Food & Beverage Purchases: Formula & Considerations

Instructor: Allison Moore

Allie teaches college business and culinary management courses. She has a master's degree in business administration.

This lesson introduces the basic formula used to determine food and beverage purchase quantities in food operations. Other considerations such as delivery costs, storage space, and product shelf life are discussed.

Purchasing Management

Managing the inventory and purchasing in a food and beverage operation requires careful planning and tracking to ensure an appropriate balance of product is maintained. The goal is to ensure there is always an adequate supply, while at the same time avoiding an accumulation of product that ties up space and can spoil if not used in a timely manner.

To illustrate the methods and considerations for food and beverage purchasing, we will look at two different types of food establishments and compare the ways in which inventory and purchasing are managed.

The Purchasing Formula

Terrance is a purchasing manager at a large university dining hall that serves an average of 3,000 meals per day. The dining hall is open 24 hours a day and seven days per week. Amy manages a small coffee shop that sells handmade pastries and light breakfast options. Her shop is open five days a week for breakfast and brunch only, and she serves about 75 customers per day.

Terrance and Amy both use the same simple formula to calculate their purchase quantities:

Quantity Needed - Quantity on Hand = Quantity to Purchase

This formula helps determine the appropriate amounts to order based on current inventory levels, but adjustments can be made to these quantities based on different inventory systems and the purchasing situations in the operation.

Purchasing Considerations

Terrance receives his orders through two main vendors, and he schedules deliveries to come in every Monday and Friday at 7 AM. The orders are efficiently delivered on one large truck, and most items are ordered by cases and pallets to meet the consumption demands at the dining hall. Terrence receives discounts on many items by purchasing in bulk, and he has plenty of storage space to accommodate large quantities of dry goods, frozen foods, and various refrigerated items.

Amy's small cafe menu relies heavily on local and seasonal produce, and she changes her menu often to reflect what is available in her local market. Amy deals with eight different vendors on a weekly basis, and she has very little dry and cold storage space available in her cafe. This limits her ability to store more than a few day's worth of inventory at any given time.

Because Amy deals with small vendors and frequently changes her orders, her delivery schedule is unpredictable and changes weekly. Her purchasing costs are also quite high relative to her sales, and she does not have the advantage of buying in bulk without risking product spoilage.

Par Level vs. JIT Inventory

Terrance relies on a par level system to control most of his inventory. Each inventory item is assigned a par level minimum and maximum amount that he wants available in his inventory at all times. This is based on the shelf life of the item, as well as how quickly it tends to move off the shelf.

As Terrance looks through his inventory, he notes that he needs to order more peanut butter. His established par levels for peanut butter are a minimum of two jars and a maximum of seven jars. He prefers to always have four jars on hand as safety stock to ensure he never falls below the minimum. This minimum level ensures an available supply for unexpected busy periods or accidental product waste, such as if an employee breaks one of the jars.

Terrance currently has four jars on hand, and he knows that his next delivery won't be coming in for another two days. Peanut butter is used at an average rate of one jar per day, so Terrance orders five jars to ensure he doesn't fall below the minimum. He also doesn't order more than the maximum, as there isn't enough storage space and he doesn't want his products sitting on the shelf for too long.

Amy uses a different system since she doesn't have the space to keep much inventory on hand at any given time. Amy relies on a just-in-time (JIT) system, which means her items are received on an as-needed basis, and she orders just enough to work with until her next order arrives.

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