March 17

Getting Profitable — Lesson 4: Controlling “cost of Goods” – Part 2

In last month’s article we talked about: 1. damaged product, 2. over-portioning, and 3. spoilage, and how those things can nega­tively impact your cost of goods (COG).

In this article we’ll cover the remaining vari­ables, which are:

4. Excessive waste occur­ring during produc­tion

5. Losing product due to theft

6. Losing money due to theft (which may be inflating your cost)

7. Clerical errors

4. Excessive waste during produc­tion 

Waste created during beverage and food produc­tion is THE vari­able that can have the greatest impact on your COG. Is every bit of usable product being used during produc­tion, or are signif­i­cant amounts being wasted?

Beverage cost can be impacted if your baristas make frequent mistakes and have to throw away drinks. Discarding the milk remaining in the steaming pitcher upon the comple­tion of making each drink can also be costly. Remember, to the vast majority of Health Departments, adding new milk to a small amount of left­over milk in the pitchers is totally accept­able, as long as the pitcher is being returned to the refrig­er­ator imme­di­ately upon the conclu­sion of prepa­ra­tion.

Food cost can also be affected by waste in produc­tion. When processing lettuce for salads, is the maximum amount of each head being used, or, are useable leaves being thrown away? When slicing meats and cheese for sand­wiches, is all the meat and cheese being used, or are ends and irreg­ular slices being discarded?

To under­stand how waste in produc­tion might be impacting your cost, you should occa­sion­ally rummage through your trash­cans to see what’s going on.  If the thought of digging through the garbage repulses you, then think of it like this: If you knew that you might possibly find five and ten dollar bills in your trash each day, would you check then? Wasting usable product it just like throwing away cash.  You need to make sure that your employees aren’t throwing away hundreds of dollars of product each month. Of course, when you discover discarded usable product, you’ll need to address that waste with your employees so it won’t happen again.

5. Losing product due to theft

Even if you pay and treat your employees well, theft happens. To mini­mize the occur­rences of product theft, you should remove the temp­ta­tions that encourage it.

First, don’t let your employees store their jackets, back­packs, or purses in areas close to where product is stored. This will make it more diffi­cult for an employee to stash product in their back­pack or purse and carry it out the door.

Second, keep your back door locked and the key under manage­ment control at all times. If your back door is an emer­gency exit, then install an alarmed exit bar. Management super­vi­sion of all people leaving through the back door will prevent employees from simply carrying product out to their car, or hiding it some­where until it can be recov­ered at a later time.

6. Losing money due to theft, (which is inflating your cost)

The most common way an employee will steal money from you is by “building a bank;” your cashier taking payment from a customer, but the sale isn’t rung up. This leaves money in your cash register that’s unac­counted for. When no one is looking, the cashier simply removes this money and pockets it. At the end of their shift, their cash drawer still balances within accept­able limits. This can be very diffi­cult to catch. And, since product was used to fulfill the customer’s order, but the sale was not recorded and the income was stolen, it will inflate your cost of goods.

If your cashier has obscured the cash register display from your customer’s view, or they are not shut­ting the cash drawer between trans­ac­tions, or if there are an exces­sive number of unex­plained “no sale” descrip­tors on your cash register detail tape, then beware! These can be indi­ca­tors that your cashier is building a bank.

6. Clerical Errors

Clerical errors made during COG calcu­la­tions can distort your costs. Inaccurate inven­tory counts, or counting the wrong units, or not using updated item prices will distort the value of the prod­ucts on your shelves. Likewise, making mistakes on recording invoices will also affect your cost. You can’t be too careful when doing your cost calcu­la­tions, so be sure to check and double check your numbers!

Actively manage the 7-areas that affect your cost of goods, and you might be surprised how much your cost will improve!

Ed Arvidson is a 25-year veteran consul­tant to the Specialty Coffee industry, and President of E&C Consulting. Elements of this article are from his new book, “How to Get Profitable in the Coffee Business.”

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