CONTENTS
Types of Commissary Systems
Production Commissary in Perspective
• Advantages
• Drawbacks
• Key Questions
The
Cost Issue
• Operating Costs of a Production Commissary
• Operating Costs of On-site Preparation
The
Quality Issue
• Final Comments
NOTE:
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recipes.
MANY companies start a commissary as a way to solve problems. Along with computers, central order-taking, and conveyor ovens—commissaries have been heralded by pizza companies as the key to quality control and labor cost reduction. But it doesn’t always turn out the way it was expected. This chapter describes the types of commissary systems and explains the advantages and drawbacks.
There are two types of commissary systems:
1. Distribution Commissary
2. Production Commissary.
With a distribution commissary the pizza company buys directly from the manufacturer, stores the goods, and ships them as needed to the pizzerias. In effect, the commissary replaces the wholesaler, thereby presumably saving on the wholesaler’s mark-up. With this system no food preparation is involved.
With a production commissary, ingredient preparation that normally would be done in the pizzeria is performed in the commissary. Prepared ingredients are then shipped to the units daily, or else 2 to 3 times per week. In effect the commissary replaces the kitchen prep staff.
Most commissaries are either distribution or production. However, it’s possible for a commissary system to be both—that is, to buy and distribute packaged goods and also to do ingredient preparation.
Of the two systems, a distribution commissary is the simplest. It basically involves warehousing and trucking. Companies start distribution commissaries for two basic reasons. First, they intend to reduce food cost by “pocketing” the wholesaler’s mark-up. However the savings are often not as big as first imagined. Oftentimes the pizza company incurs more operating cost per unit of food than does the large wholesaler; with the net result being little or no savings in total cost. The second reason some companies start distribution commissaries is to control the supply of ingredients. By knowing what’s being used, the company execs feel they have better control over store operations and franchisees. They also sometimes believe that they can increase their profit by charging a higher price on goods going to franchisees.
A production commissary is more complex than a distribution commissary. The remainder of this chapter deals with the production commissary.
To a growing pizza company a production commissary can appear to solve a host
of problems. We will examine the potential advantages of such a commissary, then
look at the potential drawbacks.
Advantages
When considering a production commissary most companies foresee the following potential advantages:
• More consistent quality through centralization and automation—i.e., reduced chance of mistakes from “human error.”
• Reduced overall labor cost due to automation and economies of scale.
• Reduced managerial complexity in pizzerias—that is, fewer people to be managed and, so, less hiring, training, and supervision.
• Reduced kitchen space needed in pizzerias, resulting in the chance to operate in smaller places.
• Reduced equipment needed in pizzerias, hopefully resulting in less start-up investment.
• Easier to protect secret formulas and methods.
Drawbacks
However, the advantages must be balanced against certain drawbacks, many of which, unfortunately, aren’t fully understood until a few years after the commissary is operating. The drawbacks are:
• Additional costs such as (1) occupancy cost for the commissary, (2) machinery, refrigeration, and vehicle investment, (3) payroll cost in management, production, and distribution labor, and (4) trucking costs such as vehicle maintenance, insurance, gas, oil.
• Added management positions in a commissary without always reducing management positions in the pizzerias.
• When a piece of commissary equipment goes down, the entire system is paralyzed.
• When a mistake occurs, the effect often impacts every pizzeria.
Key Questions
The two main questions regarding a production commissary are:
1. Will a commissary result in cost savings?
2. Will a commissary result in more consistent quality?
Unless the answer is “yes” to both questions, a commissary should probably not be opened.
Many
companies assume that a production commissary will result in lower operating
costs. But that’s not automatic. In comparing the operating cost of commissary
vs. on-site preparation, be sure to consider everything including the following
items.
Operating Costs of a Production Commissary
Consider the following:
1. Building rental.
2. Building utilities, insurance, taxes, maintenance
3. Total payroll cost, including benefits for management, production, distribution, and maintenance labor.
4. Distribution expenses—vehicle insurance, maintenance, gas, oil.
5. Amortization (or lease payment) of equipment, including any additional equipment that might be needed in the pizzerias, such as larger freezers or refrigerators.
Operating Costs of On-site Preparation
Consider the following:
1. Labor cost to prepare ingredients. (With efficient equipment and good management, labor cost to prepare ingredients runs about 3 percent of food sales for a typical delivery/carry-out pizzeria.)
2. Amortization (or lease payment) of equipment needed to process food in the pizzerias. In calculating this number, include only equipment that would be eliminated by having a central commissary.
3. Cost of space for ingredient preparation. Include this only if, in fact, lower unit rentals would occur from having a commissary.
In conclusion, the main cost of on-site preparation is labor cost. However, with efficient equipment (e.g., cutter-mixer) and proper production planning, the cost of labor to prepare dough, sauce, cheese, and toppings runs about 3.0 to 3.9 percent of food sales for a typical delivery/carry-out pizzeria. This means, if the total cost to operate the commissary exceeds 3.9 percent of pizzeria food sales, the commissary might not be cost effective. How many commissaries are operating that efficiently?
Proof that commissary efficiency may be more myth than reality is realized by observing the long-range trends of some commissaries. Oftentimes a production commissary that starts out doing total preparation—that is, mixing dough, blending sauce, chopping cheese, slicing toppings, etc.—evolves over time into nothing more than a distribution system for private label products purchased ready-to-use from manufacturers. If, indeed, the commissary were an efficient production system it seems that it would be able to process ingredients more cheaply than can the manufacturer. In effect, by selling ready-to-use products the manufacturer has become the production commissary.
In defense of a commissary some proponents point out that additional savings are obtained from volume purchasing. However, the argument is invalid when one considers that the same savings can be achieved through collective volume purchasing from a wholesaler.
In
addition to cost savings, companies also assume that a commissary will produce
more-consistent quality. However the materialization of this assumption depends
on the type of food being processed. Foods with long storage life, such as pepperoni
or IQF cheese, are ideal for commissary or ready-to-use systems.
But what about fresh dough? To make a quality pizza, dough must be optimally proofed. If it’s under- or over-proofed, pizza quality goes down. Of course we can slow down the fermentation process by retarding the dough, but that doesn’t eliminate the need for having optimally proofed dough at the time it’s used. We can also extend the usable life of dough by making fancy formula and temperature adjustments. But, still, for top quality it must be optimally proofed at the time it’s used. So a commissary that ships fresh or retarded dough faces some tough questions and problems.
The best system for achieving optimum uniformity in dough proofing is to make and deliver dough daily. This way the pizzeria handles all dough the same way each day. However, daily delivery creates maximum shipping costs, especially when trucking more than a few miles. To reduce this cost, commissary management is under pressure to reduce the number of deliveries. By going from seven to, say, three deliveries per week, a commissary can slash trucking expense by over 50 percent. That’s strong inducement to eliminate daily deliveries. However the result is inevitably lower product quality resulting from a higher percentage of pizzas being made with under- and over-proofed dough.
A partial solution to solving the problem of unequal proofing is to make dough with varying yeast levels. For example, if a commissary were making dough to be used over a 3-day period, dough scheduled for use on Day 1 would be made with the “standard” yeast portion. That scheduled for use on Day 2 would have, say, three-fourths of the standard yeast portion. And that scheduled for Day 3 would contain, say, one-half of the standard portion. Water portion might also be reduced one percent for Day 2 dough and two percent for Day 3 dough. Although this approach helps somewhat, dough used on Day 3 will most likely be different from that used on Day 1. But at least there will be less variance than would occur when the yeast level is the same in all dough. Unfortunately, this approach complicates dough management. Dough trays must be tagged to identify yeast level so truck drivers can deliver proper amounts and managers know which to use first.
Regardless of the methods used, the dilemma is basically one of Cost vs. Quality. Since cost savings is the initial justification for building the commissary, the cost factor eventually wins out in most companies, resulting in infrequent deliveries and many pizzas being made with under-/over-proofed dough. The ultimate outcome is less-than-optimum product quality. However, those in upper management seldom admit that this is happening, much less see it. Instead, management always has one more technological twist—a new formula, process, or gadget—that’s going to solve the dough/crust quality problem without increasing the number of deliveries per week. The chase seems to be never-ending and, so, goes on for decades. Meanwhile, thousands—or millions—of pizza-buyers are experiencing sub-standard product.
Final Comments
Underlying the commissary issue is the widespread management assumption that centralized operations are better than decentralized. For decades, management has believed that it’s better to automate than educate. Concurrent with this is the widespread assumption that unit-level hourly personnel are mainly untrainable, uncaring, and incompetent. With these two assumptions, a commissary is inevitable.
However, centralization and labor minimization may not be the key to cost control and product quality. Rather the answer may be in designing and implementing better unit level training and management programs. Indeed, one has to wonder what the result would be if companies spent as much time, money, enthusiasm, and commitment on training hourly personnel in the pizzeria as it spent on installing and operating computers, commissaries, and R&D projects.
Cost-wise, the make-it-or-break-it factor for commissaries is often trucking/distribution expense. The shorter the delivery distance, the lower is the commissary’s distribution costs. So commissary systems that deliver to restaurants within a few miles of the commissary are more cost effective than those that attempt to travel great distances to outlying areas. In short, a small commissary that services a dozen or so pizzerias clustered nearby is often more viable than a giant commissary that takes in a large area and travels 50 to 100 miles to reach faraway stores.
In conclusion, before opening a commissary consider all costs. If you will be making and trucking fresh (unfrozen) dough, consider daily delivery. Every-other-day delivery should be the minimum. Weigh the advantages and costs of a commissary versus installing a well-managed ingredient preparation program in the pizzerias. Such a program should include efficient equipment, well-designed procedure, efficient work scheduling, full training, and hands-on supervision. When on-site preparation is properly planned and managed, it can be done with amazing efficiency.
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