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Restaurant Inventory Management : The 8 Tips You Need To Know About

Restaurant Inventory Management - the 8 tips you need to know about

Restaurant inventory management is the practice of tracking and regulating a restaurant’s food and beverage inventories. It entails keeping track of the restaurant’s inventory of goods, suppliers, and equipment and ensuring that inventory levels are sufficient to fulfill demand while minimizing waste and loss.

However, keeping a food inventory up to date can be challenging due to lack of time, ensuring accuracy, and requiring organization and attention to detail. Developing good habits and using tools can help make the task manageable, save time, and reduce waste in the long run, which is why, in this article, we’ll discuss what restaurant inventory management is, why it’s useful, and some tips and best practices to help you keep your food and beverage inventory accurate, efficient, and reliable.

  1. What Is Restaurant Inventory Management ?
  2. How Do Restaurants Take Inventory ?
  3. How to Manage Your Restaurant Inventory ?
  4. Restaurant Inventory Management Keywords & KPIs You Should Know & Track
  5. The Benefits Of A Well-Managed Restaurant Inventory
  6. 8 Best Practices To Follow To Run An Efficient Restaurant Inventory
  7. How Restaurant Inventory Management Software Can Help
  8. Choosing The Right Restaurant Inventory Management Software For Your Business
  9. About Supy
Inventory Food Count Stock

1. What Is Restaurant Inventory Management ?

Restaurant inventory management is the process of keeping track of the food and supplies that a restaurant business has on hand. It involves making sure that you have enough ingredients to make your dishes, but not so much that you experience extra stock and end up wasting food and ultimately, profits. It’s a fine balance that restaurant owners need to master to keep their business growing, and one that becomes even more challenging when dealing with perishable items that need to be rotated and turned over before they expire. Restaurant inventory management requires a meticulous tracking of what goes in and out of your storage room. It requires a constant flow of accurate data related to suppliers, receiving, updating, counting, and depleting.

Many restaurants manage their food inventory by manually counting, adding, and depleting their stock, which takes an enormous amount of time, and often requires a full-time resource. Restaurant inventory management is also often synonym of a restaurant inventory management software – a digital system designed to help you keep track of your stock and operations at a fraction of the time and effort. Restaurant inventory management software typically covers all the back-of-house operations of a restaurant, which include procurement, receiving, inventory management, central kitchen, menu and recipe engineering, and data and analytics. Each of these modules is interconnected so that data can flow easily, accurately, and in real time, in turn helping decision makers make informed decisions. 

It is worth noting that a restaurant inventory can include several types of inventory, such as kitchen, bar, equipment, and chemicals inventory. These restaurant inventories can be combined into one, or separated into many. In the latter case, monitoring the Cost of Goods Sold (COGS) and the performance of each inventory is a lot more precise and generally leads to greater profits. 

Some of the metrics required to track in a restaurant inventory include :

  • Actual stock : What you currently have on hand.
  • Purchasing habits and trends : what do you buy, from whom, and at what cost. 
  • Stock turnover : how much stock goes in and out.
  • Variance : the difference between the actual and theoretical stock.
  • Menu performance : how your items perform, and how profitable they are.
Keeping track of these metrics typically leads to lower food waste and food cost, and an increase in customer satisfaction and profits. It is key to understand some of the concepts, keywords, and KPIs related to restaurant inventory management in order to get started.

2. How Do Restaurants Take Inventory ?

Managing your restaurant inventory requires a series of defining steps. These include listing the items you store, taking note of their amount, recording the price of each item per supplier, and setting the par and minimum levels once you’ve determined the optimal quantities you need to operate smoothly.

1. Make a list of all your items : include their name, the supplier or suppliers, and their item code. Specify the unit of measurement (kg, g, ml, piece…) and/or item packages (Box (6 x 1L bottle), Carton (10 x 8 Box)…), as well as the price per item per supplier and per package.

Free Restaurant Inventory Template

Start managing your inventory efficiently with Supy's free restaurant inventory template (Excel, PDF, Google Spreadsheet)

Free Inventory Template Sheet

 

2. Organize your list & mention the price : Several items may belong to the same category of restaurant inventory items : meat, vegetables, condiments, and more. The more items you have and the more complex your operation is, the more categories you may need : Instead of meats, you may divide your category in chicken, beef, and fish, for example. This will help you better understand how much of each item you have, but also gain better insights onto the performance of your menu.

3. Add the price : for each item, specify the price per restaurant supplier and per package. Some suppliers may propose different prices for a single item sold individually, or the same item sold as part of a package (6 items per box, for example). Different food suppliers will also have different prices per items. Keep track of the price per supplier. It is key to update the price per item or package every time you receive a new invoice for that item.

4. Organize your stock : If you can, put together all related ingredients : condiments, baking items, dry items, canned items… in order to facilitate your counting process. 

5. Count your stock : Counting your stock is one of the most important and regular step you will do in maintaining your inventory accurate and up to date. You must count regularly and accurately, otherwise you may end up with a large inventory variance. Stock can be counted by item, or by packaging of items. For example, instead of counting 6 bottles of ketchup, you could count 1 box of 6 bottles of ketchup, if this is how you receive them from your supplier. If you’re using a restaurant inventory management software, it is good practice to package your items so that counting them is done more quickly.

6. Set your Minimum and Par Levels : This will help you know when you need to order, and how much of that items you need to have on hand.

It is worth noting that opting for a restaurant inventory management software can help you save countless hours, eliminate human errors, and boost your profits thanks to automated workflows, alerts, and insights. 

 

3. How to Manage Your Restaurant Inventory ?

Managing your restaurant inventory should be done meticulously and regularly. It is key to spread awareness amongst your staff on the benefits of keeping an inventory up to date and accurate, and ensure you have efficient processes set in place so that your staff can be held accountable. Be aware that many of these steps can be automated or facilitated with a best-in-class restaurant inventory management software.

  1. Ensure the accurate depletion of your restaurant inventory : At every end of day, review or extract all the sales generated and deplete the correct amounts of ingredients used from your inventory. It is key to have accurate recipes in place in order for you to deplete your ingredients accurately. If you’re using a restaurant inventory management software, you could connect your POS system to your inventory and deplete your inventory accurately and automatically.

  2. Train your staff to count your stock : Teach you staff about the risk of human errors and the necessity to be meticulous. Implement counting-per-package in order to reduce human calculations. By counting your stock often, they’ll be able to spot inconsistencies quickly and correct variance fast. Also, holding them accountable will reduce the risk of theft.

  3. Make counting your restaurant inventory stock a mandatory, regular activity : the more you count, the less the chances of having a high variance. Choose the time and days of the week for stock counting. This ensures consistency.

  4. Analyse your data : when does which item get depleted the most ? Identify trends and patterns in order to optimize your purchasing operations.

4. Restaurant Inventory Management Keywords & KPIs You Should Know & Track

COGS (cost of goods sold)

The cost of the food and supplies used to make the dishes sold in the restaurant.

Let’s say a restaurant sells pizzas.

At the start of the period, the restaurant has 20,000 AED worth of pizza ingredients in its inventory. During the period, the restaurant purchases an additional 16,000 AED worth of pizza ingredients. At the end of the period, the restaurant has 22,000 AED worth of pizza ingredients still in stock.

To calculate the COGS for the pizzas sold during the period, we need to subtract the ending inventory value from the sum of the beginning inventory and purchases, as follows:

Beginning inventory: 20,000 AED
Purchases: 16,000 AED
Ending inventory: 22,000 AED

Total COGS = Beginning inventory + Purchases – Ending inventory Total COGS
= 20,000 AED + 16,000 AED – 22,000 AED
Total COGS = 14,000 AED

So, for this period, the restaurant’s COGS for its pizzas was 14,000 AED.

This calculation helps the restaurant to determine the true cost of producing its products and can be used to calculate gross profit margins. By comparing the COGS to the price of the pizzas sold, the restaurant can determine whether it is pricing its pizzas appropriately to cover its costs and make a profit.

Count sheet

A document used to record the physical inventory count of each item in the restaurant’s inventory.

FIFO (first-in, first-out)

A method of inventory management in which the oldest items are used first, ensuring that inventory is rotated and that items do not expire before they are used.

Food Cost Percentage

Determines the food cost as a percent of total sales.

Want to learn more about How To Calculate Food Cost Percentages ? Read our in-depth guide covering all your need to know to operate at an optimal level.

Inventory Count

An inventory count is the process of physically counting the number of items in inventory to ensure that the recorded inventory levels are accurate.

Inventory Turnover

Inventory turnover is a financial ratio that measures how many times a company sells and replaces its inventory in a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory value during that same period.

Here’s how to calculate inventory turnover :

To calculate the average inventory, add the beginning inventory and ending inventory for the period and divide by 2.

Here is an example:

Suppose a company has a COGS of 500,000 AED for the year, and its beginning inventory is 50,000 AED and ending inventory is 70,000 AED. The average inventory value for the year would be (50,000 + 70,000) / 2 = 60,000 AED

Inventory Turnover = 500,000 AED / 60,000 AED Inventory Turnover = 8.33

Therefore, the inventory turnover for the year is 8.33. This means that the company sold and replaced its inventory 8.33 times during the year.


LIFO (Last In, First Out)

A method of inventory management where the most recent items received are used or sold first.

Markup

A method of inventory management where the most recent items received are used or sold first.

Non-perishable

Items that have a long shelf life and can be stored for extended periods of time.

Par level

The minimum and maximum amount of inventory for each item that should be maintained to ensure that there is always enough stock on hand without overstocking.

Purchase order

A document used to request and authorize the purchase of new inventory items.

Reorder point

The minimum amount of an item that a restaurant needs to have on hand before placing a new order.

Safety stock

Safety stock is the extra inventory that is kept on hand to ensure that there is always enough inventory to meet demand, even during unexpected spikes.

Shrinkage

Losses of inventory due to theft, spoilage, or other reasons.

Spoilage

Food or supplies that have gone bad or cannot be used due to damage or expiration.

Stockout

A stockout occurs when inventory levels for a particular item are depleted, and there is no stock on hand to meet demand.

Inventory variance is the difference between actual and expected inventory levels. For example, if you were to consider chicken nuggets. If, at the end of the day, your inventory has recorded a depletion of 50 chicken nuggets, but your sales data shows that you’ve only sold 45 of them, then the variance is of 50-45 = 5 chicken nuggets. The variance here would be 5/50 =10%. By analyzing variances, restaurants can identify the root causes of discrepancies and take actions to reduce them. 

Vendor

A supplier that provides the restaurant with inventory items.

Yield

This is the ratio of the product amount sold (as recorded by your POS) to the amount of product consumed. Take the example of chicken nuggets. Your POS may have recorded 45 chicken nuggets sold, but you actually consumed 50 chicken nugget as per your inventory depletion. This means that the yield is 45/50 = 90%.

5. The Benefits Of A Well-Managed Restaurant Inventory

Here’s a more in depth look on how an accurate inventory will help you decrease food cost, loss, and wastage, increase profits, and keep your customers satisfied :

Reduced food waste: Food wastage occurs for several reasons : staff meals, a dropped plate, and food that has gone passed its expiry date… are amongst the most common examples. It is often difficult for a member of staff to accurately register this event in their existing system, usually because there is friction in the user experience, or sometimes simply because they were not taught to do so. A modern inventory system would enable you to register events effortlessly, would help you keep track of your existing stock, and help you track and address wastage. Having an inventory on hand also mean keeping track of what needs to be used up soon and prioritize those items before they go bad. You can plan your meals based on the ingredients you already have, which can help you avoid buying more food than you need.

Cost control: keeping track of your inventory helps you understand your purchasing habits, the prices you pay for your items, and the price evolution of those items over time. This enables you to not only extract insights on your procurement operations, but also helps you negotiate better deals with your suppliers. Understanding your Cost of Goods Sold (CoGS) helps you monitor the profitability of the dishes you’re selling. It is not uncommon for items that were once profitable to suddenly become unprofitable due to turbulence in the supply chain. Keep in mind that food costs generally account for approximately 30% of the total costs of a restaurant. This increases when food is spoiled.
All in all, monitoring your costs helps you understand how they vary over time, take back control over them, and reduce them.

Increased efficiency: A well-oiled food inventory can streamline restaurant operations and reduce the time and resources required to manage inventory, freeing up staff to focus on other important tasks. Automation is one of the key benefits in helping you save time and money. A modern inventory system that was built for a friction-free experience should act as an invisible team player, thus helping your team on what matters most : keeping operations efficient, your kitchen well-run, and your customers satisfied.

Improved planning and forecasting: With a clear understanding of inventory usage and trends, restaurants can better plan and forecast their inventory needs, which helps to avoid shortages and delays. Indeed, shortages (or missing ingredients which then halt the sale of a dish) are terrible for business. Similarly, having too much of something means they’ll end up in the trash, and that’s money lost.

So, there you have it! By having a well-managed food inventory, restaurants can reduce waste, control costs, increase efficiency, improve planning, and enhance customer satisfaction.

6. 8 Best Practices To Follow To Run An Efficient Restaurant Inventory

1. Set par levels
Par levels are the minimum and maximum inventory levels for each item that should be maintained. By setting these levels, restaurants can ensure that they always have enough stock on hand without overstocking. This helps to prevent stockouts and overordering, which can both be costly.

2. Use technology
There are many inventory management software and tools available that can automate inventory tracking and reduce errors. By using technology, restaurants can save time and reduce the risk of human error, which can help to improve accuracy and reduce waste.

While you look for inventory software, why not try out our Free Restaurant Inventory Sheet (available on Excel, Google Sheets, and PDF)

3. Conduct regular inventory counts
Regular inventory counts are essential for ensuring that restaurants are aware of their current inventory levels and can adjust accordingly. By performing regular counts, restaurants can identify discrepancies and address issues promptly, helping to prevent stockouts and overordering.

4. Rotate inventory
The FIFO method involves rotating inventory so that older items are used before newer ones. This helps to minimize waste by ensuring that items are used before they expire. This method is particularly important for perishable items such as produce, dairy, and meats.

5. Train staff
Inventory management is a team effort, and all staff members should be trained on best practices. By educating staff on inventory management practices, restaurants can ensure that everyone is on the same page and that accurate inventory tracking is a priority.

6. Monitor waste
Tracking and monitoring food waste is an essential component of inventory management. By identifying areas of waste, restaurants can adjust their inventory management processes to minimize waste and reduce costs. (Recommended read : 10 Tips To Reduce Restaurant Food Waste)

7. Analyze inventory data
By analyzing inventory data, restaurants can identify trends and make informed decisions about ordering and usage. This helps to prevent overordering and underordering, ensuring that restaurants always have enough stock on hand.

8. Work with suppliers
Strong relationships with suppliers are essential for ensuring timely and accurate deliveries. By negotiating favorable pricing and terms with suppliers, restaurants can reduce costs and improve their inventory management processes.

7. How Restaurant Inventory Management Software Can Help

Restaurant inventory management software brings significant benefits to restaurant owners thanks to digitization, data, and automations. Enabling a free flow of data amongst your operations means insights can be uncovered, alerts can be set, and data-driven decisions can be made. Most restaurant inventory management systems connect to a myriad of tools within the F&B eco-system, namely POS and accounting systems. 

  1. Gain real time visibility into your restaurant inventory : Data flows between each of your operations, from procurement to inventory to sales. Connecting your restaurant inventory to your POS system means ingredients can be depleted in real time and accurately whenever a sale occurs. Connecting your restaurant inventory to your POS system also means you can track the profitability of each menu item in real time. 
  2. Purchase ingredients with optimal efficiency : Most restaurant inventory software vendors will enable Par Levels – the optimal amount of stock to have on hand – and Minimum Levels – the minimum level you need to operate without friction, but with some risks of shortage. Setting these levels means you can set up your system to automatically order ingredients to Par Levels whenever the level isn’t met – helping you save time and money.
  3. Save hours of work : Eliminating manual processes can save up to hundreds of hours per month for the busiest of restaurants who still employ manual processes. By moving away from pen and paper and towards digital stock counting, you can save painful hours and countless human errors transferring stock counts from your paper to your computer. 
  4. Save money : Manual processes, human errors, and intuition-led decision-making are the primary sources of profit leaks. By setting up digital restaurant operations, automating workflows, and using analytics for decision-making, restaurant business can see a significant improvement in their profits.

8. Choosing The Right Restaurant Inventory Management Software For Your Business

One size does not fit all. There are several factors to take into consideration when choosing your tool of choice, namely your existing tech ecosystem, the size of your operation, and the budget you’re willing to invest. 

  1. Size of your business : standalone restaurants and multi-site restaurant need to handle different types of complexities. A multi-site restaurant may emphasize its need to centralize and aggregate data coming from its different branches, whereas a standalone restaurant may want to hyper-optimize its operations by monitoring each of their inventories separately. Generally speaking, the smaller the establishment, the less complex the tool needs to be. 
  2. Review the features : A lot of restaurant inventory management systems have a lot of different features. It is key to run your own analysis or work with a sales person to understand your needs, and how these needs can be met. A lot of tools will propose features that you do not necessarily need, yet will be encouraged to pay for. It is particularly important to understand how the feature works. If the system does provide restaurant dashboard and analytics, figure out if setting this up will require additional expense. More modern restaurant inventory management software will consider modern-day best practices, and will include, for example, built-in restaurant dashboards which do not require the assistance of a designer, or for training. 
  3. Compatibility : If you’re already using tools to run your restaurant business, such as a POS or accounting system, it is key for you to verify if your tools integrate easily with the restaurant inventory management software you’re looking into, otherwise the investment you’re making will likely cost you a lot more than just a subscription. 
  4. Cost : Costs may vary considerably amongst different software vendors. Subscribing to a restaurant inventory system provided by an ERP will cost you significantly more than opting for a best-in-class platform. Multi-site restaurants tend to opt for all-in-one solutions whenever a large digital transformation program arises – given that it comes the benefit of native integration and a one stop shop for all their digital needs. Best in class software, on the other hand, provides the best of what a software can do for a particular task (Recommended read : All-in-One or Best-in-Class?). It is also important to consider the additional costs that come with the additional services. ERPs for example, will charge you for miscellaneous tasks, such as creating a new report for you. Best-in-class software, on the other hand, may include these services.

9. About Supy

Supy is the data-driven restaurant inventory management software designed to help owners eliminate guesswork from their restaurant operations, reduce their costs, and boost profitability. Built to be accurate and easy-to-use, Supy provides a suite of intuitive products that help you maintain a reliable, data-driven inventory in order to make data-driven, profit-making decisions at all times.

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