MANAGING FOOD AND BEVERAGE OPERATIONS
Executive Summary
This study is intending to figure out the role of the performance metrics in business success. It has depicted the role of managers in order to apply performance metrics successfully in the organisation. This study has shades light on the impacts of performance metrics in business success in the context of food and beverage industry. Different performance metrics have been discussed in the study. Those metrics have certain advantages, which are depicted in this study. Application of performance metrics has certain challenges, which are discussed in the study. It is important to mitigate those challenges to apply performance metrics successfully in the food and beverage organisations. This report also presents a recommended study to mitigate those challenges.
Performance metrics determines the activities and operations of the business. Performance metrics in a particular organisation helps to gather information about that organisation. Hence, the stakeholders become aware about the status of the organisation. Food and beverage industry is a vast sector and subjected to tough competition. In order to receive a sustainable growth and success in the business it is important to monitor the performance of the organisation. Performance metrics allows the organisation to perform that task. Through the implication of performance metrics, a business could receive certain advantages. This study is intending to figure out the role of the managers in implementing performance metrics. It also intends to describe the impact of performance management in the success of the food and beverage company. Application of performance metrics has certain advantages along with challenges, which will be discussed in this study.
Performance metrics includes certain factors that help the organisation to comprehend status about the organisation. It includes the behaviour, performance and activities. As stated by Berges et al.(2013), performance metrics include the interest of all the stakeholders and shareholders of the organisation. Implication of performance matrix helps the organisation to determine the status of the business along with its strength and weakness. It helps to determine the strong and weak points of the company, hence, based upon that the management can determine the organisational strategies. Thus, the growth and sustainability of the organisation depends on the successful application of performance metrics.
The key to evaluating the business is by measuring the performance of the employees. This evaluates whether the employees are doing their work properly or not. A performance metrics provide the hard data and yields results that help in measuring the clear quantities to allow development to the food and beverage industry. Performance measurement is required to collect, analyze and report the performance of an individual, group, and organisation. The performance measurement works qualitatively to provide various information about the products, processes, and services that are provided by the company or organisation. Badland et al. (2014) proposed that the performance of measurement must be practiced on a regular basis to check the performance against the standards and quality of the products and services provided by the company. A manager is responsible for the performance metrics. The manager observes controls, supervises the activities of the subordinates, and prepares the reports based on their performance. This helps in managing the various activities to accomplish them effectively. The manager constantly checks the performance of the activities to ensure that activities are performed in a specified manner or if any correction activity is required. On the contrary, if any deviations occur in the work the manager ensures that such deviations are not continued further. Thus, the performance measurement is a process of which is required for continuous improvement.
For example, Woolworths Limited need to increase its current sale profit by fifteen percent thus, they need to first calculate the break-even point. This value tells the organisation about how much sales they need to make to increase the profit by fifteen percent. Wu et al. (2014) mentioned that the prime cost is the sum total of all the expenditure made by the store. Including the cost of the labour and the cost of the goods, they sold. Whatever money is left back excluding the prime cost is the profit of the store. The prime cost of a store is generally sixty percent of the total sales. To increase the profit margin of the store they need to decrease the extra expenditure and manage the activities properly.
The role of the evaluation mechanism influences the manager. The manager uses the broad-based measurement information for the control and feedback. The resultant decision made by the manager makes an impact upon the identification and exploration of the major and strategic capabilities to improve the organisational performance. Georgiev et al. (2014) commented that the managers to take strategic decisions to increase the performance of the organisation subsequently and to implement the decision-facilitating measures. The performance of an organisation arises from the decision-making on the exploring the existing capabilities and the identification and implementation of the new opportunities.
The performance metrics not only measures the performance rate of the employees but also the productivity of the entire organisation at a lowered cost. Necessary feedbacks can be generated through this process, which is helpful for the managers to guide the activities accordingly. Thus, it can be said that the performance metrics process is helpful in understanding, managing and improving the business of an organisation.
Food and beverage industry is vastly diversified. In order to measure the success of the business in this industry manager applies various key performance metrics. Owners could get information about the present status by monitoring those metrics in regular basis. It depicts both the negative and positive trends of the venture. Some of the key performance metrics have been discussed which play vital role in order to measure the success of the venture.
Break Even Point
Breakeven point is the most important metrics that should be monitored in regular basis in order to comprehend the status of the business. Figures in breakeven point calculation depict the requirement of investment in order to get it back as profit. As opined by Roloff et al.(2012), simultaneously it provides the forecast about the period to earn the money back. In case of both function of starting or investing and business operation, this metrics plays the vital role. It also justifies the additional investment. Through the calculation of breakeven point, one can comprehend the necessity of investment and time to earn it back.
Calculation:
Breakeven point= Total fixed Costs/((Total sales- Total cost of variables)/Total sales)
Hence, it is important to know fixed cost along with total cost and variable cost and also total sales to calculate the breakeven point.
Cost of Goods Sold (COGS)
COGS is another important metrics in order to determine the organisational operation. It depicts the cost behind every item that has been offered to the customers. Hence the organisational authority could decide the cost of the product while sell the product. Thus an organisation could easily figure out the profit or loss while sell the product through COGS calculation. As mentioned by Loderer & Waelchli (2010), it helps to adjust the organisational policies in different market situations and demand. It also assists the organisation to figure out the major sector of expenditure and based upon that the organisation could adopt certain policies to reduce the expenditure.
Calculation
COGS= Purchased inventory+ starting inventory-final inventory.
A store starts with $ 5,000 inventory. The company invest $ 2,000 to purchase and the organisation left with $ 4,000. Hence the COGS of the company will be $ (2,000+5,000-4000), i.e. $3,000.
Overhead Rate
Another important metrics to measure the success of the organisation is overhead rate. It provides information about the operational expenditure. Authorities of the organisation could get information through the calculation of overhead rate about the regular expenditure carried by the store or the organisation in order to continue the venture. Hence, the organisation could get information about service expenditure and could determine the organisational policies to attract additional profit.
Calculation
In order to calculate the overhead rate of the company, it is important to gather information about the fixed cost of the company and the total hours of business has been performed.
Overhead Rate = Total fixed cost/Total Amount of business done
Prime Cost
Cost of goods sold (COGS) of the organisation along with prime cost assists the organisation to figure out the total expenditure. Calculation of prime cost includes the employee cost. Generally, a vast portion of the sell makes up the prime cost. Most important factor about prime cost is that it presents the major part of the controllable expenses of the venture. For instance, it does not put emphasis on the fixed rent as it is not controllable while labour cost is controllable and could be managed. Hence, the prime cost of a food and beverage store depicts those cost, which can be managed in a systematic way.
Calculation
Once COGS of the company has been determined, it is easy task to calculate the prime cost of the store as the aggregate of cost of labour and COGS will determine the prime cost of the store.
Food Cost Percentage:
Another performance measurement metrics in food and beverage industry is the food cost percentage. It depicts the percentage of profit or loss consumed by the store by selling a product. Hence the calculation of food cost percentage includes the cost of the required ingredients and price of the sold product.
Calculation
This metrics can be calculated through the cost of food and amount of total sales.
Food Cost Percentage= Food Cost / Total Sales
Successful application of performance metrics offers certain benefits to the organisation in context of success of the organisation. As opined by Hernández-Orallo, Flach & Ferri (2012), success of a business depends on certain factors, which are also influenced by the application performance metrics.
Benefit Realisation
Calculation of performance metrics assist the store to realise the profits earn by them. Calculation through proper metrics allows the managers to realise the profit and forecasts of the venture for future.
Return on investment
Performance metrics like breakeven point describes the time of the investment to earn the return profit. Hence, the application helps the investor to value the investment based on time and return.
Future trend:
Based on the application of performance metrics future trends of the market can be assessed by the managers. It plays a vital role to determine the future strategy of the venture that determines the way of success for the venture.
Identification of less performing functions:
Another advantage of performance metrics and most probably most important factor of a business is the identification of the less performing areas of the business. It helps the organisation to determine the overhead rate. The organisation could regulate the expenses through controlling such expenses.
Identification of business strength
Performance metrics allows the organisation to determine the strong point of the business. Identification of strength and weakness allows the organisation to determine the organisational strategies in order to receive sustainable profit and growth.
Application of performance metrics allows Ingham Enterprise to identify the strength and weakness of the organisation. Hence, the management of the company determines the organisational policies under the particular facts and trends of the markets. These changing factors allow the company to determine proper organisational strategies that benefits the organisation regarding their growth and success. The organisation has received 3.3% of development on their revenue of 2017 from previous year (inghams.com.au 2017). Ingham also received additional 22.8% of profit comparing to their last year performance. Successful application of proper performance metrics helps the organisation to earn 40% of market share.
(Refer to Appendix 1)
Performance metrics of an organisation is related to several factors. Hence it has certain challenges that put major impact on the organisational performance. According to Sharawi (2014), organisations often face certain challenges while applying performance metrics.
Reduction in output level
A major challenge of implementation of performance metrics is related to the employee motivation. Performance metrics determine the standards of the employee performance. While the experienced employee could find it unfair to judge their contribution and loyalty through the scale of performance, new employees could find it tough to achieve the standard of the performance with their limited skill and experience, hence both levels of employees are de-motivated by it and as a result the production rate and quality reduce.
Difficulty in communication:
While natural attributes suggests the employees to communicate while facing a challenge in the workplace, performance metrics determine that they should proceed on their comprehension of responsibilities. Hence, the job could strike in certain case of challenge.
Lack of commitment:
Performance metrics determines that the employees should perform according to the determined standard of the performance. Employee valuation depends on their performance. Hence, they could feel it monotonous. This raises the possibility of lack of commitment and loyalty among the employees.
Consider subjectivity:
Performance metrics is such a system that provides important data related to the organizational as well as individual performance. This system is depended on the operator to provide data. Hence, data could be easily manipulated and even taken based on emotion. Thus, the validity of the provided data is not yet above level of question.
Though performance management provides certain advantages in the context of measurement of organisational success in food and beverage industry, it is also subjected to certain challenges. In order to imply performance management in proper way, it is important to mitigate those challenges. Some of mitigating steps are addressed here.
Clear concept
In various cases a wrong messages has been conveyed to the employees of the organisation regarding the concept of performance metrics. Lack of transparency about the concept creates such challenges. In order to apply performance metrics in a successful way, it is important to define the concept clearly to the employees of the organisation. Only then, it could get proper support to help the success of the organisation.
Determine the goals of the process:
In order to achieve the success through performance management it is important to determine priority of the process. This approach could provide certain advantages in various sectors. Some of them are even contradictory. For example, it may present additional expenses as certain challenges and suggest reducing that. As a result, the business process could be affected. Hence before apply performance management it is important for the organisation to determine the objectives of the system.
Aligned goals:
Instead of determine high level of standards it is important to determine the standards of the performance according to the organisational goals. High level of performance could design the performance standard as very high but may be unreachable for the employees. Hence, the employees will be de-motivated because of the continuous failure to achieve the level. In order to mitigate that challenge it is important to determine the standards according to the organisational goals.
This study concerns about the role of performance metrics in the success of the food and beverage company. This has presented a vivid description about performance metrics. It also presents the role of the managers while implementing performance metrics in the organisation. There are certain performance metrics that are applied by various organisations in order to achieve a sustainable success in the business; those are described in the study. These include COGS, breakeven point, prime cost, overhead rate and others. Application of performance metrics has certain advantages, which are described in depth in the study. Application of performance metrics is subjected to certain challenges. This report has put lights on those challenges and discussed their impacts on organisation’s success. In order to apply performance management successfully in the organisation, it is important to mitigate those challenges. This study also presents some mitigating steps in the context of such challenges. It can be conclude that the application of performance management has certain advantages and challenges and mitigating these challenges could make perfect to determine the success of the business.
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