Significant Exception
In simple terms, exception-based reporting (EBR) tools are designed to improve loss control and control food costs. They are part of abovestore reporting (ASR), which is the practice of collecting point-of-sale and back-office data from a restaurant system's individual units in order to analyze and compare performance. The systems examine transaction data and other key events in a real-time environment, creating actionable business information.
As noted, one of the key elements of ASR is EBR, which is a technology that provides real-time alerts to managers when specific events or activities occur. EBR is a method of data analysis that compares an incoming stream of data with an established base set of data. Restaurant management pre-defines the conditions that it considers "normal" for its operations. The system then flags items that don't match up, indicating potential fraud or other forms of loss.
Data in real time
The benefit of EBR is that, unlike legacy loss prevention programs that can take weeks or even months to detect problems, EBR provides realtime information. If time is allowed to lapse, the employees involved could be long gone, or the problems could be completely out of control.
According to Daniel Connolly, Ph.D. associate professor, University of Denver , EBR is an excellent tool to help focus management on places where they can make a difference and where there is a need for them to intervene.
"For example, every time the 'no sale' button is pushed, the cash register drawer opens," he notes. "It's important to know what's going on there."
Dean S. McSherry, president and CEO of Preferred Restaurant Services, an operational management and restaurant consulting firm in Addison , Texas , agrees with the value of EBR. "On-floor managers are typically bonused on the big three — labor cost, food cost and beverage cost, and EBR is one tool they can use to be more proactive in managing these costs better," he states. Preferred Restaurant Services typically works with high-volume, independent, full service operators who operate an average of fewer than ten units. They use EBR to monitor their operations, such as flash reports during shifts and between shifts. These provide quick comparisons, and the operators track this information against their historical data, which has already been preloaded into the system. They also use the reports to compare week-to-date, month-to-date, and year-to-date information with the pre-loaded information.
"For example, if your 'comps' are way up from the previous period, you may have a manager with a 'happy comp key,' or you may have someone stealing from you," points out McSherry. "The sooner you catch this, the quicker you can respond to it."
Making the most of EBR
When adopting EBR, there are several steps that can help make the most of the technology. The first, according to University of Denver's Connolly, is to come up with the right set of exceptions — the rules and parameters that you want to track. The second is to select the proper technology that helps to monitor and point these exceptions out. Next, engage all levels of management. "This involves training them in what EBR can do and how to utilize it, to make sure they are watching for the exceptions," states Connolly. Preferred
Restaurant Services' McSherry adds, "Be sure to train your managers not only on how the technology works, but why the numbers are important, what they can do with the numbers and how it will help them."
The next step is to consider monitoring positive exceptions. "While you will probably primarily use EBR to control losses, you can also use it to recognize and reward good behavior and performance," suggests Connolly.
Finally, consider using EBR even if you have a small business. National Food Service Advisors, Inc. of Denver , CO (www.nfsaconsultants.com) primarily deals with start-up ventures, and due to limited capital budgets, operators have little money to spend on any kind of high-tech reporting. "They would rather put their money toward marketing," explains Kevin Moll, CEO and president of National Food Service Advisors. As such, the use of EBR is more common among chains and veteran operators.
"Second, even if the new owners did have the capital, they usually don't understand the importance of accountability for every dollar in the way that chains and veteran operators do," he continues. According to Moll, EBR is an almost untapped technology for independent operators, which he believes is unfortunate.
"We do have two clients using EBR," he reports. Besides using the information internally, they also forward it to their accountants, who help them generate monthly P&Ls. One even arranges for daily P&Ls, which the accountant sends them each day via the Internet so they know where they stand all the time. "All in all, the systems have been working great for them," he states. "We encourage small independent restaurants to consider EBR, even just a basic system. It may seem expensive, but the time to payback is usually so short that it is worth the investment."
EBR in action
MRCO, LLC of Brentwood, TN manages 84 Taco Bells in six states. It utilizes Microsoft's QSRx Business Intelligence tool (www.microsoft.com) , which consolidates and presents daily operational data in formats and devices of the customer's choosing. It helps control costs and maximizes cash flow by allowing managers to make better, faster decisions with real-time information. The system allows customers to create user-defined alerts and notifications, and staff members are alerted to actionable information. The system also detects theft and other problem areas by drilling into the detail of suspicious areas. It provides complete cash accountability at the shift and cashier level.
"We have always been looking for a solution that would provide us with store data in an actionable way," states Michael Shahsavari, MRCO's senior vice president and CFO. "For four or five years, we did this ourselves somewhat crudely. We got data from our stores, printed it, and had people punch the numbers into databases, then run lots of reports." However, this process ended up being expensive because of the manpower, and not always accurate because of the manual punching of the data.
"As such, we were excited when we found QSRx almost four years ago, because it takes data directly from the restaurants and enters it into an engine, which produces different views of the data for us and our operators," Shahsavari states. "In sum, what we now have is actionable data from the restaurant, without human intervention, and in a timely manner."
The system is set up such that it can distribute its data to authorized people, for example area managers, who can access the information via a secure website on the Internet from their home offices. "The system allows the area managers to focus their attention on the restaurants that need attention, coaching, and training, because the exception reports highlight where the issues are," states Shahsavari.
As a result of QSRx, MRCO has been able to reduce its costs by at least one percent in the operating area, most of which has been related to loss prevention. It has also been able to reduce costs about one-half of a percent in the labor area by focusing attention on the restaurants which begin to show trends of increased labor, and taking action before it becomes a problem.
Finally, the company has been able to reduce food costs by about one-half of a percent by being able to see the exception areas related to inventory and purchasing. "As a result, we have seen a two percent difference in our margin which, for us, is huge," Shahsavari concludes.
Multiple gains
Church's Chicken of Atlanta, GA is another fan of the value of EBR systems. The company implemented the MIRUS Exception-Based Data Management system (www.mirus.com) in late 2006 and is currently focused on the system's food cost advantages. "When we first implemented the system, we found a lot of area for improvement related to employees not following the correct procedures," states Alan Stukalsky, CIO. "We were able to address these issues quickly."
The company was careful and thorough in its initial rollout. "The key to success is adoption by the operations group from the top down," emphasizes Stukalsky. "The best software in the world is a waste of money if people aren't using it. However, if the CEO looks at the reports every day, so will the restaurant managers."
Another key to success is providing relevant information to managers, and not overloading them with irrelevant information. That is, Church's pushes as much useful information out as is necessary, but not to the point of overload. "Every day, we send three critical reports, which are what we need to run the business, and we keep the people focused on these three reports," he notes. The reports focus on the information that is out of acceptable bounds, which is where the managers then focus attention.
Church's has three levels — restaurants, markets and zones. According to Stukalsky, markets are now competing with each other to see who can perform the best and make the biggest improvements. The initial goal was to save at least one-half of a percentage point in its cost of food, such as by making better purchasing decisions and reducing waste. "So far, we have achieved this goal," he states.
When Church's first introduced the MIRUS system, it found that about 20 percent of its restaurants were out of alignment with food cost expectations and projected expenditures. Now that Church's has reduced food costs into its target zone, the company is in a position to focus resources on the second phase, which is labor cost. "This will involve tracking each day how restaurant hours and dollars are being used," he explains.
Overall, according to Stukalsky, the EBR system has been a tremendous success. "It is actually providing a whole new vision of the company for us," he states. "We are able to look at our information in a whole new light in terms of the details we can see by restaurant, and also summarized by various organization levels."
MRCO's Shahsavari also sees the "big picture" element of EBR for the industry. "This is going to be a trend that will continue to mature," he observes. "It is only a matter of time before the industry will begin using it more and more. Overall, I think the growth will be tremendous."