How To Dig Into Your Food Inventory Data To Squeeze Out More Revenue
Operators lose 20 to 30 percent of sales due to mismanaged inventory. Optimizing your restaurant inventory management helps prevent such loss by leading you to the root of the problem.
Inventory is not exactly a picnic and is in fact a laborious process that is prone to errors. But there’s no denying that it is an absolute goldmine of insight and data as well, one that can put you in a more profitable position.
This blog helps you figure out the right way on how to do inventory in a restaurant or bar to uncover the lapses and weak points in your process and ultimately help you mitigate costly errors that are hindering you from turning more profit.
Why Take Inventory
Inventory sets a more solid foundation from which you can maximize your sales and facilitate a smoother operation. Here are some benefits of having a good inventory system:
- Paints an accurate picture of the performance and profitability of each menu item
- Helps you identify what segments are causing problems to your overall profitability
- Gives you the ability to keep track of everything that goes in and out of the kitchen
The Ideal Food Cost and How To Achieve It
Food cost is the amount you spend on preparing, cooking, and serving food or drink for a specific duration. Calculate your food cost by first computing your total usage for a specific period and then dividing it by the number of sales for that period. The formula is as follows:
Usage = (Previous Inventory + Purchases) - Ending Inventory
Costs = Usage / Sales
Your ideal cost is the cost without waste, theft, and over-portioning. Not all establishments are the same so there is no reason that the food costs will be. The accuracy of your restaurant inventory management is paramount here.
To find out what your ideal cost is, you need a way to gather specific data about your losses also known as shrinkage.
Shrinkage value is the amount of loss in your inventory that your records don’t account for. If your sales and sitting inventory do not match up at the end of the period, there is a shrinkage. Here is a simple formula to calculate shrinkage rate:
|Shrinkage Rate = (Recorded Inventory - Actual Inventory) / Recorded Inventory|
How to Spot Food Inventory Anomalies
Now, you need to dig deeper by figuring out where exactly the losses occurred. Having this data is crucial to developing proper solutions to implement on your restaurant inventory management system.
Are your costs fluctuating?
If you seem to spend more on one month and much less on the next that your graphs look like hills, something’s going on behind the curtains that you may not be seeing. The usual culprits are spoilage, waste, breakage, or theft. But these inventory mishaps can be explained away by other things that you may be overlooking:
Did you mistakenly count one case of beer as one bottle? This means there are at least a few hundred dollars that won’t show up on the inventory for the month. When you do count it for next month’s inventory, you won’t be able to record sales for it, which will explain the fluctuation.
Stock taking manually can produce unreliable data because of how easy it is to scramble numbers and mess up the counting. Consider incorporating a barcode scanner or counting app to your beverage or food inventory process to eliminate this problem.
If your food cost is suspiciously low, check if all the invoices are accounted for. Always file your invoices in one convenient place.
Prices of ingredients are subject to change. Keep tabs on product prices and ensure that when the prices do go up or down, they are accurately reflected on your system.
Depending on the season, more products will sell more than others. For the summer, there might be more demand for lower-costing margaritas than the more expensive bottles so your food costs will be lower for that period.
Are your costs too high?
If your costs are getting expensive, you need to take a closer look at your usage in reference to your recorded sales.
Used vs Sold
Your records show that you sold 1.5 ounce of drink, but a closer inspection reveals that 2.5 ounces of the product was actually poured, which means you’re 1 ounce short.
Are your costs too low?
The weight of raw meat is different from its cooked weight. Chicken and other types of protein will release juices and moisture during cooking so it will weigh much less. The degree of shrinkage depends on how long it was cooked and the temperature in which it was cooked. If you have been listing the cooked weight instead of the raw weight, your food costs will appear low but your sales won’t reflect that. If you are having trouble with managing your food waste, we have a detailed blog post that you can check out.
Ordering and Inventory
With proper restaurant inventory management, you can also expect greater accuracy in your ordering process.
Setting your par level
When it comes to ordering, the goal is to have adequate goods in stock to match the demand. Ordering more than you need means that you run out of space for items you actually need and open yourself up more to spoilage and food waste.
That being said, you need to set a par level, which is the minimum amount of goods you need on-hand for a specific period. The formula is as follows:
|Par Level = (Average Inventory Usage + Safety Stock) / Number of Deliveries Per Time Period|
Now, let’s determine each variable in the formula. Let’s say you used a total of 330 kilograms of chicken in the past three months. Calculate the average by dividing the total amount of chicken used by the number of months. That comes down to 110 kilograms.
|Average Usage for Time Period = (100 + 120 + 110) / 3|
Now to be ready for any unexpected increase in demand, you need to order additional stock aka safety stock. According to Bitwise, 25 percent of the average inventory is ideal. In the context of the example above, you will need 28 kilograms more.
|Safety Stock = 110 * 0.25 = 28|
Finally, you need to factor in the frequency of your deliveries so you know how much to order in between. If you get deliveries once a week, that’s a total of four per month. Now, simply add the average usage and safety stock and divide that by the number of deliveries. The formula now is this:
|Par Level = 110 + 28 / 4 = 34.5|
This means you need to have 34.5 kilograms of chicken on hand to meet the demand for the specific period. This ensures that the inventory depletes in time for a new delivery. None of the previous order takes up precious space longer than it should.
Par levels are dynamic and can change
Don’t finalize your par levels because they are bound to change based on product popularity, food trends, and seasonal items. Depending on the season, you might want to stock more when you anticipate greater demand and less during the slower months.
A par level for a month or short periods that will cover the entirety of the anticipated shift will hence be more reliable and representative of the demand you can expect.
This way, you can easily adjust your order to exactly what you’re using for that period and you won’t get stuck with sitting inventory that won’t sell.
Par levels are set for every single product you use. You can opt to manually calculate everything using spreadsheets . However, if you are working with hundreds or thousands of products, manual restaurant inventory management such as this can be a time-consuming process fraught with errors. A par inventory system that can be integrated to your point-of-sale system might be a better approach. There are free platforms that you can find out there to get you started.
Binwise, for example, uses past data to set and adjust the par level inventory. You will receive alerts when your stock falls below par levels and allow you to place the order. Another platform is Provi, which provides the suggested amount to order based on your pars and automatically places the order to the corresponding vendor. There are time stamps for status updates such as when the order was viewed or signed off on. It can also be used to communicate with the vendor about the availability.
Make sure that the number of items listed on the invoice reflects the number of items received. Count the items and take the time to double-check. Have a manager sign off the delivery complete with the date and time so it is easy to trace.
Shrinking Your Shrinkage Value
Shrinkage is inevitable. Some unwelcome surprises and errors just cannot be helped. However, it can be mitigated and managed. The key is to hold a degree of control over your shrinkage to minimize the errors and maximize the dollars coming in. If it continues to be a problem, your bottom line is going to take quite a hit.
What you need to remember is that you can’t expect to hit your ideal cost every single time. A more realistic goal is to at least be within half a percent of the ideal cost (at least in alcohol). So if your pour cost is 25%, you want to be 24.5%.
Here are a few tips that can help you keep your shrinkage rate in check.
- Lock doors and assign limit access inventory to authorized people
- Set up cameras at exit points and throughout the floor
- Train employees to record breakage, spillage, wrong orders, and returned orders
Advanced Restaurant Inventory Management Solutions
Inventory is a tedious job because it is a thorough process. You need data that is correct and accurate to make informed decisions about your business.
Manual restaurant inventory management is a daunting task, not to mention, unreliable. If you do most of your inventory without some form of software and see inconsistencies in your restaurant inventory management as a result, it might be time to upgrade. With the right setup, everything is so much easier to track, down to the ounce of chicken or beer.
You can start by using free platforms where you can get a feel for the features and usability. At some point, you can consider delegating the time-consuming, repetitive parts of this process to third-party programs to significantly cut down the elbow grease and risk of errors.
Here are some features in a restaurant inventory management you can look into:
For bars, you will find software or an app that allows scanning barcodes or use your mobile devices as the scanner and sync the information with the program. The more advanced software will provide a hefty amount of information. It will also record where the bottles are stored, log the brands and flavors of the beverages in stock, store order data including distributor, date of order, and price. The software can also detect bottles have been used, sold, or running out. From there, the software can even tell you how long each bottle has been on the shelves, and which ones are more in-demand and where.
Batch Item Functionality
A neat feature you also want for your restaurant management inventory system is batch functionality, where you can add the ingredients under a prep item so they can be added and counted automatically every time the prep item is used in the system.
Perpetual Inventory System
A more advanced solution is a perpetual inventory system, designed to automate the process to keep track of your inventory in real-time as it moves through your operation. It is a centralized system that encompasses every part of your business. One of the major benefits of a perpetual inventory system is it records data at the transaction level, which gives you the ability to zero in on the source of the errors.
As a powerful software that can process large chunks of data with reduced human effort, this technology is a major investment for any business. It will require a robust technological infrastructure to accommodate the software and hardware in addition to employee training to properly use these tools. Perpetual inventory system makes sense for large operations with high inventory volume or multiple locations. Smaller establishments can get by doing it manually aka periodic inventory.