Impactful Field Audit Questions: First In First Out

By January 21, 2016Field Audits

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This article is part of our series about impactful field audit questions. With this series, we connect the dots between individual questions in an audit and their concrete measurable impact on the franchisee’s performance. We shouldn’t forget that one of the true goals of a franchisee field audit is to improve unit-level economics. Although seemingly innocuous, these questions have a direct impact on performance.

Question: “Are perishables used on a first in first out (FIFO) basis?”

If you have two loaves of bread with different expiry dates, you’d first use the one with the closest expiry date. Otherwise, you could end up in a situation where you’re throwing out one loaf of bread and buying more to compensate.

In a restaurant, tracking conformity to a FIFO process is a great element to evaluate not only because it helps reduce waste, which has a direct impact on the bottom line, but it is also easy to evaluate during a field visit.

Related Question: “Are employees labelling [a certain item] with its expiry date?”

Some products come with best before dates whereas others must be labelled by staff, after being thawed for example. Obviously, one cannot follow a FIFO process if dates are unknown. Furthermore, forgetting to track dates could cause food safety issues should the perishable item spoil. It’s best to catch these things quickly, before they become costly liabilities.

These two questions are interesting because they are both easily measurable, and measurability is a key component of great field audit questions. Quickly peeking at expiry dates and how produce is used during an audit can complement more complex inventory systems to paint a broader picture of produce waste and ensure optimal processes are in place to minimize waste and thus maximize profits.

It is well known that restaurants have extremely thin profit margins and that food costs are one of the main expenditures that can be controlled.

As a concrete example, let’s look at a restaurant generating $500,000 in gross sales. Let’s assume that the total profit is only $15,000 which equates to 3% of gross sales. Assuming average food costs of 32%, approximately $160,000 is spent on food. Should a 10% reduction in food costs ( 28.8% instead of 32%) be achieved by properly following a FIFO process (and other waste reduction techniques) the restaurant could add $16,000 to its bottom line, more than doubling its profits to $31,000. Admittedly such an improvement would be hard to achieve in an already profitable restaurant; it is more likely that this waste reduction could move an inefficient restaurant from red to black.

Within a few months of using our franchise audits app, one of our clients more than doubled their FIFO compliance rate making a substantial impact on their franchisee’s bottom line.



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