Financial terms and tips to help novice directors and managers get a grip on school nutrition costs. The pages of School Nutrition are frequently filled with ideas to boost participation and revenues. From initiatives like supper in the classroom (September 2017) to adult meal service (page 46) to the inspired marketing creativity you’ll find every month in “Things We Love” (page 42), we’re often focused on the many opportunities to grow. But a successful school nutrition operation is one that is also properly managing its costs. Following are a few tools to help you meet this challenge. 6 Golden Rules As a manager charged with controlling costs in any operation, you should pledge to gain the training and experience to confidently complete the following checklist: • I have an accurate, timely accounting system that can generate a variety of reports. • I understand how to read different financial reports and statements; if I don’t understand, I will get training or ask someone with more experience, rather than fake my way through it. • I have different standards or measurements to use as points of comparison; I can benchmark past performance, against key performance indicators (KPIs) and against national norms. • I can identify the reason(s) why costs have changed—or I will research and get to the bottom of it. • I have different tools that I can use to address cost concerns beyond simply generating more revenue. • I am prepared to take corrective actions to fix problems. 9 Acronyms You Should Know ADP Average Daily Participation—the average number of all students (free, reduced-price and paid) taking a reimbursable meal BEP Breakeven Point—the figure you must reach at which revenues cover all expenses FIFO First In, First Out—a rotation practice to manage inventory, especially of food and other items with an expiration date FTE Full-time Equivalent—the sum of part-time employee hours to help determine labor needs KPI Key Performance Indicators—quantifiable measures you establish to help you track goals for financial management and other targets that define success MEQ Meal Equivalents—the conversion, for comparison purposes, of different meal services (breakfast, snacks, supper) and other food sales (a la carte) to the equivalent of one reimbursable school lunch in order to calculate revenue, costs in general and labor costs in particular MPLH Meals Per Labor Hour—the number of MEQs served per labor hour is a fundamental measure of productivity and efficiency; it is an essential tool in determining staffing P&L Profit & Loss Statement—a summary of the revenues and expenses generated by the school nutrition operation and/or by individual school sites ROI Return on Investment—a calculation to determine if an initiative or purchase requiring significant financial and human resources is a viable use of those resources 5 Categories of Costs DIRECT COSTS Direct costs are those that can be identified very specifically, such as the amounts paid for goods and services. INDIRECT COSTS Indirect costs are those that are prorated across several programs or departments (such as the costs for electricity or custodial service). FIXED COSTS Fixed costs are those that remain relatively constant, regardless of the number of meals served, from day-to-day or week-to-week; these include salaries and benefits. ADMINISTRATIVE COSTS Administrative costs are expenses not considered part of the direct service to the student customer, such as those related to staff training, utilities or waste disposal. VARIABLE COSTS Variable costs are those that vary in direct proportion to the number of customers served or the volume of sales. 4 Tactics for Taking Stock How you handle receipt, storage and tracking of food/beverage items and supplies can have a huge impact on your cafeteria’s bottom line. Proper inventory procedures for each step from delivery to storage to record-keeping is essential. » Detailed Delivery Check-in: No matter how hectic things may be when a delivery arrives, a proper check-in with the driver will ensure not only that foods are at the proper temperature, but also that they are damage-free. Check items against the order to ensure accuracy, and make sure foods are stored properly in your cooler, freezer or dry-storage/pantry. » Storage Training: Proper inventory management ensures food safety, and loss prevention saves money. Those are two compelling reasons to train your team about the “whys” and “hows” of appropriate storage, product rotation and food safety practices. Good inventory management also can detect losses due to theft. » Organization & Visibility: Chaos leads to waste! Good lighting and visibility in storage areas will prevent poor product rotation. Use charts or maps for large storage areas and cooler/freezers to cut down search time and increase efficiency. » Count Off: While most school nutrition technology suites include solid inventory management modules, the information in your reports is still subject to follow-through by everyone on the staff to keep records up-to-date. That’s why it’s a good practice to take a physical inventory once or twice a year. Get in there and count boxes and cans! Be sure to review product labels and expiration dates. 13 Ways to Manage Costs Be data-driven. Set KPIs, analyze your budget and start benchmarking performance, reviewing different periods of time, as well as different sites with similar profiles. Know industry norms nationally and in your region. Know and control your MPLH. If a site is producing fewer meals, take a look at the factors that are influencing efficiency (or lack thereof). Do you need to shake up the staffing a bit—reassigning a problem employee, hiring a no-nonsense site manager or pairing novices with more experienced veterans? Maybe there are too many staffers at the location? Should you make a change of equipment? Offer a different menu mix? Perhaps the team just needs some training on working smarter to make the best use of time. Review your procurement practices. Are you actively looking at ways to reduce your food costs or just doing the same thing you always do? How often do you really look at your bid documents and your contracts? Network with your counterparts at other school districts to determine if there are better ways to manage this process. Continue to take advantage of procurement training opportunities, including SNA’s upcoming 2018 School Nutrition Industry Conference, in New Orleans in January, which will feature an intense focus on procurement topics. Improve your forecasting skills. Use data (such as production records, inventory reports and participation trends) to make better decisions about how much food you really need, so that you don’t over-order. This helps to reduce waste. Decide if a cooperative makes good business sense for your operation. If you’re a small district, is it time to join a purchasing cooperative with others of like size to boost your purchase power through higher volume? On the other hand, should you consider leaving a cooperative if changes in regional population have led to increased competition that will give you lower prices despite your lower volume? Leverage your USDA Foods allotment. With more than 180 individual products to select among, it’s easy to get caught up in taking any and all items that work for your menu. But are you prioritizing the ones that will give you the best bang for the buck? If you focus on using commodity dollars for pricier center-of-the-plate menu items and ingredients, you may be able stretch your food budget further. Practice portion control. Not all financial management is practiced in the district office. Cooks and servers should adhere to standardized recipes and other instructions about appropriate portions for various menu items. Demonstrate to staff how small increases may seem insignificant, but they add up when multiplied across a school site or the entire district. Control condiments and supplies. These also can add up—and end up in the trash. Monitor or limit how many packets of ketchup, straws, napkins and so on are taken by customers. Guard against student theft. Monitor merchandiser displays carefully. Place small, easily pocketable items right next to cashier stations. Watch out for employee theft, too. You hate to imagine anyone on the team being capable of stealing, but it’s an unfortunate reality in business that you will encounter the occasional rotten apple who will take advantage. Establish a zero-tolerance policy: If you steal just once, you are fired, no exceptions. Avoid cool-but-complex equipment that won’t be used to its full capabilities or (even used at all) by onsite cafeteria teams. If you’re going to make an investment in equipment, make an investment in training and oversight, as well. Specify sustainability. It’s not just about protecting Mother Earth, it’s about protecting your budget, too. Invest in equipment or accessories that save energy and water. (See “Equipment Basics,” November 2017, pages 20-21 for information on the ENERGY STAR certification program.) Identify your bottom line fixed costs and indirect costs (areas in which you can make few changes) and focus your attention on improving participation or adding revenue in ways that will ensure these are covered. 2 Priorities for Contract Compliance Don’t be complacent about the administration of the contracts you have with vendors for various goods and services. Too often, attention to this final step gets lost in the day-to-day operation of a school meals program and it’s considered something “that takes care of itself.” But this is a responsibility that is as critical as all the other steps in the procurement process. Failure to do so can lead to increased food costs. Pricing is obviously one of the more important elements that require monitoring by the district. As most vendors deal with multiple customers, it is possible that invoices might post incorrect prices. School food authorities, even those with small staffs, need to make the time to check all invoices; at minimum you should conduct a spot review. Ensure that the person approving invoices and statements for payment has access to the source documents needed to monitor for compliance. Another critical area is getting exactly what is specified in the contract, including items by brand, code, pack size and price—as well as them being delivered in a condition that is also specified in the contract. Compliance is a detailed and time-consuming process that involves communicating terms to staff at all receiving sites, empowering them to make decisions if a delivery falls short of expectations. When receiving goods, it is critical that designated site staff confirm that the products delivered are the ones that were specified in the contract and that they arrived in proper condition. Adapted from “Solving the Procurement Puzzle: Managing the Complexities of Doing Business in K-12 School Foodservice,” a 2016 white paper report from the School Nutrition Association
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