Operating equipment inventory procedure

OBJECTIVE

To establish procedures for controlling operating equipment; including glassware, silverware, chinaware, linen, uniforms, kitchen utensils, bar utensils, engineering tools, etc…

POLICY

1. Each operating department is provided with operating equipment for their operations and stewards and other department staff should maintain a perpetual record using stock cards. Loss from damage and breakage should be minimized.

2. Operating equipment that is not distributed to departments but is kept in the storeroom should be accounted for as inventory at cost and managed in the same manner as for other categories of inventories.

3. Kitchen utensils, bar utensils, uniforms and tools in use are not capitalized unless the cost of these equipments exceeds the capitalization criteria

PROCEDURE

I- Operating equipment to be accounted for as inventory

1. The following items that are purchased but not placed in service should be treated as inventory and kept in the storeroom:

- Rooms Division: chinaware, glassware, linen and uniforms

- Food and Beverage Department: chinaware, glassware, silverware, linen and uniforms

- Other Operating Departments:  linen and uniforms

- Other supporting divisions: uniforms

2. Basically, operating equipment other than uniforms should be limited to those used for customers and guests. Uniforms for supporting divisions may not fit this definition but are treated as inventory because they are generally managed together.

Kitchen utensils such as pots, pans, knives, bar utensils, and engineering tools are part of operating equipment but are not included in inventory because once placed in use, they must be expensed.

3. At the opening of the hotel, operating equipment that is delivered to the operator, along with detailed lists, are to be placed in sufficient quantities in each operating department and the remainder is to be kept as inventory in the storeroom and accounted for as such at cost.

II- Control of operating equipment inventory

1. Each operating department should be fully responsible for all operating equipment used in the operation and should implement their own par stock management.

1. Each department should maintain an inventory list by classification, item, size and style with the following information to be stated on:

- Name of the operating equipment

- Supplier name with date of purchase and purchase order reference number

- Receiving date in storeroom, quantity received, unit cost and total amount

- Date of issue and quantity issued

- Quantity and amount in inventory

III- Operating equipment replenishment

1. Purchases of chinaware, glassware, silverware after the opening should be made in accordance with the Capex budget, which is planned before the beginning of the fiscal year. The budget has to be submitted to and approved by the hotel owner.

2. These items are often specially ordered items, and since economic order quantities are large, purchased volume is in many cases larger than what is needed for replenishment. Accordingly, purchases of these goods are stored in the storeroom until use.

3. Issuing goods from the storeroom into operating departments for replenishment purposes should be controlled via store requisition forms in the same manner as for other store items.

IV- Physical inventory count

1. Physical inventory counts must be performed for all operating equipment:

- In storeroom: to value the inventory

- In operating departments: to measure useage

2. A physical count should be done on a half-yearly basis. For operating equipment in operation, stocktaking should be handled by each operating department and the results of the inventory handed over to the Cost Controller. Items with apparent damages, chips or broken should not be counted.

3. The results of the physical count should be compared to the inventory records and any variances investigated. After resolving any discrepancies, the inventory amounts carried in the computer system should be adjusted to agree with the results of the physical count.

4. In addition, a cycle count should be regularly performed. A cycle count is similar to a physical count except only a portion of the entire inventory is actually counted. A cycle count involves all the same procedures as a complete physical count, except that it is focused on one specific location or item.

Frequent cycle counting of expensive items will strengthen internal controls and increase the inventory accuracy. The objective should be to count all items in inventory at least once between complete physical counts.

1. An average ratio of “breakage and loss against revenue” should be calculated and compared to the previous calculation as a measure of the improvement in handling methods and management.

The definition of revenue to be taken is as follows:

- Rooms Department: Room revenue

- Food and Beverage Department:

• Chinaware and silverware:  Food revenue

• Glassware:  Beverage revenue

• Linen:  Total food and beverage revenues