How to Avoid Running Out of Product With an Effective Order Guide
"I'll have the Shrimp Diablo and my wife would like to try the Redfish Pontchartrain."
"I'm sorry, sir," replied the waiter, "We ran out of shrimp about 15 minutes ago. Would you care to try our prime rib instead? And ma'am, since we also put shrimp in our Pontchartrain sauce, would you like to go ahead and just order the redfish plain?"
Why is it, considering all the technological and communication advancements of point-of-sale (POS) systems, online ordering and the like, restaurateurs still struggle with running out of product? With guests' expectations continually on the increase, operators can ill afford to disappoint them, and being told that their favorite menu item has been eighty-sixed ranks high on the disappointment chart for most diners.
So why do some restaurants continually run out of product? The answer is simple: They lack an effective ordering system. Someone underestimated sales, or forgot to check how much shrimp was on hand. Or, having ordered so many times, they felt they could order from top of mind. Whatever the reason, the system isn't working. If you have a similar problem, then it's time to rethink your ordering process.
An effective ordering system has benefits that go beyond the simple goal of maintaining sufficient product to serve your guests. Proper ordering procedures also help to keep fresh product in stock as well. Perishable products such as meats, seafood, produce and dairy need refrigeration and have limited shelf life; therefore, you need to order them more often to ensure fresh inventory on hand.
Ordering too much of a product, simply because you keep running out, can have dire consequences as well. Guests may not like you running out of food, but they certainly don't want to be served seven-day-old seafood as an alternative. By getting smaller deliveries, more frequently, you can control both the quality and the quantity.
Better ordering control can also help to free your cash from being tied up in excessive inventory levels. In his workshop, David Scott Peters of Smile Button Enterprises stresses the importance of inventory turnover. He suggests that inventory levels for food products should turn over from four to six times a month. In other words, if you spend $18,000 per month in food purchases, then your food inventory value should range from a low of $3,000 ($18,000 ÷ 6) to a high of $4,500 ($18,000 ÷ 4). Compare that with turning your inventory over only three times a month resulting in about $6,000 in inventory and a $1,500 to $3,000 cash difference. Most operators will agree that having that excess cash can come in pretty handy on payday.
An effective order system can also minimize the labor hours it takes to order and receive deliveries. As I will explain below, no matter what level of technology you adopt, an efficient ordering system still requires a constant "hands on" regimen. However, by putting in place routine order schedules and having the ability to quickly determine how much and what to order, you'll probably find a time savings. Ask yourself how much time it takes to send someone to the store during the Saturday dinner rush or how long you spend paging your foodservice rep (not to mention the added cost) so you can get a hotshot for something you forgot to order?
What is an Order Guide?
So, how do you create an effective system for ordering goods and supplies? Many successful chains use an order guide. An order guide is a set of forms that contain a listing of all the products a restaurant uses. It is usually divided into separate sections such as meat, produce, cleaning supplies, paper, etc. (See "Order Guide Categories" below.)
Glenn Cates, a food and beverage consultant and chef for A'la Carte Consulting, has been using an order guide since the 1980s when he trained kitchen managers for TGI Fridays. "I still use the same basic order guide today that I did then," Cates says. It's a tool every kitchen manager or chef can use, regardless of what type of restaurant they run."
Item description. Descriptions should be kept brief but identifiable. The pack and size of the product is sometimes shown in the description as well. This helps the order preparer to identify the correct product when counting or receiving. Most operators use the description that is on the vendor's invoice. For example: "Beef-Bottom Round 4/14# avg."
Pack and size. Some guides list the pack and size of a product in a separate column or line. The pack means the number of units in the case, box or carton. The size describes the type of container or weight of the product. In the example above, it shows that bottom round is delivered in a container that has four pieces, each having an average weight of 14 pounds.
Purchase unit. The purchase unit represents the unit of measure that the price is based upon. Some products are sold by the case and delivered by the case. However, items like meat, seafood, and some produce are sold by the pound, but delivered in cases or bulk.
Count unit. It is not always feasible to use the delivery or purchase unit when counting product for inventory and reorders. A good example would be stewed tomatoes that come packed with six #10 cans in each case. However, the cases are broken and the cans are stored on shelves. Counting the cans makes more sense than calculating the number of cases you have.
Price. The price column or field in an order guide is used to show the current purchase price (per purchase unit) of the item. The price should be updated each time it changes. Keeping an updated price not only helps you to know the cost of a product; it also alerts you to verify that the price change is legitimate.
Vendor. It is a good idea to show the preferred vendor for each product. Some order guides have enough space to show an alternate vendor as well.
Vendor item code. Optionally, some order guides include the vendor's item code. This helps to ensure the correct product is ordered. Many products have similar names or descriptions and can sometimes be confusing. Alternatively, item codes can be included in the description line.
Par. Par is usually referred to as the "build to" quantity to have on hand that will get you through until the next time you order. Establishing accurate par levels is critical to the ordering process. Par levels are set according to the counting unit for the product. Unlike retail store inventory replenishment, which includes reorder points, minimum and maximum quantities, restaurants use par level as both a build to number and a reorder point. The reasoning is that establishing exact "build to" levels for individual products is not always possible. For instance, if you're like most operators you probably order from your main distributor on Mondays and Thursdays for Tuesday and Friday delivery. Let's assume that you carry stewed tomatoes in a #10 can size. However, you consistently use three, never more than four cans between Friday and Tuesday. Setting your par level to four cans ensures you'll have enough to meet demand. However, to maintain favorable pricing, you always order stewed tomatoes by the case, which has a quantity of six cans. Therefore, if you have two cans on hand when you place your order, you won't be building to four cans, rather you'll order an entire case.
On the other hand, some products lend themselves to more exactness. Pre-portioned fresh fish fillets are often sold individually. Your supplier may allow you to order any quantity without regard to minimum packs, enabling you to order exactly the number of fillets to bring you up to the established par.
Order history. The most effective order guides include as much order history as the form will allow. By seeing historical product usage, you can adjust your pars as needed. A minimum of three weeks' history is necessary to get an accurate picture of product usage. Order history provides a clearer picture of what you'll need than does sales history. While sales history is a great indicator for key items such as steaks, bottled beer, and wine, it doesn't help when it comes to determining how much mayonnaise or lettuce is being sold. By constantly reviewing order history (and thus the usage), you'll be able to keep your par levels set correctly.
On-hand count. Before an order quantity can be determined, an actual count must be taken to know how much product is on hand. And, like order history, three weeks of historical counts will help to determine an appropriate par level.
(To see a sample of a completed order guide, see "What It Looks Like: A Properly Used Order Guide" below)
Arrange Products for Easy Counting
The order in which products are listed in your guide can have an effect on the efficiency of your system. Some managers advocate arranging items in the order that they count the inventory. However, many restaurants must constantly rearrange walk-in coolers and storage areas due to space limitations; thus arranging inventory in this manner often requires constant change.
Try arranging the items in alphabetical order under each category. It will make it easy to find the item by simply turning to the pages for a particular category, and then searching the page alphabetically for the item.
Consider also, it is virtually impossible to take an accurate count when the stockroom or walk-in is in disarray. Be sure all storerooms, shelves, and refrigeration units are kept organized and clean. Product should be easy to see and count. Labels should be used for hard-to-identify product. Don't put items in incorrectly marked boxes or containers.
A properly designed order guide can be used as your inventory counting worksheet as well. In fact, many well-managed restaurants take a complete physical inventory each week so that they can accurately calculate their cost of sales weekly rather than waiting for an entire month.
The optimum time for taking inventory is either Sunday evening or before opening on Monday morning. This coincides well with the Monday ordering routine.
Work With Your Food Distributor
You may think, "My food distributor gives me an order book. Why do I need to create my own?" And, for some operations, using a distributor-provided order book gets the job done, at least for the items you get from that distributor. But what about everything else you order? The fact is most restaurants use several suppliers, even if the bulk of their products come from a single distributor. Using separate ordering forms for each vendor usually has poor results.
By creating an order guide, tailored to your unique restaurant, you'll have far better control of the ordering process. Even better, you'll find that distributors prefer to work with operators that use an order guide.
Les Lent, business development manager for Sysco in Sacramento, California, acknowledges that most foodservice distributors have an order book system they use for placing customer orders and tracking order history. An astute salesman will use this information to help their customer streamline their order system.
"Any sales rep worth their salt will arrange their order book to match the shelf order or order guide of the restaurant," Lent says. He also says that sophisticated features in the ordering software used by salesmen can actually help restaurateurs establish more accurate par levels for their order guide. The software establishes order habits and can even assume order quantities. It alerts the sales rep if an expected item is not ordered, enabling the rep to follow up with the customer and oftentimes preventing the customer from running out of a particular product.
Most distributors offer online ordering as an alternative to placing orders by phone or directly with the sales rep. However, Lent estimates that only 5 percent to 10 percent of independent operators use the online service. "The salesman relationship still reigns supreme," Lent says. The bulk of the orders, by far, are given directly to a sales rep, who then enters the order into the distributor's ordering system.
Why Can't My POS System Order for Me?
So why don't more operators take advantage of technology to automate the ordering process? On the surface, this seems like a very good question. In fact, many of the larger chains do use their POS system to generate order replenishment; however, the majority of those doing so are QSR chains that have limited menus and oftentimes have their own distribution facility.
There are numerous restaurant management software programs for restaurants that, in theory, provide the tools required to have automated ordering. Most of the programs integrate with many of the POS systems, and include inventory control, recipe costing and purchasing. Interestingly enough, though, you would be hard-pressed to find operators who actually use even half the features offered by these software packages.
Many independents dream of a system that will automatically generate an order, electronically submit it to the distributor, receive an electronic invoice, and automatically update their accounts payable and general ledger. The fact is, all of this "is" possible, and some chains do exactly this. The reality for most operators, however, is that they don't have the resources, nor can they justify a return on the time required to make a fully automated system work for them.
Fully automated systems have a nemesis; somebody has to enter the information, and keep it up to date. And therein lies the problem. Most prudent business owners want to have a clear understanding of return before they commit resources. In other words, nobody wants to spend $1,000 to save $500, and the idea of automating a process just for the sake of automating is hard to justify. Consider the following components that must be maintained to achieve a totally automated system:
POS programming. Every menu item you sell needs to be entered into the POS system in a manner that accurately tracks the usage of the ingredients within a menu item. This includes any modifiers that change how a menu item is to be prepared such as adding cheese or substituting a baked potato for fries. Programming the POS to accommodate ingredient tracking can present a problem for programmers. The added programming might end up forcing the server to make a lot of extra keystrokes or touches just to ring an order.
Any changes to the menu will need to be programmed into the POS. This includes daily specials. If you run specials often, or have a fresh feature of the day, the POS program will need to be reprogrammed to accommodate it.
Recipe programming. Software will be needed to track the raw inventory ingredients for each menu item. Recipe software might be a module on your POS system, or it may be part of complete inventory control software package such as Chef Tec or Food Trak. It must tie into an inventory control program so the raw ingredients can be deducted from inventory every time a menu item is sold. It can get very complex when accounting for modified menu items. Every time you add a new menu item to the POS you'll need to add a recipe as well.
Inventory control program. Like the recipe program, the inventory program might be part of your POS or part of a third-party program. It is here that every ingredient you buy needs to be precisely entered to reflect purchase units and recipe units so that proper amounts can be reduced from inventory as items are sold. You'll also need to record the par levels, vendor item codes, and other information for each item. The inventory control program requires that all purchases be entered as well. Every invoice will need to be entered item by item. Some programs automatically generate an order based on the inventory depletion, but someone will need to be responsible to verify the orders and make adjustments as needed. Periodical physical counts will still need to be taken to verify that on-hand levels are accurate.
Electronic ordering interface. Completing the automated ordering process requires that the purchasing module within the inventory control program be integrated to the distributor's order system. This requires that the interface between the two systems be monitored for compatibility. The distributor's system will automatically reject incorrectly ordered items.
Electronic invoice interface. Taking automation to another level, some systems provide for distributors' invoices to be received electronically. Whether this is by e-mail or a function of the software, compatibility between the systems depends on having correct information to be of any real use.
"Only about three out of 400 or so national accounts that we process actually have an integrated ordering system," Lent says. "Most use their order guides as the basis for formulating their order."
The Best Solution May Be a Hybrid System
Yet more and more operators are turning to technology to track sales, record purchases, handle menu costing, maintain recipes, and track inventory. Even so, given the complexities of total automation, the majority of operators will never rely totally on computers to place their orders for them. You should still consider an order guide, regardless of the level of automation of your restaurant.
The order guide can be an integral part of purchasing and inventory control. Properly designed, the guide becomes the main tool in creating purchase orders and processing weekly inventories. For instance, for those of you who keep inventories on spreadsheet or inventory control software, arrange the items to match the order they are listed on the order guide. Use the order guide to record your on-hand counts, and then enter into your program using the order guide as a reference.
Most restaurateurs will never escape the constant demand to physically count the amount of inventory on hand, yet that's not necessarily a bad thing. "When you're in there counting, you also have a chance to constantly inspect the quality of your inventory and prepared product," Cates says.
Constant awareness of inventory levels and product movement is significant for controlling cost and streamlining the order process. Having a well-designed order guide makes the counting process easier and hopefully prevents you from having to tell a guest that their favorite menu item has been eighty-sixed.
Your restaurant inventory should be divided into sections that reflect the various cost of goods sold and expense categories listed on your profit-and-loss statement. Your order guide should mimic your inventory categories, thus simplifying the design process.
Use the following suggestions when creating inventory/order categories for your restaurant. Depending on your concept, you may want to combine certain categories as needed:
Your order guide and inventory control should include nonfood items as well:
Operating Expense Inventory
Properly designed and used, the order guide becomes the main tool in creating purchase orders and processing weekly inventories. If you keep inventories on spreadsheet or inventory control software, use the order guide to record your on-hand counts, and enter the data into your program, using the order guide as a reference.