Bad Business Systems Cost Pizza

“Don’t worry, head. The computer will do all the thinking from now on.” Homer Simpson

Bad business systems are expensive

I’m a control freak and admit that quite freely. That is not to say that I’m unaware of the value of delegating tasks to others, but simply that I delegate reluctantly.

Quite apart from my other limitations, this reluctance is a reality that I constantly negotiate to negate any adverse effect on business ventures. If you, too, are reluctant to hand over the reins of control in various departments of your business, I have found that it is easier to do so when you have effective control and business systems in place. These systems will give you the ability to manage aspects of your business with less direct involvement, by isolating and summarising important information, with various red flags that can pop up and alert you of danger ahead.

The owner of a pizza restaurant consulted with me on the inexplicable failure of his business to achieve its financial targets despite the implemented systems. The owner had various controls in place, which at first glance should foil would-be thieves. He had gone to considerable effort to weigh up the perfect portions for all pizzas. The following numbers are for illustrative purposes only and because I enjoy a good Mexicana pizza.

Pizza dough                         200 grams

Tomato base                        100 grams

Cheese                                 100 grams

Mince                                      50 grams

Green Peppers                       25 grams

Hot chillis                                20 grams

So, portions were prepared and weighed out at the start of every day, with the owner present. The portions were then all counted – if the store catered to sell 120 pizzas that day, they would prepare 120 balls of pizza dough of 200 grams each. Likewise, they would prepare 120 small containers of cheese of 100 grams each. If they expected that of the 120 pizzas, 40 might be of the Mexicana type, they would prepare 40 units of mince at 50 grams each and so on. I’m sure you get the pizza… sorry, picture…

As each pizza was rung up on the point of sale system (cash register), it would deduct a portion of each relevant ingredient and the principle was that you start each day with a certain number of ingredient portions, sell a certain number and then finish with a certain number. Simplistic, but solid enough, right?

Red flag systems

After a few months in operation, the pizza store owner had a gut feel that something was wrong. He checked his numbers, saw a steady growth in the number of pizzas his business sold, no stock was missing, the ingredients balanced each morning against the number of pizzas sold and his profit margin per pizza was correct and in line with historical data and projections. But he had expected growth to be quicker and had the impression that his take-away pizza store was busier than the number reflected.

He put in place a further simple control to test his negative gut feel, his red flag system. Without his staff knowing, he counted his pizza boxes at the start of each day and measured this against the number of pizzas sold. If this all tallied, there was no need to worry because any other shrinkage or pilferage in his stock was not possible. But it was… and I’ll tell you how.

Firstly, his staff knew about his controls and he was not able to hide his additional trick of counter-checking the boxes against the pizzas sold.

Secondly, he underestimated the dedication and collusion that the dishonest staff members applied to overcoming his systems.

Thirdly, systems need to be constantly updated and developed. Anybody who has owned a Microsoft product will know of their constant stream of updates.

As the kitchen staff prepared each pizza, a small amount was taken from each ingredient unit. Think in terms of around 5-10%. This was slowly stockpiled until it comprised a full pizza. So in every ten pizzas, one extra was available to be made. That pizza was then sold to a cash-paying customer and the cash pocketed by the colluding staff. The ingredient portions measured balanced against the number of pizzas sold in terms of the point of sale system (cash register). Obviously, the staff would not continue with their scheme when the business owner was present.

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