Food Services Organization and Operations Improvement .

by

Prof. S. O. Duffuaa on behalf of The committee on Food Services

Presentation Outline
Committee charges. Approach Overview of current food services operations and organization. Diagnosis of the situation Meal Cost Profitability of snack bars and faculty restaurant

Presentation Outline

Internal control Outsourcing Options: Advantages and disadvantages Recommendations

Committee Members Prof. Salih O. Duffuaa (Chairman) Mr. Saeed Samer. Mr. Abdul Shaheed Salem. Mr. Abdullah Al-Oufi. Mr. Salem Ba-Tarfi. Mr. Iftikhar Nadeem. Mr. Mohammed Elhassan Seliaman.

Charges
Review document and improve current processes to facilitate efficiency effectiveness and improve quality. Improve Food services internal control on material and cash flow. Review current organization structure to improve control. Assess the profitability of the snack bars and faculty restaurant. Evaluate the alternatives of outsourcing part or all of the Food Services activities.

Approach
The committee has met eighteen (18) times and visited four (4) organizations that are outsourcing food services in its efforts to come with concrete recommendations. The organizations visited are: Institute of Public Affairs Technical College at Dammam University of Bahrain Saudi Aramco

Approach Review and evaluate current processes.

Collect as much as possible reliable data.

Tap on experience of organization in food services business.

Perform cost benefit analysis .

Food Service Responsibilities

Providing three meals (breakfast, lunch and dinner) to students in three dining halls. They provide approximately between 1500-1800 meals per day. Providing lunch meal at the faculty restaurant. Operating 15 snack bars on campus. Operating a bakery to supply the restaurant and snack bars by needed items. Preparing meals for university guests, public parties and workshops and conferences. Providing services (parties etc) to community on campus at charge.

Food Services Manpower

No. Job Saudi Non-Saudi 1. Administration 24 3 2. Technician 2 1 3. Salesperson 32 1 4. Cook 71 20 5. Baker 14 1 6. Butcher 3 0 7. Waiter 5 3 8. Halawani 4 2 9. Driver 6 0 10. Total 161 31 Source: Financial and Administrative Affairs Strategic Plan.

Total 27 3 33 91 15 3 8 6 6 192

Current Organization

Diagnosis of the Current Situation

Data on material consumed and number of meals sold are not recorded properly. The food services department is serving between 1500-2000 meals per day at the students dining halls. Now may be less.

Almost all data recording is handled manually. Department organization structure needs improvement to enhance efficiency and control. Internal control needs improvement to control flow of material and cash flow in order to match income with cost.

Diagnosis of the Current Situation

The Food Services is focusing on quality of food through the emphasis on fresh material and workers health. The department is not cost conscious. The average cost of the meal runs between 25-30 SR. This is a rough estimate it could be more. The faculty resultant is operating at 50% losses. The total monetary losses per year for the faculty restaurant and the snack bars range between 1,375,000 and 1.750,000 SR.

Estimation of Meal Cost

No. 1 2 3. 4. 5. 6

Table 2: Cost breakdown for the meal average cost including depreciation Item Cost in Saudi Riyal (SR). Percentage (%) Manpower 10.69 36.62 Material ( Meet, Vegetables, etc) 9.45 32.38 Cars, Spare parts, gas etc 1.74 5.96 Electricity, Maintenance 2.97 10.18 Building & Equipment Depreciation 4.34 14.86 Total 29.19 100

Estimation of Meal Cost

No. 1 2 3. 4. 6

Table 3: Cost breakdown for the meal average cost without depreciation Item Cost in Saudi Riyal (SR). Percentage (%) Manpower 10.69 43.02 Material ( Meet, Vegetables, etc) 9.45 38.03 Cars, Spare parts, gas etc 1.74 7.00 Electricity, Maintenance 2.97 11.95 Total 24.85 100

Profitability of Bakery and Snack Bars

Data collected for the study: Items produced at the bakery and sold at snack bars. Typical quantities produced of each item Sale price of each item Amount of raw material used for each item Manpower at the bakery and their monthly salaries Sales personnel at the snack bars and their monthly salaries. Maintenance and gas costs at the bakery Estimated electricity cost at the bakery Estimated water cost Estimate administration over head cost Transportation and cleaning costs.

Profitability of Bakery and Snack Bars

The daily revenue for the snack bars and the bakery is estimated to be on the average 9081 SR.. The cost of the operation including the costs items mentioned above is estimated to be 11500 SR if all the elements of the costs are included. The loss from snack bars is around 25%. The details of the calculations are attached in appendix C.

Profitability of Bakery and Snack Bars

We note that in our calculation in appendix C other costs such medical, higher administration overhead; other support services were not included. The daily monetary loss at the snack bars ranges between 2500-3000 SR. This totals to 625,000 750,000 SR per year based on 250 working days.

Profitability of Faculty Restaurant

A one week data for number of meal sold and income was obtained from the faculty restaurant. The number of meals sold per day at the Faculty Restaurant range between192 - 250 with an average of 220. The number of meals includes prepaid meals and the income of those meals is not reflected in the daily cash collected. The average income per meal is 10.46 SR

New Organization Structure

Outsourcing
The following vendors contacted:

Algosaibi Services Company Arabian Food Supplies Company Saudi Catering Services Company Nesma Contracting Company

The following two vendors submitted their proposals: Arabian Food Supplies Company (AFS) Nesma Contracting Company (Nesma)

Outsourcing

Comparison of Prices Quoted by Vendors Prices by AFS (SR) 9 18 18 11* Prices by Nesma (SR) 6 12 12 10

Meal Breakfast Lunch Dinner Economy Meal

* Price is estimated based on prices quoted for items forming an economy meal

Scenarios for Subsidies

Table 7
Meal Subsidy per student (SR)

Scenarios of Subsidy for Nesma Prices

Subsidy for Subsidy for 1,000 Subsidy for 1,500 500 students (SR) students (SR) students (SR)

Breakfast* Lunch Dinner Total/day Total/year**

4 8 8 20 6,000

1,000 4,000 4,000 10,000 3,000,000

2,000 8,000 8,000 20,000 6,000,000

3,000 12,000 12,000 30,000 9,000,000

*It is assumed that half the number of students will take breakfast but same number of students eat lunch and dinner ** one year means 300 days of operation due to vacations.

Scenarios for Subsidies

Table 8
Meal Subsidy per student (SR)

Scenarios of Subsidy for AFS Prices

Subsidy for Subsidy for 1,000 Subsidy for 1,500 500 students (SR) students (SR) students (SR)

Breakfast* Lunch Dinner Total/day Total/year**

7 14 14 35 10,500

1,750 7,000 7,000 15,750 4,725,000

3,500 14,000 14,000 31,500 9,450,000

5,250 21,000 21,000 47,250 14,175,000

*It is assumed that half the number of students will take breakfast but same number of students eat lunch and dinner ** one year means 300 days of operation due to vacations.

Options
Option 1: Keep the in house food services and improve its operations, processes, manpower, capabilities, internal control, management skills and develop a culture that seeks efficiency and effectiveness. This will be accomplished through professional help from an established company in the area of food services.

Option II: Keep the in house food services and improve its operations, processes, manpower, capabilities, internal control, management skills and develop a culture that seeks efficiency and effectiveness. This will be accomplished by the food services department with some help from KFUPM expertise.

Options

Option III: Internal outsourcing: Converting food services to a company owned by the current food services employees and operated by them. Option IV: External outsourcing: Requesting outside companies to provide food services for KFUPM. (a) Outsourcing all food services (b) Outsourcing bakery and snack bars. (c) Outsourcing faculty restaurant.

Options Evaluation Advantages and disadvantages of each option

No.
1. Option Option 1: Keep Food Services as it is and improve operations by seeking professional help from expertise in food industry Advantage 1. High quality and good hygiene. 2. Flexibility in serving university 3. Establishment of standards similar to industry standards. 4. Establishing a new culture 5. Improving human resources substantially. 6. Employing many Saudis. Option II: Keep Food 1. High quality and good hygiene. Services as it is and 2. Flexibility in serving university improve operations 3. Employing many Saudis. using KFUPM resources. Option III: outsourcing Internal 1. Keep current food services standard. 2. Employee many Saudis

Disadvantage
1. Lack of variety to students taste. 2. More cost at the beginning which is expected to pay off.

1. Cost is high 2. Lack of variety to students taste. 3. Unlikely to succeed in changing current situation. 1. Remove cost burden from the University 2. Not easy to form the organization structure. 3. Not clear how to handle legal issues.

3.

Options Evaluation
4. Option IV (a) : 1. Reduce food services costs of the 1. Loss of Saudi Employment Outsourcing all food university in the long run. 2. Quality may be compromised services 2. More variety of food to students 3. Control over company taste. activities more difficult. 5. Option IV (b): 1. Remove some of the financial 1. Loss of Saudi employment Outsource Bakery and burden from the university. approximately a loss of 40 snack bars and faculty The expected costs savings Saudi employee. restaurant only ranges between 1,375,000- 2. Prices may go up for the

6.

students at the snack bars by 1,750,000 SR. 2. More variety of items in 30-50%.. faculty restaurants and snack bars. Option IV (c): Not feasible, no company will Not feasible Outsource faculty opt for faculty restaurant alone.
restaurant

Recommendations
Keep the in house food services and improve its operations, processes, manpower, and internal control and management capabilities through professional help from a company in this field. Improve food services internally by using university/department existing expertise in the following manner: Restructure organization. Appoint one person to be responsible for material and income generated on daily basis . Revisit the menu Increase income from selling products outside ( better marketing)

Recommendations
Rent one of the students dinning halls. Down size manpower and improve processes.

Outsource the food services department, if recommendations 1 and 2 did not achieve the desired results within a year.

Questions & Comments