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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