Why Manual Restaurant Inventory Management Is Eating Your Profits

Restaurant labor

When you think of your restaurant finances, do you think of your inventory? Your restaurant inventory management is an oft-forgotten component of your finances, but the amount of product you have on hand represents a large part of your budget. Because food and beverage costs make up a large part of a restaurant budget, your inventory method has large implications for your bottom line.

If it’s not on the shelf, it can’t be stolen, spoiled or wasted. So, the key to minimizing food waste that can eat into your profits is effective restaurant inventory management.

While manual inventory management used to be “good enough,” it’s a slow, error-prone process that could be eating into your profitability. With manual ordering, you’re not taking advantage of such time- and money-saving advancements as digital counts, smart ordering and automated vendor invoices.

What is Restaurant Inventory Management?

Restaurant inventory management is the process for monitoring the food and beverage ingredients for your restaurant in real time. Tracking your inventory shows what is coming into your restaurant, what is leaving your kitchen as sales, and what is left over on your shelf. Understanding these important metrics allows you to make more informed supply orders. The better and more streamlined your inventory control, the less food waste in your kitchen and the more money added to your bottom line.

Effective, proactive inventory management is a restaurant operations tool that can increase the profitability of your restaurant. Although inventory used to be a tedious and time-consuming task to complete by hand, inventory management technology has not only streamlined the process, but it has also made inventory management more accurate. With an effective combination of planning and restaurant inventory management software, your inventory management system can become more efficient.

Restaurant Inventory Terminology All Staff Members Should Know

Although tracking inventory can be a fairly straightforward calculation, there are a few key terms that can help you and your staff better understand the process. For each metric, you can either calculate it by quantity or dollar value—pick one unit of measurement and stick with it for consistent reporting.

Sitting Inventory

Your sitting inventory is the amount of unused product “sitting” in your restaurant, on the shelf or in your walk-in.

Depletion

Depletion is the amount of food and beverage product your restaurant uses over a set time period.

Usage

Calculated with the following formula, your usage shows your general rate of use for your inventory.

Sitting Inventory ÷ Average Depletion (for a specific period of time) = Usage

Variance

Variance represents the unaccounted-for difference in your actual versus theoretical inventory usage. It is calculated between taking your product cost, how much product it takes to make the dishes sold according to recipe, and subtracting the usage amount cost – how much product your staff actually used to create the dishes sold. For instance, if your inventory shows that you used $500 worth ingredients to make burgers during a certain time period, but you should have only used $450 worth of ingredients to make those burgers in that time period, your variance is $50.

Why Manual Inventory Control is Eating Your Profits

In the past, restaurant owners completed inventory tracking by hand. This involved creating complex spreadsheets, or using pen and paper on a clipboard, to manually count each item in dry storage and the cooler. Afterwards, you would need to manually calculate inventory levels and compare to previous inventory counts.

Even though inventory tracking is a critical tool for controlling costs, many restaurant owners using manual inventory control find it so difficult and involved that they complete it infrequently, only once a month or once a quarter.

Manual inventory control also has an increased risk for human error. With the quickly-rotating inventory for most restaurants, it can be difficult to maintain consistency across the process. Additionally, manual inventory is extremely time-intensive, especially for busy restaurant owners and operators. With these roadblocks to manual inventory control, the result is many restaurants do not complete inventory frequently enough to gain insights into food waste and other areas of inventory loss, such as theft.

How To Manage Restaurant Inventory

Set up your POS to Track Restaurant Inventory

The first step to setting up your inventory system is to ensure your that your point-of-sale (POS) system is completely integrated with your restaurant management software.

Your POS system tracks valuable information, such as your sales data, that allows you to automatically calculate your theoretical inventory based on the menu items ordered by customers.

With this tracking automated, you only need to do part of your inventory process by hand. Automated inventory through your POS does not account for some common sources of inventory loss, like spoilage, incorrect prep, customer complaint resolutions, or theft. Consider choosing an inventory management system that contains templates and can be accessed on a mobile device or tablet to make the process even easier for your staff.

With some parts of inventory automated and the manual part streamlined, you can ensure a more efficient, accurate inventory count.

Train All Staff on The Importance of Restaurant Inventory

Getting your staff on board for inventory management is a key part of your system’s success, because inventory needs to happen frequently on the individual store level.

Inventory tracking is a large task to place entirely on one person, so consider choosing a team who can collaborate to get it done. Inventory-related tasks, from counting to organizing, should be part of your restaurant’s training program. The same staff should be responsible for inventory over the long term, ensuring consistency in reporting and increased efficiency. The same staff will also develop familiarity with your inventory, spotting patterns over time and identifying inconsistencies.

To encourage greater staff buy-in, ensure that employees understand how proper inventory tracking impacts the restaurant’s bottom line. You may want to consider offering staff bonuses tied to inventory savings, or opportunities for advancement as part of the inventory management team.

restaurant-inventory

Set Up a Schedule for Regular Inventory Checks

Different priorities always pop up unexpectedly in the restaurant business, so scheduling regular inventory tracking is necessary to ensure it gets done. Once you have the inventory process in place with your staff, decide when you will do inventory. Scheduling inventory checks frequently will allow you to respond more quickly to changes in your restaurant and sales, instead of waiting for issues to become persistent and costly.

Regular inventory tracking allows you to see how much of your supplies are used in a certain time period. With regular tracking, you can start to spot trends, and you are better able to investigate irregularities. With regular tracking, you will also be able to see aberrations in your numbers that may indicate you need to do additional training or update portion control standards.

Record Waste

Food waste is, essentially, money gone bad. You have already spent your budget on food and beverage inventory, so if it is not turned into sales, it has been wasted. As opposed to many retail stores, much of a restaurant’s inventory has a relatively short shelf life. This makes mitigating food waste a top priority for restaurant owners.

To understand food waste, the first step is to document it. Consider implementing a food waste inventory sheet that shows where some of your waste is going. Your back-of-house kitchen team can be critical to noting down spillage, spoilage, and errors.

Include the following points of data help you start to track food waste:

  1. Time and date
  2. Item
  3. Amount or weight
  4. Reason for waste
  5. Employee initials

Ensure your staff understands the food waste sheet and provides updates as necessary. With a written record, you will be able to start grasping what reasons are behind the waste. You may need to cross-utilize ingredients in more recipes to go through them faster, or you may need to additionally train servers to avoid miskeying orders.

Verify Your Inventory Is Up to Date Before Accepting New Deliveries

You can’t waste it if it’s not on your shelf.  Using “end-to-end” inventory management is a proactive approach to controlling your inventory from the moment you place your next order. Before placing an order with a vendor and accepting new inventory, ensure that you have a valid count of existing inventory. This will help you not only avoid over-ordering, but it will also inform your insights for future orders.

Increase Productivity and Profits and Save Time with Restaurant Inventory Software

More Accurate Ordering

Inventory management software improves your insights about historical sales data, accounting, and customer behavior. With restaurant operations software that is also integrated with your POS system, you can use sales forecasts to help you make better decisions. By looking at past sales histories and using that data to predict upcoming weeks, you can adjust your ordering schedule, quantities, and food prep as needed.

Store managers can make better decisions with customized data, using smart tools such as suggestive ordering. With suggestive ordering, you can automate suggested order amounts, based on inventory levels and forecasting, to reduce waste and save on ordering.

Save Costs

The biggest cost savings with restaurant inventory software come in three main areas:

1. Food Waste

With a managed inventory, you are able to cut down on food waste and lower your cost of goods sold (CoGS). When you are able to take into account your sitting inventory and your projected sales, your food orders will be more economical.

2. Quantity

Inventory tracking also informs not only what you need to order, but also in what quantities. Adapting your order quantities according to your inventory levels is especially important as seasonal fluctuations occur in your sales.

3. Invoice errors

You can avoid manual invoice entry and its inherent human errors with automated vendor invoicing. You can also keep costs under control with receiving reports to identify vendor errors and see any items outside of the contract price with the contract violations report and have vendors correct violations.

Improved Employee Experience and Customer Experience

Finally, inventory management has the benefit of keeping both your employees and your customers happy. Your employees tasked with inventory management will benefit from a faster, more efficient inventory process. In addition, with better inventory accuracy, your restaurant will have fewer instances where items are out of stock, leaving you with happier, more satisfied customers.

Conclusion

Your inventory touches nearly every area of your business financials. Tracking your inventory with a restaurant inventory management system benefits your restaurant in a multitude of ways, such as improving order accuracy, streamlining your budget, and adding to customer satisfaction.

If you would like to  easily track your inventory and gain insight into your operations, consider a restaurant-specific inventory management solution. Restaurant365 incorporates restaurant accounting software and restaurant operations software into an all-in-one, cloud-based platform. For more information, schedule a free demo.

Ready to learn how Restaurant365 can help you streamline your back office and discover profits?

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