This article was written for Modern Restaurant Management by John Moody, Co-Founder and Chief Strategist of Restaurant365.
Inefficient restaurant inventory management practices, improper storage, gaps in inventory logs, theft, and waste can cause even the most successful kitchens to struggle or fail. Fortunately, all of these can be prevented by knowing the top mistakes and implementing best practices to avoid them.
Below are the top seven inventory management mistakes restaurants are making, and how to correct them.
Mistake #1: Inconsistent Counts
To ensure inventory information is useful and accurate, schedule routine counts. Always count on the same day of the week, same time, and either before or after service. Maintaining a consistent cadence helps identify inventory anomalies much quicker whereas sporadic counts make it difficult to notice when something unusual happens.
Be sure to also count prepped items to improve theoretical variance. Prepped items are technically product sitting on the shelves; not counting those items means the theoretical variance will increase since there is no record of where those raw ingredients went.
Use the counts to create accurate par levels. Using par levels based on real usage and not just a “guess” creates more accurate orders.
Mistake #2: Inaccurate Forecasting
Inventory is expensive. Having too much inventory on hand ties up cash, encourages theft, results in spoilage, and leads to overuse. Try to keep an average of only seven days of inventory value on hand. Forecasting tools enable managers to purchase food, beverage, and supplies at the right level.
Specifically, inventory projections should start with sales data forecasting, collected by tracking daily sales trends between this year and last year. To do this, average sales by day of the week for the prior eight weeks. Then, compare those numbers to the average sales by day of the week for the same eight weeks the previous year. From there, determine the trend increase (or decrease) in sales this year. That trend percentage can be applied by the day of the week in the period being forecasted.
Reduce the number of deliveries as often as possible. Every time a truck pulls up to the back dock, it costs money. Consolidating vendors and the number of deliveries made each week will save money.
Mistake #3: Using Disparate Systems
While there are some areas of inventory management that must be done manually, automating as many phases of the process as possible saves time and avoids errors. Integration between the POS and inventory management software allows inventory to be managed from end-to-end by automating steps such as tracking recipes, uploading invoices and auto-updating item prices.
Inventory also has major implications in the accounting process since the amount of product on hand represents a large part of the overall budget. Whenever a restaurant acquires, counts, transfers, or wastes inventory, it must be entered as a journal entry into the accounting general ledger. Restaurant-specific accounting technology automates the journal entry process. A completed stock count, for example, becomes the inventory journal entry in the general ledger. Accounting software and inventory software that are not integrated require these journal entries to be done manually, increasing the chance of errors.
Mistake #4: Improper Receiving Procedures
Improper receiving influences all other aspects of the food inventory management system, from future counts being slower due to lack of organization, product being spoiled, or being shorted product that was paid for.
Schedule deliveries carefully by designating appropriate receiving hours with vendors. Make sure a trained receiver is always on hand during these hours. Employees designated as receivers should be able to both recognize various quality levels of merchandise and be trained how to handle the necessary paperwork and any digital recordkeeping.
Mistake #5: Improper Storage
Carefully managing inventory to reduce the risk that ingredients spoil or get too old helps lower a restaurant’s CoGS. Unlike other industries, inventory management in food industry applications must take limited shelf life and peak freshness times into consideration. Always date and label everything.
When training staff on inventory management, part of the training should also focus on concepts like first in, first out (FIFO). FIFO ensures ingredients are kept fresh by using older inventory before new inventory. Almost all store managers are familiar with the FIFO concept, but it requires consistent effort to be successful. Setting up a strategic organization system, depending on the types of inventories in restaurant businesses, can help manage ingredients’ shelf life.
Mistake #6: Not Recording Waste
Amidst the chaos of restaurant kitchens, managers may not notice what is contributing to food waste during busy service times. Using a tool like a food waste log can help managers record sources of waste at the time it happens for analysis later. Consider creating a form that captures the important facts of food waste, noting who, what, how, and why. The log can be a simple spreadsheet hanging on a clipboard in the kitchen or a waste log app on a mobile phone.
Mistake #7: Employee Theft
Theft is rampant in small businesses. 75 percent of employees admitted to stealing from their employers at least once. With intense competition and shrinking profit margins, it’s prudent to take a closer look at the procedures in place when issuing a restaurant’s most vulnerable (and valuable) inventory items.
Use the weekly order counts to narrow down which items may require a product requisition system. These will be items with the highest variances. Create a product requisition system for these items. This could be as simple as a log sheet where it is noted every time this product is used, creating accountability and alerting employees that it will be noticed when items go missing.
Another option is implementing a “buddy system” for counts on these items: One person calls and the other records it. It’s less likely for two people to conspire to steal together than for one person to secretly snag things, thus decreasing theft.
If possible, restrict access to storage areas and receiving facilities to authorized personnel only to reduce opportunities for theft.
Having insights into food costs is key to controlling them. Vast amounts of information can be gleaned from inventory cycles and processes if the right tools are in place and operators commit to examining them. Analyzing and acting on inventory information will reduce CoGS and increase profitability.