How can bakers keep control of costs and maintain margins?
At a time of rising prices and market uncertainty, Jane Tyler looks at ways to weather the storm with Cybake bakery management software.
Britain’s bakery firms face stiff challenges. Sterling’s fall and a tightening of worldwide supply have led to increased prices for ingredients. There is pressure on wages and sales of traditional staples like sliced, wrapped bread have fallen. It’s a perfect storm that has left some of the country’s big bread manufacturing brands struggling.
Clearly, the best way to weather these conditions is by keeping true control of your costs and maintaining your margins. Cybake helps our users do both in a number of ways.
For instance, Cybake tightens up production planning. Many bakers still use relatively manual systems to plan how many mixes of each product to make and only produce to the nearest ¼ mix. Therefore, if a ¼ mix makes 50 units and the order is for 75, then they will make a ½ mix which means 25% over-production.
In the case of a bakery retailer, this often means that the 25% over-production is sent out to its outlets in the hope that the shops can sell the extra product, even though it was not ordered or wanted.
Using Cybake recipes and production planning, the bakery can produce to the exact order quantity without any over-production or, if preferred, with a small quantity of planned over-production which will be allowed for in the recipe costing. Over the course of a year, this will lead to material cost savings of several percent and reduce the cost of disposing of unnecessary waste.
When used to its full potential, Cybake holds an immense wealth of highly valuable business data. When reported upon correctly, this data can really help to drive profitability. One very good example is gross profit margin reporting.
Most clients use Cybake for recipe costing and to help set retail prices to give the desired margin on each product sold (i.e. a doughnut with direct costs of 30p needs to sell at £1 to give a gross profit margin of 70%). The cost price of each ingredient is updated every time there is a new delivery of the ingredient and this automatically keeps all recipe costings up to date.
Using the standard reporting within Cybake allows the gross profit margin of every product to be reviewed frequently and for retail prices to be kept under constant review to maintain margins. At times of rapid changes in raw material prices, having such a system in place is essential to the ongoing prosperity of any business.
Invoiced margins by customer
While recipe costing to work out the margins on each product is essential, another equally valuable practice is to keep invoiced margins by customer under review.
How often is a minimum order value set to cover transport costs but rarely adhered to? Or certain customers given too many credit notes to make their account profitable? Or discounts agreed without full visibility on the overall profitability of the customer?
Clients who are doing both recipe costing and invoicing through Cybake are able to routinely report on the profitability of each customer account. This highlights accounts where the margins are too small and either the pricing needs to be reviewed or the business is no longer of adequate value.
Another area Cybake can really help gain control and understanding to help maintain and improve margins is reporting on direct product profitability.
Take the example of the doughnut with a gross profit margin of 70%. If 100 are sold at £1, then the gross profit would be £70. However, if some customers are given a 10% discount, others 15% and some customers are given a credit on doughnuts, then the gross profit achieved would be considerably less than £70.
Again, by reporting on invoiced values, Cybake standard reporting gives the information needed to make sure each product is actually achieving the required margin, not just the margin calculated in the recipe costing.
One more, perhaps rather obvious, way to keep control over costs is to get a proper grip on your purchase ordering. Cybake’s Purchase Orders module helps you do just that, unlocking considerable cost savings, improving stock control and delivering better traceability.
My colleague Robert McIlroy has written an in-depth blog on Cybake Purchase Orders and its capabilities here. We estimate that just about every bakery business could save an extra 4% on ingredient purchases pretty much straight off the bat with this Cybake add-on.
Despite current uncertainties, the unstoppable march of food-to-go and consumers’ increased interest in things like real bread, gluten free and sweet treats present both retail and wholesale bakers with big new opportunities. Those nimble enough to keep on-trend will benefit. But those canny enough to also keep true control of their costs will thrive.
Jane Tyler is the managing director of Cybake and was the bakery software’s original creator. She is a regular speaker at food and technology conferences and is also known for championing the cause of food waste reduction.
