Abstract
The consequences of overstocking items or understocking are not pretty. Overstocks absorb money and invite waste. Understocks risk disappointing customers with unavailable menu items or add to food costs by requiring emergency runs to the cash and carry. Through analysis of daily item use and an application of risk, managers can calculate when to reorder; that is, when there is sufficient stock to cover typical demand until the next delivery. To account for unexpected demand, some safety stock must be figured in (by calculating the standard deviation of each day's use for the past time period, say, a week, and factoring that with the Z score of the service-level probability that management is willing to absorb). By factoring the lead time (delivery and food-prep), the standard deviation of the usage, and the acceptable probability of a stockout, managers can use a formula to determine precisely when to reorder.
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