• Value Revisited• Reducing Costs

• Describe the concept of value and its dimensions.

• Understand the relationship among AP price, EP cost and value.

• Cost out standardized recipes.

• 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.

• Introduction (cont.)– Also true of Supplier Services: focus on what you

have to have• Vendors may not give you all of the services or price

breaks you want

• Introduction (cont.)– To increase overall value and reduce AP prices• Know what you need• Keep a good head for numbers• Don’t be influenced by sales pressures

Specifications Revisited:Here’s where you determine what

it is that you need!

• Standard Recipes Revisited– Just as critical as specifications– Highlights expensive ingredients – Recipes should be written with AP amount for

each ingredient– Calculating and adding AP prices for all ingredients

and dividing by number of servings the recipe makes gives the cost for one portion

• Standard Recipes Revisited – You must cost out as many recipes as there are

potential vendors for the items in that recipe– The yield percentages may be different for

different vendors – Different grades of product from the same vendor

may give different yield percentages

• Standardized Recipes Revisited – When you find an AP price variation, order from

the vendor who is truly less expensive– Don’t want to do the tests on all ingredients?• Track the most expensive ingredients – check

AP prices and convert to EP costs for vendor comparisons• Average restaurant kitchen has 600 to 800

ingredients in stock but only 20 to 25 account for almost 80 percent of total food purchases

Standard 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.)

Standard 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 pound

Practice ProblemFresh Poultry: $4.50/pound (AP), 75% yield

percentageWhat is its EP cost per pound?4.50 ÷ .75 = $6.00 per pound

Note: the EP cost per unit is almost always higher than the AP price per unit

Practice 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 gallon

9.17 ÷ 128 (ounces per gallon) = $0.07$0.07 × 1.5 = $0.11 EP cost per serving

Practice 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 serving

Practice 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

= $0.81

Practice 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 $76.80

X = (1 ÷ $1.43) × $76.80X = approximately 54 servings

Practice 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 ÷ X

X = 150 ÷ 1.52 = 99 servings

Practice 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.)

• Cutting calculation time– Track the 25 most expensive ingredients in the

kitchen– Buy products that guarantee a “100%” yield (some

may be too expensive)– Be cautious when adding convenience foods

• Reduce 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 publications– Visit relevant web sites

• Evaluate the Use of Convenience Foods– May be expensive– Does your multi-item menu require the use of

convenience foods?

• One-Stop Shopping– Saves on administrative costs– Are you buying convenience?

• Trade-Outs– Work best when done directly-not through an

intermediary

• Provide Your Own Support Functions– Direct buying (from large manufacturer or farmer)– Shipping may cost more than vendor markup– Returns may be a challenge

• Co-Op Buying• Theory – large order of several small

operators will qualify for reduced AP price• Administrative costs may overshadow savings• Buying clubs are an option

• Discounts– Quantity discount– Volume discount– Prime-vendor discount– Cash discount– Promotional discount– Forklift discount– User discount

• Discounts– Introductory discount– Trade-show discount– Freight-damaged discount– Odd-hours discount– Proprietary-brand discount

• Ask and you might receive– Negotiating 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 it…– Ask for an enhancement such as a few dozen

dinner rolls to go with your breakfast pastries– Never let a vendor get too comfortable with you

as a customer

Practice ProblemRestaurant waste -- $783 each monthBudget – 14% profit on sales revenue

How much additional revenue must be generated to recoup the waste?

783 ÷ .14 = $5,593 (approx.) per month or $67,116 (approx) per year

Practice ProblemRestaurant waste -- $783 each month

Budget – 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 year

• How Do Vendors Figure Out What AP Prices to Charge?– AP price as a function of the cost of doing

business– AP price as a function of competitive pressure– AP price as a function of supply and demand– AP price as a function of retail value– AP price as a function of buyer pricing