

• Can never be content about “how things are now”

• Must be concerned about ways to make improvements in their operations

• Must utilize the present situation as the benchmark (starting point) for planning an improvement process

OH – 16.2


Calculation of Actual Food and Beverage Costs with Adjustments for January, 20XX

OH – 16.3

Part A: Food Cost

Value of Food Inventory(Beginning of Period, Jan. 1) $ 83,575

Value of Food Purchases (During January) 187,615

Total Value of Food Available (During January) $ 271,190

Value of Food Inventory (End of Period, January) (89,540)

Total Unadjusted Cost of Food Used (January) 181,650

Add Adjustments to Total Cost of Food Used Transfers to Beverage 6,550

Deduct Adjustments to Total Cost of Food Used Transfers to Beverage Transfers to Labor Cost (Employee Meals) Transfers to Marketing

(4,175)(8,900)

(3,750) (16,825)

Net Cost of Food Used (January) 171,375

Assume January Food Revenue = $508,620

Food Cost % (Unadjusted) = $181,650 = 35.7% $508,620

Food Cost % (Adjusted) = $171,375 = 34.0% $508,620


Calculation of Actual Food and Beverage Costs with Adjustments for January, 20XX (continued)

OH – 16.4

Part B: Beverage Cost

Value of Beverage Inventory (Beginning of Period, Jan. 1)

$ 19,550

Value of Beverage Purchases (During January) 38,950

Total Value of Beverages Available (During January)

$ 58,500

Value of Beverage Inventory (End of Period, January)

(15,715)

Total Unadjusted Cost of Beverages Used (Total Period)

42,785

Add Adjustments to Total Cost of Beverage Used Transfers from Food 4,175

Deduct Adjustments to Total Cost of Beverages Used

Transfers to Food Transfers to Marketing

(6,550)(1,275) (7,825)

Net Cost of Beverages Used (Total Period) 39,135

Assume January Beverage Revenue = $168,750

Beverage Cost % (Unadjusted) = $ 42,785 = 25.4% $168,750

Beverage Cost % (Adjusted) = $ 39,135 = 23.2% $168,750


All About Food and Beverage Transfers

OH – 16.5

Impact onFood Costs Beverage

Costs• Transfers from Beverage Increase Decrease

• Transfers to Beverage Decrease Increase

• Transfers to Food Increase Decrease

• Transfers from Food Decrease Increase• Transfers to Labor Cost Decrease Not Common

Practice• Transfers to Marketing Decrease Decrease


Steps in Problem Analysis Process

OH – 16.6

Step 1:

Step 2:

Step 3:

Step 4:

Set Expectations

Assess the “Actuals”

Analyze the Variance

Determine Whether Problem Exists


“It's All in the Numbers”

OH – 16.7


Revenue Levels Impact Food and Labor Cost Percentages

OH – 16.8

Actual Revenue Compared to Budget

Food Cost Percentage

Labor Cost Percentage

Greater No Change Decrease

Lower No Change Increase


Potential Reasons for Revenue Problems

OH – 16.9

REVENUE PROBLEMS

Potentially Manageable Reasons Potentially Unmanageable Reasons

Revenue theft by employees Ineffective marketing/sales tactics Guest-relations issues New and significant competition for

the same guest market Operating hours are longer than

necessary; incurred labor costs are not offset by sufficient revenue

Significant layoffs within the community reducing the size of the guest market

Economic recession Significant capital improvement/

remodeling project leading to restaurant downtime

Street/other community improvement project yielding difficult/no access to property

Shortage (lack) of key menu ingredients which require popular items to be temporarily removed from the menu


Potential Reasons for Food Cost Problems

OH – 16.10

FOOD COST PROBLEMS

Potentially Manageable Reasons Potentially Unmanageable Reasons

Revenue theft [1]

Failure to effectively follow procedures for effective purchasing, storing, issuing and producing food products Improper/inaccurate procedures to calculate actual food costs[2]

Ineffective selling techniques resulting in sales of higher food cost items Portion control issues

Significant increases in costs paid for food Shift of guest preferences to higher- food cost menu selections Storage losses (for example, refrigerator/freezer breakdown requiring stored food to be destroyed) Shift to more convenience foods in efforts to reduce labor costs

[1] The food cost percentage is a function of food costs divided by revenue; therefore, revenue theft yields a higher food cost percentage. The real problem could be theft of revenue rather than excess funds being spent for food.[2] See discussion of actual food cost calculations earlier in this chapter.


Recap: Food Server Guest Check Averages

OH – 16.11


Worksheet for Weekly Food Cost

OH – 16.12


Labor Cost Analysis

OH – 16.13

Week of: 7/16/XX

Dishwashers PayRate

Schedule Actual Variance

Hours Pay Hours Pay

(1) (2) (3) (4) (5) (6) (7)

Armon $7.55 35 $264.25 38 $286.90 ($22.65)

Catalina $7.85 30 $235.50 35 $274.75 ($39.25)

Billy $6.90 35 $241.50 37 $255.30 ($13.80)

Omar $7.80 15 $117.00 10 $ 78.00 $39.00

$858.25 $894.95 ($36.70)


Steps in Corrective Action Process

OH – 16.14

Step 1:

Step 2:

Step 3: Utilize a Decision-MakingProcess

Consider Problems Identified by Analysis

Prioritize Problems

Unmanageable Manageable


Prioritizing Problems: Assess the Economic Impact

OH – 16.15

A. Would you rather increase revenue or decrease variable costs? (Answer: Ideally both!) What about in the example below? Priority: To increase revenue by $2,000 or to decrease variable costs by $2,000.

Assume Current Data

Increase Revenueby $2,000

Decrease Costsby $2,000

Revenues $ 12,000.00 $ 14,000.00 $ 12,000.00

Variable Costs (70%) (8,400.00) (9,800.00) (6,400.00)

Fixed Costs (20%) (2,400.00) (2,400.00) (2,400.00)

“Profit” $ 1,200.00 $ 1,800.00 $ 3,200.00

Increasing revenue by $2,000 only yields a $600 increase in profit ($1,800 - $1,200); decreasing variable costs by $2,000 increased profit by $2,000 ($3,200 - $1,200).


More on Prioritizing Problems: Assess the Economic Impact

OH – 16.16

B. Which of the following costs would you first “manage”? (Answer: Hopefully both at the same time!) If not, which is the priority?

Budget Actual Difference

Food Cost 34% 36% (2%)

Beverage Cost 26% 31% (5%)

At first examination, it appears “obvious” that beverage costs represent the biggest problem: a 5% variance from expected costs compared to only 1% variance for food costs. However, after we learn more details, our opinion of the largest problem changes

FOOD

Actual Budget Difference

Food Revenue $450,000.00 $450,000.00

Food Cost % 36% 34%

Food Cost $162,000.00 $153,000.00 ($ 9,000.00)

BEVERAGE

Actual Budget Difference

Beverage Revenue $105,000.00 $105,000.00

Beverage Cost % 31% 26%

Beverage Cost $32,550.00 $27,300.00 ($ 5,250.00)

As seen above, a 2% variance in food costs represents $9,000 in higher-than-expected costs (and lower profits). By contrast, a 5% variance in beverage costs results in $5,250 in higher-than-expected costs (and lower profits). Clearly, after any “quick fix” with the beverage operation, the manager's attention must be directed to food control activities.


Basics of the Decision-Making (Problem-Solving) Process

OH – 16.17

STEPS EXAMPLE

Step 1: Define the Problem

Step 2: Generate Solution Alternatives

Step 3: Evaluate Solution Alternatives

Step 4: Select the “Best” Solution Alternative

Step 5: Implement the Solution Alternative

Step 6: Evaluate the Effectiveness of the Solution

Guest check average for food has been declining for each of the last three months

Need to utilize suggestive selling Need to evaluate menu (components and design) to

determine if changes can increase revenues Errors in equipment/procedures used to calculate data Theft of revenue by food servers

Guest shoppers did not observe suggestive selling; training needed to implement suggestive selling program

Menu recently re-designed; guest counts are up slightly An auditor has found no “bookkeeping problems”

suggesting employee theft

Implement a suggestive selling program

Train service staff; implement a contest (all servers with a specified minimum guest check average win complimentary meals and sweatshirts)

Determine the extent to which the guest check average increases after the suggestive selling training program has been implemented


Some Tactics to Reduce Resistance to Change

• Involve employees in the decision-making process. • Inform employees in advance about changes that will

impact them.• Select an appropriate time to implement the change.

(“Trying something new” during an extremely busy shift is never a good idea!)

• Share past successes; review related changes that have benefited the employees and the organization.

• Reward employees for sharing ideas in the decision-making process that benefit the restaurant and the employees.

OH – 16.18

quality as an improvement philosophy: management of employee turnover rate

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