A successful restaurateur is constantly monitoring, adapting, and making changes to their business. All the unseen work that goes into keeping a business profitable is arguably the activities that have the greatest impact.
One of these core activities is inventory management.
Some of the most successful business owners we know are obsessed with it.
Just as balancing that cash drawer is vital to your business, so too is inventory control.
Inventory will be one of your biggest cost centres. In fact, the average food cost percentage can be as much as 32% of total food sales (and peaks at 45%). That’s why keeping close tabs on it is so important.
Equally, if restaurant food waste is on your mind, this is the guide to read, because a solid inventory management strategy will make you a more profitable, responsible, and sustainable business.
What is restaurant inventory management?
Inventory management is the process of tracking and managing the journey that stock takes through your restaurant.
That means keeping a close eye on it from ordering, to storage, movement and eventual sale. It’ll help you keep tabs on how much of each item you have in stock and enable you to replenish inventory just in time.
These days, inventory management is handled by smart software which is often built directly into POS systems. This makes the lives of restaurant staff easier, because stock is automatically updated as dishes are sold.
But there’s a lot more to inventory management.
Why does inventory management matter?
There are a number of reasons it’s worth investing your time in inventory management.
Beyond the constant bird’s eye view it provides of stock, you’ll also:
- avoid ordering too much stock;
- reduce the chances of ingredients passing their use-by date;
- rarely have to order small quantities at the last minute;
- reduce how much food you waste;
- maintain a positive cash flow by ensuring there’s not too much money tied up in stock;
- be able to meet customer demand; and
- minimise shrinking caused by human error, food waste and spillage.
Inventory management will either make or break your food costs, and therefore have a direct impact on your profitability. It’s that important.
5 Restaurant Inventory Management Mistakes to Avoid
There’s only really one way to undertake inventory management these days, and that’s via software.
The good news is that there’s software available for every budget and type of venue, and that makes manual inventory management thankfully a thing of the past.
So, with that in mind, here are five of the most common mistakes that venues make, and ways that you can flip them on their head!
1. You don’t have an inventory management champion
It’s a good idea to have the same member of staff tracking inventory. The fewer chefs, in this case, the better.
By designating an inventory champion, you’ll have one point of contact for everything relating to the task. It’s then far easier to identify inconsistencies or errors and you’ll find that the person in charge will understand all of the patterns that make this task such an important part of your business.
Just make sure they share their knowledge regularly for instances where they’re unavailable.
2. You don’t keep to a consistent schedule
The best inventory strategies are consistent. Running ad-hoc stock checks or counts will provide an inconsistent picture of how inventory moves through your restaurant.
This is why it’s a good idea to set schedules for all of your inventory management tasks. For instance, you might decide to check perishable ingredients daily, but set a task for checking bulk items on a bi-weekly basis.
Whatever you do, stick to your schedule.
3. You don’t learn anything from your inventory history
The devil is in the detail when it comes to inventory management. And most of that detail will be found in your historical counts.
The latest inventory management software tools include a raft of historical reports and forecasting features. Use them! Identify which ingredients you’ve previously over- and under-ordered and use that insight to make more decisive, strategic decisions in the future.
It’s also a great way to predict trends regarding inventory movements during specific days of the week (because it will fluctuate).
4. You miss surplus ingredients that could be used to your advantage
One of the best things about inventory control is that it’ll help you spot surplus ingredients.
Sometimes, that’ll prompt you to order less, but, often, it’ll present an opportunity to re-use that surplus for something else. The net result is less food waste and some wonderfully creative additions to your menu.
5. You haven’t heard of the FIFO method
First In, First Out (FIFO) is a technique used by a whole range of industries, but in the restaurant sector, it’s a brilliant way to ensure you use as much of your inventory as possible.
It’s based on the principle of using the items you receive first by organising the various areas within the kitchen. This will involve management of the dry storage areas, freezers and shelves. In turn, you’ll be able to ensure that whatever enters your inventory first is among the first items to head out of the kitchen and onto your customers’ tables.
Restaurant inventory management: Glossary of terms
When you get into inventory management, you’ll come across a bunch of terms which will be unfamiliar at first. Until you check out our glossary!
Cost of Goods Sold (COGS): this helps you control costs and, more importantly, understand the cost of the ingredients used to create dishes.
PAR levels: the minimum inventory level needed to meet customer demand.
Recipes: the volume, type and quantity of ingredients needed for every dish.
Unit conversion: if you buy something by the pound for £2.10 but serve it by the ounce, you’ll need to convert the unit into cost-per-ounce.
Shelf-to-sheet: the process of manually counting what’s on the shelf and cross-checking that number with your inventory management system.
On-hand (sitting) inventory: this is the total amount of stock currently available to your kitchen and is referred to in monetary or quantity terms.
Variance: the difference between inventory you’re theoretically holding (your inventory management software will provide this figure) and what you’re actually holding. Usually expressed as a percentage, monetary value or physical quantity.
Yield: this is the amount of usable product available after trimming and cleaning. Usually expressed as a percentage.
We hope that this introduction to inventory management has helped. It’s not the sexiest topic in the world, but it’s one you really will need to get a good handle on, so make sure you keep this guide close to hand.