Let’s break it down into ions: writing off perishable food
The life cycle of a perishable can be from several hours to several years, but the shorter it is, the higher the risk of write-offs, so management must be clearly structured and transparent. Dmitry Manishin, Procurement and Assortment Coordinator, Vending Company, Moscow, explains how to deal with write-offs.
Perishable food products (perishable) are food products that can be consumed by humans and which are subject to a number of restrictions throughout their entire life cycle from production to consumption. Among them:
conditions (temperature, humidity, air ventilation) of production, storage, transportation, sale;
expiration date subject to conditions;
control of state institutions (Rospotrebnadzor, Rosselkhoznadzor, Investigative Committee of Russia);
a legislative framework that protects both the food products themselves and the manufacturer, consumer and subjects of sale and purchase relations on the trading market: federal retail chains, distributors, HoReCa, vending (technical regulation of the Customs Union TR TS 022/2011 “Food products in terms of their labeling ”, Law of the Russian Federation “On Protection of Consumer Rights”, Federal Law No. 381-FZ “On the Basics of State Regulation of Trading Activities in the Russian Federation”, Article 238 of the Criminal Code of the Russian Federation “Production, storage, transportation or sale of goods and products that do not meet safety requirements” , Federal Law No. 29-FZ “On the Quality and Safety of Food Products”).
The shelf life (life cycle) of perishables can be from several hours to several years, but the shorter it is, the higher the risk of write-off, so management must be clearly structured and transparent.
The problem is not the availability of write-offs, but their size
I support the point of view of the American scientist and consultant on the theory of quality management Walter Shewhart: “You can manage only what can be measured.”
The problem is not in the presence of write-offs, but in their size, which can be calculated in different ways and get different results.
Let’s consider the formulas by which it is possible to calculate the write-off coefficient of perishable goods by the expiration date, that is, that part of the perishable goods that was of high quality, but for some reason was not purchased by the consumer.
In the first formula, quantitative quantities are used for calculation (variables measured in pieces):
Кс – the number of decommissioned perishables, pcs.;
Kz – the number of ordered perishables, pcs.
Everywhere you can hear a similar wording – “write-offs are very large, you need to order less.” Let’s draw a graph and check this statement (Fig. 1). In the theoretical example under consideration, we take the value of Kc as a constant value, as a result of the construction, a hyperbola is obtained; reading the graph, we see that the smaller the amount of ordered perishables, the greater the write-off ratio, since there is no direct linear relationship between the amount of ordered and the amount of decommissioned perishables.
Are the two variables presented in the formula sufficient to effectively manage and control the write-off rate? Of course not, it’s like driving a car without a steering wheel, pressing only the gas and brake pedals, that is, theoretically, as it were, but in real practice it is problematic, especially in sharp turns.
In the second formula, financial quantities are used in the calculations (variables measured in rubles):
Cs – the cost of decommissioned perishable by expiration date, rub.;
B – total revenue, rub.
Analyzing the second formula, it can be seen that in order to reduce the write-off ratio, it is advisable to increase revenue. Another thing is how to increase the company’s revenue and who exactly should do it? Intriguing questions, right?
Let’s expand the formula in more detail:
Кс – the number of decommissioned perishables, pcs.;
Rz – purchase price, rub./piece;
Rd – additional costs, rub./pc.;
Mf – front margin, rub.;
Mb – back margin, rub.;
L – leads;
C is the conversion rate;
[P * D] – average check, rub.;
P – the average selling price of a product (perishable) in one check, rub./piece;
D – check depth (number of perish items in one check of one customer), pcs.;
Q – the number of purchases for the settlement (investigated) period by a regular customer.
The expanded formula allows you to see in detail that ten variables are interconnected both for calculating the write-off rate and for managing it – this is already a significantly weighty set of indicators for measuring, accounting, analytics and making well-balanced management decisions in the fight against write-offs.
A life hack to answer the question “how to increase revenue and what exactly to do for it?”: if you increase each of the five indicators of the revenue formula (M = Mf + Mb, L, C, [P x D], Q) by only 10% ( agree that this is not so much and, moreover, not too labor-financial-time-consuming), then as a result of synergy, the total (B) will increase by 61%, that is, you do not need to spend all your time and finances on one thing, mathematically It is more efficient to allocate labor efforts and budget at the same time.