Impact of Forecasting Demand in Food and Beverage Service Organisation - Research Paper Example

Running head: Forecasting demand –– Impact of forecasting demand in food and beverage service organisation Food and beverage service business is a risky business if not planned properly. The demand for the food and beverages can vary periodically because of the changing economic conditions. It is not wise to expect same type of sales during the current recession period like the one before the recession. On the other hand, the demand for food and beverages may go up once the recession is over. Keeping an eye over the fluctuating demand can help the hotel and restaurant industries to avoid deep crisis. This paper explains the need of forecasting the demand in food and beverages industries. INTRODUCTION Purchasing, storage and production scheduling are some of the basic things needed to be adjusted periodically based on the demand in the market. It is not wise to purchase too many materials at a time when the demand was less. The to and fro movement of the material is essential for the smooth functioning of the storage area. Goods purchased and stored in the store must be despatched to the production area periodically before the expiry date to ensure that the organization might not suffer. But if the demand was poor, it is not possible to ensure the despatch of goods to the production unit which will result in wastage of materials. Generally, Purchasing, Storage and Production are the three areas in any manufacturing units which must be combined well to ensure the smooth functioning of the business especially the food and beverages industry. PURCHASING Purchasing is one of the core management functions of every manufacturing unit. When purchasing departments deliver results, management seeks more spend that Purchasing can positively impact (Charles Dominick, 2008). Even if all the other departments function well, the wrong purchasing decisions can negatively impact any manufacturing unit especially the hotels and the restaurants. Purchasing decisions usually taken based on the amount of goods sold, amount of goods available in the store, expiry of goods, volume of business forecasted, historical data etc. Amount of goods sold Purchasing usually made based on the amount of goods sold. If the sold goods are less usually the store might have enough materials and purchasing may not be done. Thus purchasing has a direct relationship with the amount of goods sold. “Cost of goods sold (COGS for short) is the expense a company incurred in order to manufacture, create, or sell a product. It includes the purchase price of the raw material as well as the expenses of turning it into a product” (Kennon, 2009). An organization, especially a food and beverages company can purchase goods only if they get adequate returns on the goods they sold. In other words, if the company failed to make profit out of the goods sold, they would not be able to purchase more goods. For example, suppose a food and beverages service organization procure large amount of goods at higher prices and if the prices of the finished goods fall due to some unexpected reasons, they will suffer a lot. On the other hand if the demand for a food or drink item drop down suddenly due to some unexpected reasons, then also the organization may suffer because of the increased expenditure they made for purchasing and storing. Goods available in the storage The second point which should be considered while executing a purchase would be the inventory. Inventory is nothing but the goods available for production at a given period of time. If the inventory was sufficient enough, it is not wise to go for purchasing frequently. In a food and beverages industry, most of the raw materials may have less expiry periods. Moreover, food items are more vulnerable to the attacks of insects, bacteria, germs etc and may become damaged very fast. So before purchasing, the available goods in the store must be taken into the account. Expiry of goods Expiry period of a good indicate the maximum period up to which a good can be kept in good condition without any damage. After the expiry period, goods would not be suitable for use. In a hotel and restaurant industry, expiry of goods is an important criterion while executing the purchasing. If the demand was poor no purchaser may purchase goods with shorter period of life or expiry. On the other hand if the demand was adequate, there is no harm in purchasing such goods. For example, meat and vegetables have less expiry periods compared to other food items like wheat or rice. So while purchasing goods with shorter period of expiry, the purchaser should take note of the current and anticipated future demand. Volume forecasting “In order to schedule effectively, you must forecast your volumes by month, day and time” (Newman, 2000).Volume forecasting of business is another factor which can affect the purchasing decisions. Currently, the food and beverages service organizations are facing stiff challenges for existence because of the low demand due to global financial crisis. But many countries and economic sectors has already started to show the signs of a revival. In other words, there is every chance that the food and beverage industries may find a boom in business again in the near future itself. But the volume of business needs to be thoroughly forecasted in order to purchase adequate materials. It is not good for the food and beverages organizations to have inadequate material when the demand increases and also it is not good for them to accumulate more materials when the demand decreases. Volume forecasting will help the organization to purchase right amount of materials at the right time Historical figures It is evident that food and beverages service industry is highly seasonal. In other words, the hotel and restaurant businesses attain the peak at in some seasons whereas it dips in other seasons. For example, tourism is one of the major factors which can affect the hotel and restaurant industries. It is not possible to have the tourists at a place during the whole period of a year. Tourists have lot of climatic considerations while they take decisions to spend their holidays at a particular period of time. Historical figures can help the purchaser in forecasting the business properly and to procure adequate material at the right time. STORAGE Storage areas available The goods purchased must be stored properly in order to avoid probable damages to the goods. Storage areas must be well maintained all the time in order to damages to the goods stored. The size of the storage areas must be decided based on the demand of the business and the volume of goods needed to be produced. For example, there is no point in keeping vast storage areas at the time of low demand whereas new storage areas must be arranged when the demand goes up. The business should never be affected because of the less storage areas. Stock expiry Stock expiry is another worrying factor for the food and beverages industry. Expired goods cannot be used or recycled because of the threats it can cause to the health of the users. Stock must be kept based on the demand in the market and the expiry period of the goods. PRODUCTION SCHEDULING / STAFFING Number of staff on duty The number of staff is another factor which can affect the food and beverages industry. Service is the main motto for the hotel industry and for that purpose they need enough staff all the time. For example, no customer wants to wait for longer period to have their food or drinks because of the less number of suppliers in a hotel or restaurant. On the other hand it is not wise to keep excess staff for the service department by reducing the number of production staff. Both production and supply of goods are equally important and a balance should be attained while posting staff at production and service departments based on the demand. Staff Productivity There is no point in keeping excess incompetent staff in a service organization. On the other hand highly productive staffs may perform well even if they are less in number. So staffing must be planned based on the productivity. It is useless to have highly productive staff at the production area and incompetent staff at the service area or vice versa as both the departments are the core of a service industry like food and beverages. Staff schedule (time of duty, breaks, staff leave) “Scheduling your staff is a process which needs to be done right every time or business will become flakey, employees will feel unimportant, and things will turn into an overall mess” (The Importance of Staff Scheduling Software, n. d) Scheduling of staff is another critical aspect of an industry especially a food and beverage industry. Effective scheduling of staff is essential for the smooth functioning of the business. It is not possible for an organization especially a service organization, to allow the staffs to take prolonged leaves in a peak season. Moreover, the organization should ensure that no staffs were overloaded. Only a staff with good frame of mind would be useful in a service industry and hence the organizations must concentrate in ensuring that. REFERENCES 1. Dominick Charles, (2008), Top 10 Purchasing Changes In 10 Years, Retrieved 26 November 2009 from http://www.nextlevelpurchasing.com/articles/sourcing-purchasing.html?gclid=CPqt4v2vqJ4CFYIvpAodADeClw 2. Kennon Joshua, (2009), Cost of Goods Sold - COGS Investing Lesson 4 - Analyzing an Income Statement, Retrieved 26 November 2009 from http://beginnersinvest.about.com/od/incomestatementanalysis/a/cost-of-goods-sold.htm 3. Newman, Jeff (2000), Improve service, cut costs by forecasting staff and volumes, Retrieved 26 November 2009 from http://findarticles.com/p/articles/mi_qa3947/is_200004/ai_n8899773/ 4. The Importance of Staff Scheduling Software, (n. d), Retrieved 26 November 2009 from http://www.staffschedulingsoftware.org/importance-staff-scheduling-software.html Read More