Purchase Prices How Do I Get the Best Deal

Chapter 5Purchase PricesHow Do I Get the Best Deal? Chapter OutlineValue RevisitedReducing CostsLearning ObjectivesDescribe the concept of value and its dimensions.Understand the relationship among AP price, EP cost and value.Cost out standardized recipes.Learning Objectives (cont.)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.Value RevisitedIntroductionValue has many dimensionsAppearance doesn’t affect wholesomenessYou must assess the appropriate quality for the intended useYour Quality Control Focus: determine exactly what the quality should be and ensure you receive it every time for the best possible AP priceValue RevisitedIntroduction (cont.)Also true of Supplier Services: focus on what you have to haveVendors may not give you all of the services or price breaks you wantValue RevisitedIntroduction (cont.)To increase overall value and reduce AP pricesKnow what you needKeep a good head for numbersDon’t be influenced by sales pressuresValue RevisitedSpecifications Revisited:Here’s where you determine what it is that you need!Value RevisitedStandard Recipes RevisitedJust as critical as specificationsHighlights expensive ingredients Recipes should be written with AP amount for each ingredientCalculating and adding AP prices for all ingredients and dividing by number of servings the recipe makes gives the cost for one portionValue RevisitedStandard Recipes Revisited You must cost out as many recipes as there are potential vendors for the items in that recipeThe yield percentages may be different for different vendors Different grades of product from the same vendor may give different yield percentagesValue RevisitedStandardized Recipes Revisited When you find an AP price variation, order from the vendor who is truly less expensiveDon’t want to do the tests on all ingredients?Track the most expensive ingredients – check AP prices and convert to EP costs for vendor comparisonsAverage restaurant kitchen has 600 to 800 ingredients in stock but only 20 to 25 account for almost 80 percent of total food purchasesValue RevisitedStandard Recipes Revisited Example – Three vendors sell brisket by the poundVendor A: $3.79/pound; 75% yield percentageVendor B: $4.25/pound; 90% yield percentageVendor C: $4.15/pound; 82% yield percentage(everything else is similar: delivery schedule, bill-paying procedures, etc.)Value RevisitedStandard Recipes RevisitedAP price ÷ Edible Yield Percentage = EP cost per unitVendor 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 poundValue RevisitedPractice ProblemFresh Poultry: $4.50/pound (AP), 75% yield percentageWhat is its EP cost per pound?4.50 ÷ .75 = $6.00 per poundNote: the EP cost per unit is almost always higher than the AP price per unitValue RevisitedPractice ProblemRanch Dressing: 90 edible yield percentage; 1½ ounce (EP); $8.25 per gallon (AP price)Calculate the EP cost for one serving8.25 ÷ .90 = $9.17 EP cost per gallon9.17 ÷ 128 (ounces per gallon) = $0.07$0.07 × 1.5 = $0.11 EP cost per serving Value RevisitedPractice ProblemBeef tenderloin: $12.45/pound (AP price); 70% edible yield percentageCalculate the EP cost for a five-ounce serving $12.45 ÷ .70 = $17.79 EP cost per pound17.79 ÷ 16 = $1.11 EP cost per ounce1.11 × 5 = $5.55 EP cost per servingValue RevisitedPractice ProblemPinnacle 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 = $0.018Servable Portion cost per serving = $0.018 × 45 ml = $0.81Value RevisitedPractice Problem32 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 $76.80X = (1 ÷ $1.43) × $76.80X = approximately 54 servingsValue RevisitedPractice Problem30 pounds of a food item @ $5 per pound (AP); EP cost is $1.52 per servingHow many servings are available for sale?30 pounds × $5 = $1501.52 ÷ 1 = 150 ÷ XX = 150 ÷ 1.52 = 99 servingsValue RevisitedPractice ProblemTotal amount used in recipe: 50 pounds of meat, 4 quarts of sauceHow 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.) Value RevisitedCutting calculation timeTrack the 25 most expensive ingredients in the kitchenBuy products that guarantee a “100%” yield (some may be too expensive)Be cautious when adding convenience foodsReducing CostsReduce 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 publicationsVisit relevant web sitesReducing CostsEvaluate the Use of Convenience FoodsMay be expensiveDoes your multi-item menu require the use of convenience foods?One-Stop ShoppingSaves on administrative costsAre you buying convenience?Reducing CostsTrade-OutsWork best when done directly-not through an intermediaryProvide Your Own Support FunctionsDirect buying (from large manufacturer or farmer)Shipping may cost more than vendor markupReturns may be a challengeReducing CostsCo-Op BuyingTheory – large order of several small operators will qualify for reduced AP priceAdministrative costs may overshadow savingsBuying clubs are an optionReducing CostsDiscountsQuantity discountVolume discountPrime-vendor discountCash discountPromotional discountForklift discountUser discountReducing CostsDiscountsIntroductory discountTrade-show discountFreight-damaged discountOdd-hours discountProprietary-brand discountReducing CostsAsk and you might receiveNegotiating 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 itAsk for an enhancement such as a few dozen dinner rolls to go with your breakfast pastriesNever let a vendor get too comfortable with you as a customerReducing CostsPractice ProblemRestaurant waste -- $783 each monthBudget – 14% profit on sales revenueHow much additional revenue must be generated to recoup the waste?783 ÷ .14 = $5,593 (approx.) per month or $67,116 (approx) per yearReducing CostsPractice ProblemRestaurant waste -- $783 each monthBudget – 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 yearReducing CostsHow Do Vendors Figure Out What AP Prices to Charge?AP price as a function of the cost of doing businessAP price as a function of competitive pressureAP price as a function of supply and demandAP price as a function of retail valueAP price as a function of buyer pricing