March 2006 Edition A Simple Tool to Lower Your Food Cost Production planning has a large impact on food cost, especially when business volume is cyclical. If production employees regularly throw away a couple of litres of soup, it may not be significant if you are selling 15 or 20 litres per day. When sales drop to 6 or 8 litres per day, because of a change of seasons, the impact becomes very significant. The example below shows how food costs on soup can increase from 28% to 33% because of a drop in sales volume.  •  If we get 4 portions per litre of soup and our average cost per portion is 50 cents, then our cost of producing 18 litres is 50 cents x 4 (portions per litre) x 18 (litres produced) = \$36  •  If we sell all but 2 litres at \$2 per portion, our revenue is \$2 x 4 (portions per litre) x 16 (litres sold) = \$128.  •  Our food cost percentage during this busy period is \$36 ÷ \$128 = 28%  •  If during warmer months we are selling only 6 litres per day, but still throwing away 2 litres, our math looks like this: cost of production = 8 litres x 4 (portions per litre) x 50 cents (per portion) = \$16.  •  Our revenue equals \$2 per portion x 6 (litres sold) x 4 (portions per litre) = \$48.  •  Our food cost percent during this slow period is \$16 ÷ \$48 = 33%  The obvious solution to this problem is to cut production during slow periods and increase it during busy periods. However, due to the 1001 details that we manage every day, this is easier said than done. What we need is an easy to use management tool to help us through this process. It’s called a “WASTAGE SHEET” and this is how it works:  Production employees are assigned tasks of recording all discarded portions daily on a Wastage Sheet, as shown below.   Production employees are rewarded for accuracy and not criticized for overproduction. Management should continuously work with employees to reduce discarded portions to acceptable levels. This simple tool will focus attention on the areas that need correction. Before a Wastage Sheet was implemented, one of our operations had an unusually high dairy cost. The scenario was as follows:  On Friday afternoon an employee discarded all milk containers that had an expiring code date over the weekend. Another employee, an hour later, ordered milk for the next week. Noticing that they were “sold out”, the employee increased the order.  Next Friday there was more milk with expiring dates and more milk in the trash can. The employee doing the ordering increased the order by more cartons than the previous week. This insanity continued, but by utilizing the wastage sheet, management was easily able to see how the dairy costs had increased and were able to rectify this problem. In order to ensure that seasonal changes don’t get the better of you, it is good practice to use this simple and effective tool.  Watch your food cost improve in just a couple of weeks.