The Ultimate Guide to Restaurant Inventory Management

Consider two real-life scenarios: Your customer orders extra guacamole, but you’re out of avocados, or you just walked past a crate of rotten, unusable (and expensive!) avocados in your stock room.

These situations could have been avoided with proper restaurant inventory management, which gives operators more control over what’s on hand and how it’s being used.

There are many reasons why you should take inventory on a regular basis: your restaurant can avoid running out of a key ingredient mid-service.

Moreover, you will be less likely to order too much food, which leads to wastage. It will also be less likely that food will be lost as a result of theft, which happens a lot more frequently than you might think.

When inventory is taken accurately and regularly, your operation’s profit can grow by as much as 24% each year.

To help you, we’ve outlined the most important steps, best practices, and helpful resources you need to know about inventory.

Restaurant Inventory Management Basics for Restaurants

Find out how to take inventory in your operation by doing a little research. If you want to track and record inventory by hand, you can use a count sheet, or you can use a computer application. Let’s discuss inventory software in more depth below.

Calculation

Counting is the first step in inventory. Taking inventory of everything from food ingredients and cleaning supplies to dinnerware, uniforms, and tabletop items – anything you need to order more of – is a good idea. Items in the kitchen should be counted apart from those in the restaurant’s bar and front of the house.

Comparative Method

I recommend enlisting two staff members to take the inventory separately and compare the numbers to identify possible discrepancies. The same employees should also be used week after week as that will help them to become more efficient over time. Due to the tedious nature of taking inventory, offer incentives to those in charge of handling stock – their focused attention is worthwhile.

The Best Time and Way to Take a Restaurant Inventory

Once a week, on the same day, at the same time, it is standard practice to take inventory. The frequency will depend on demand, but we recommend doing it every day or twice a week. A perpetual inventory, also known as a sitting inventory, is another way to keep track of all that is on hand.

Five rows of information are usually required when taking an inventory.

Type of Item: Wine, as an example
Unit of Measure: Do you order wine by the bottle? In order to avoid inventory calculations that lead to errors, ensure this unit of measurement is consistent.
Inventory Amount: The amount you currently have in stock of your measurement (e.g. 12 bottles of wine)
Unit Cost: Multiply the cost of one unit by the quantity of that item. You should always use the latest price paid for some items since prices change from week to week.
Total Cost: The total cost of an item is computed by multiplying the unit price by the number of that item you have in inventory.
Inventory Management Software Benefits
Automatically calculates the balance based on the beginning and ending stock counts.
As a result of integration with point of sale systems, ingredients for a menu item are automatically removed from the perpetual inventory when a sale is made.
When you run out of supplies, inventory management software can remind you to reorder. Some programs even allow you to customize the quantity you want to order. As soon as the ingredient reaches that level, you will receive an email reminding you to reorder that ingredient.
Inventory management software determines the number of days of an ingredient by factoring in how much is used in a menu recipe.
Using inventory management software, variances can be calculated and kept track of to make sure they stay under 5%. Before it gets out of control, you can investigate the cause once it starts to rise.
With software, you can specify how long products can be preserved and subsequently used, before becoming spoiled, in order to manage shelf life better.
It is possible to generate detailed reports on inventory trends through inventory management software so you can easily see which ingredients are most popular or are under-utilized.
What to Look For When Choosing an Inventory Management System for Your Restaurant
A restaurant’s inventory management is only as powerful as its integration with the POS, and many of the above advantages arise from the way each interface.
Learn about the needs of your restaurant
By knowing what you sell versus what you possess, you can use software such as the above-mentioned to make more informed purchasing decisions, as well as automate ordering of our most popular items.
Even if you don’t have POS integration, you can still use inventory management software, but time and money savings won’t be as seamless.
Integrate it with your POS and other technology
Choose the right inventory management software by ensuring that it seamlessly integrates with your point of sale system. If your POS supplier is making the software, you’re probably good to go.
It’s important to make sure the inventory management software you choose works with the POS software you use if it doesn’t have its own inventory management software.
Additional Tips for Managing Accurate Inventories
Analyze Cost of Goods Sold.
If you stay on top of your inventory, you can calculate key metrics used to judge how well your restaurant is doing.
The Cost of Goods Sold, or CoGS, is a measure of the price you pay for each menu item. The cost of inventory is calculated by adding the dollar value of your beginning inventory to any purchases during the period, and subtracting the value of your ending inventory.
Inventory at the beginning + Inventory purchased – Inventory at the end = Cost of Goods Sold (COGS).
Establish guidelines for how much you can spend on different categories of food by breaking them down into groups. You should not spend more than 31% of your budget on food. If this situation arises, you need to determine whether your menu prices are too low, whether you can negotiate the price of ingredients, and whether your staff is using only the amount specified in the recipe to avoid expensive waste. If you use just a tablespoon more of Himalayan salt, you’ll be surprised by how much it can add up to.
Once you have determined your CoGs, you can then calculate Prime Cost, which corresponds to the total of your CoGs and labor costs, another important measure of your restaurant’s financial health. You should generally not exceed 60% of your gross revenue when you combine your COGS and labor costs.
You should examine the way inventory is ordered, used, and possibly wasted if they do. Additionally, scheduling software like 7shifts might be able to help you save on labor costs.
Increase Inventory Turnover Rate
If you maintain accurate inventory numbers, you can determine your Inventory Turnover Rate (ITR), that is, how long you hold onto items before they generate revenue. A low turnover number could lead to food spoiling and locked up assets in stock not being used, resulting in a loss of money. Compared to Wendy’s, McDonald’s low ITR means it has more cash flow available to open new locations.
In most cases, the inventory in your restaurant is not accurate or consistent, so you’re losing money. By using smart inventory management software, you can cut your food costs by another 5% if you are currently tracking inventory. This software can streamline the process and deliver insight on where the operation can improve on what’s coming in and going out.
Don’t waste your time on monotonous, repetitive tasks.
Allow us to handle the busy work for you. Let us manage the scheduling so you can run your restaurant.