How to Control Inventory in a Restaurant?

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Imagine you’re running a lemonade stand on a hot summer day. The sun is blazing, kids are running to you for a refreshing drink, and you’re scrambling to keep up with the demand. But without enough lemons or sugar, your lemonade stand would be in big trouble.

That’s where inventory management comes in. It’s a secret weapon that ensures you always have the right ingredients at the right time, whether you’re running a lemonade stand or a multinational corporation. It’s the art of keeping track of what you have, what you need, and when to order more, ensuring that your business can keep humming along without a hitch.

Understanding Restaurant Inventory Management

At its core, inventory management is about knowing how much stock to order and when to order it. You need enough to meet customer demand and keep your kitchen running smoothly, but you also don’t want to overstock and waste money or space.

For restaurants, inventory management is especially challenging because they deal with perishable food items that need to be used before they spoil. This means keeping a close eye on stock levels, rotating items properly, and using up ingredients before they go bad.

Types of Inventory in a Restaurant:

Inventory in a restaurant encompasses a diverse array of items, each playing a vital role in the culinary symphony. Here’s a breakdown of the main categories:

Raw Materials: The building blocks of delectable dishes, raw materials include fresh produce, pantry staples, and meat and seafood.
Work-in-Progress (WIP): Ingredients that have undergone some level of preparation, like chopped vegetables, premade sauces, or par-cooked meats.
Finished Goods: The culmination of culinary artistry, ready to be presented to eager diners, like appetizers, main courses, and desserts.
Decoupling Inventory: A buffer stock of certain ingredients to accommodate unexpected demand fluctuations, like extra pizza dough or premade sauces.
Safety Stock: An insurance policy against unforeseen shortages or disruptions, like extra flour, canned tomatoes, or a backup supply of cooking oil.
Packing Materials: Essential for ensuring the integrity and presentation of takeaway and delivery orders, like boxes, containers, cups, lids, utensils, and napkins.

Benefits of Restaurant Inventory Management

Effective inventory management can bring a multitude of benefits to your restaurant, turning it into a culinary haven that thrives on efficiency and profitability. Let’s delve into some of these benefits:

1. Less Food Loss

Did you know that up to 10% of food purchased by restaurants is wasted before it even reaches the consumer? By tracking your inventory regularly, you’ll always know what you have on hand and what’s nearing its expiration date. This allows you to use ingredients up before they spoil, saving you money and reducing your environmental impact.

2. Better Vendor Relationships

In the world of restaurants, strong relationships with vendors are like having a secret ingredient for success. Reliable vendors ensure a steady supply of high-quality ingredients, keeping your kitchen running smoothly and your customers happy.

By tracking your usage patterns and communicating with vendors effectively, you can ensure that you’re ordering the right amount of stock at the right time. This not only saves you money but also makes your vendors happy, leading to long-lasting partnerships and even better deals.

3. Lower Cost of Goods

In the competitive world of restaurants, every dollar saved counts. According to the National Restaurant Association, food costs typically account for 28-35% of a restaurant’s total operating costs. By reducing food waste and ordering ingredients strategically, you can lower your overall food costs. This directly translates to increased profits, allowing you to invest in new menu items, improve your staff’s working conditions, or simply give your customers a better dining experience.

4. Automatic Inventory Restock

Imagine this: it’s a busy Saturday night, and you’re in the midst of a dinner rush. Suddenly, you realize you’re running low on a key ingredient for your most popular dish. The scramble to find a solution can disrupt your kitchen operations and leave customers disappointed.

Automatic inventory restock can help you avoid these situations. Many inventory management software programs offer this feature, allowing you to set up automatic reorders when stock levels reach certain thresholds. This way, you’ll never run out of essential ingredients again, ensuring a smooth and efficient kitchen operation.

5. Increased Profits

At the end of the day, every restaurant owner wants to see their business thrive. By reducing food waste, lowering food costs, and improving efficiency, inventory management can directly impact your restaurant’s profitability. Infact, according to a study businesses that effectively manage their inventory can see an increase in profits of up to 43%. This increased profitability allows you to reinvest in your business, grow your customer base, and ultimately achieve your culinary and financial goals.

6. Happy Customers

A Dining Trends Report of 2022 stated that 57% of diners would revisit a restaurant if the service was bad but the food was good. This highlights that happy customers come back for more, spread the word about your restaurant, and contribute to its long-term growth. By ensuring that you always have the ingredients you need to prepare your menu items, you can avoid disappointing customers with stockouts. This consistency and reliability build customer trust and loyalty, leading to a thriving restaurant business.

7 Proven Restaurant Inventory Management Techniques

1. Stock monitoring

If your system predicts you should have 100 tomatoes in stock by the end of the day, but you only have 95, it’s like a pinch less salt in a recipe – not a big deal. Think of your kitchen as a recipe in progress. An inventory tool is like your cooking guide. The slight difference between the expected and actual ingredient count is okay, but too much can throw off your dish. Keeping this in check ensures your kitchen creates delicious magic.

2. Central kitchen management

For larger restaurants and chains with multiple outlets, a central kitchen serves as the hub of operations, preparing and distributing food to multiple locations. An inventory management software helps you coordinate ingredient distribution across locations. When a kitchen needs supplies, it sends a request, and the central kitchen dispatches them. Just like any ingredient transaction, it requires checks – ensuring every item arrives intact.

3. Raw material management

Running a restaurant kitchen requires smart choices and a touch of wisdom. Let’s explore some practical tips to manage your kitchen ingredients efficiently:

Keep it Simple: Imagine your ingredient shelf as a tidy kitchen cabinet. Like a chef selects only the best, keep your stock minimal for freshness and efficiency.
Seasonal Delights: Seasons bring unique flavors. Treat seasonal ingredients as your kitchen’s secret weapon. Use them in special dishes to delight customers.
Friendly Reminders: Set reminders for reordering supplies, just like a personal assistant giving you a heads-up – “Time to reorder!”. When an ingredient is running low, get a reminder to keep your kitchen well-stocked.
Organized Usage: Follow the “First in, First out” rule. Use older stock before the new, ensuring everything gets used efficiently.

4. Shelf life management

Perishable ingredients like vegetables, fruits, and dairy products have a limited shelf life. Proper shelf life management ensures that these ingredients are used before they spoil, reducing waste and maintaining food quality. Just as a skilled chef knows how to select the freshest ingredients, inventory management software helps you keep track of the shelf life of each ingredient.

By alerting you when items are nearing their expiration date, inventory management software helps you prioritize the use of older ingredients, ensuring that customers receive fresh, flavorful dishes. This dedication to freshness ensures that every plate leaving your kitchen is a testament to your culinary expertise.

5. Recipe management and costing

Managing recipes isn’t just about creating tasty dishes; it’s a strategic move to control costs and maintain consistency. Let’s dive into the world of recipe management:

Precise Portions: Consider recipes as your kitchen’s secret code. Each ingredient is precisely measured, ensuring every dish is a perfect symphony of flavors.
Tech-enabled Recipes: Enter your recipes into the POS software, allowing technology to analyze raw material usage against sales. It’s like having a digital kitchen assistant, ensuring efficient stock management.
Costing: Ever wondered about the cost behind preparing a dish? The inventory management software has the answer. Feed in your recipe details, and voila – it calculates the food cost, guiding you in setting the perfect menu prices. Ideally, the cost should be 28%-35% of the menu price or selling price.

6. Managing Roles and permission

Ever heard the saying, “Too many cooks spoil the broth”? Well, in the world of restaurants, it’s not only about the cooks but also about keeping a check on who’s handling the ingredients and the cash register. A staggering $6 billion is stolen from restaurants each year by employees, and over half of restaurant servers have admitted to committing theft at least once.

Why does this matter? It’s not just about preventing theft or mishaps; it’s about creating a sense of order and accountability. Each person in the kitchen, from the head chef to the prep cook, has a defined role and responsibility. This not only streamlines operations but also builds trust among the team.

7. Leveraging analytics

Consider this scenario: you’re planning your menu for the upcoming season. Reports can help you identify the most popular dishes, allowing you to focus on what your customers love and potentially introducing new items that align with their preferences. This strategic approach not only satisfies customers but also boosts your revenue.

In day-to-day kitchen operations, maintaining an optimal inventory level is essential. Reports help you keep track of ingredient usage and trends, ensuring that you never run out of key items during peak hours. This real-time information enables smoother kitchen workflows, preventing any disruptions and ensuring customer satisfaction.

Additionally, reports aid in financial management by generating profit and loss reports based on sales and consumption data. This financial insight allows you to assess the performance of your restaurant, identify areas for improvement, and make sound business decisions.

KPIs and formulas to help manage your inventory and restaurant

By understanding and effectively utilizing key performance indicators (KPIs), restaurant owners can gain valuable insights into their inventory performance, identify areas for improvement, and make informed decisions that optimize their bottom line

1. Cost of Goods Sold (COGS)

Picture this: you’re a restaurant owner, and every time a customer orders a dish, you’re essentially buying the ingredients to make that dish. All those ingredients, from the fresh produce to the spices, add up to the COGS, which is a crucial metric for understanding your restaurant’s profitability.

Example: Let’s say your restaurant’s COGS for a month is $10,000. This means that for every $100 in revenue, you’re spending $30 on food ingredients. If your target COGS is 30%, then you’re doing well. However, if your COGS is consistently above 30%, you might need to review your purchasing strategies or portion sizes.

Formula: COGS = Beginning Inventory + Purchases – Ending Inventory

2. Food Loss Cost

Unfortunately, not every ingredient you buy makes it onto the plate. Sometimes, food spoils, gets wasted during preparation, or even gets stolen. The food loss cost represents the total value of all that lost food, which can significantly impact your bottom line.

Example: Your restaurant’s average food loss per day is 5 pounds of prime rib, which costs $20 per pound. Over a month (30 days), that’s $300 worth of food loss. If you can reduce your food loss by even 20%, you’ll save $60 per month.

Formula: Food Loss Cost = (Average Food Loss per Day) x (Cost per Unit) x (Number of Days in the Period)

3. Food Cost Percentage

To get a clear picture of how much food costs are affecting your restaurant’s profits, you need to calculate the food cost percentage. This metric represents the proportion of your revenue that goes towards purchasing food ingredients.

Example: Let’s say, your restaurant’s net sales for a month are $50,000, and your COGS is $15,000. This means your food cost percentage is 30%. If your target food cost percentage is 30%, you’re on track. However, if your food cost percentage is consistently above 30%, you might need to review your menu pricing or purchasing strategies.

Formula: Food Cost Percentage = (COGS) / (Net Sales) x 100%

4. Liquor loss cost

If your restaurant serves alcoholic beverages, liquor loss cost is another important metric to track. This represents the total value of lost or stolen liquor, which can be a significant expense, especially for high-end establishments.

Example: Let’s say your restaurant’s average liquor loss per day is one bottle of wine, which costs $50. Over a month (30 days), that’s $1,500 worth of liquor loss. If you can invest in better inventory management systems or train your staff on proper liquor handling, you could significantly reduce liquor loss.

Formula: Liquor Loss Cost = (Average Liquor Loss per Day) x (Cost per Unit) x (Number of Days in the Period)

5. Liquor cost

Just like COGS for food, liquor cost represents the total amount spent on purchasing liquor for your restaurant. This includes the cost of all bottles, kegs, and other forms of alcoholic beverages.

Example: For instance, your restaurant’s beginning liquor inventory is $5,000, your purchases for the month are $2,000, and your ending liquor inventory is $3,000. This means your liquor cost for the month is $4,000.

Formula: Liquor Cost = Beginning Liquor Inventory + Purchases – Ending Liquor Inventory

6. Liquor cost percentage

Similar to food cost percentage, liquor cost percentage measures the proportion of your revenue that goes towards purchasing liquor. This helps you understand how much your liquor sales are contributing to your overall profitability.

Example: If a bar’s total liquor sales for the month are $9,000 and the liquor cost is $3,000, the liquor cost percentage is 33.3%.

Formula:

Liquor Cost Percentage = (Liquor Cost) / (Net Sales) x 100%

7. Inventory turnover

Inventory turnover measures how many times a restaurant’s inventory is sold and replaced over a specific period. A high turnover rate indicates that your inventory is moving efficiently, minimizing spoilage and maximizing profits.

Example:

Let’s say your restaurant’s COGS for the month is $10,000, and the average inventory value for the same month is $5,000. Your inventory turnover rate would be 2. This means that your inventory is being turned over twice a month, indicating good inventory management practices.

Formula:

Inventory Turnover Rate = (Cost of Goods Sold (COGS)) / (Average Inventory Value)

8. Prime cost

Prime cost is a broader measure of your restaurant’s expenses, taking into account both food and labor costs. It represents the total cost of producing the food that you sell, excluding overhead expenses like rent and utilities.

Example:

Suppose your COGS for the month is $10,000, and your labor cost for the same month is $12,000. Your prime cost would be $22,000. This means that for every dollar of revenue you generate, you spend $0.22 on producing the food your customers enjoy.

Formula:

Prime Cost = COGS + Labor Cost

9. Prime cost as a percentage of sales

To assess the efficiency of your restaurant’s operations, prime cost as a percentage of sales is a valuable metric. It represents the proportion of your sales that goes towards prime costs.

Example:

Using the previous example, let’s say your net sales for the month are $40,000. Your prime cost as a percentage of sales would be 55%. This means that for every dollar of revenue, you spend $0.55 on producing the food.

Formula:

Prime Cost as a Percentage of Sales = (Prime Cost) / (Net Sales) x 100%

Choosing the right restaurant inventory management system

When it comes to selecting the right inventory management system for your restaurant, it’s like picking the best ingredients for a signature dish. Let’s dive into the recipe for success:

1. Consider the Size of Your Restaurant

Just like you adjust portions based on the number of diners, consider your restaurant’s size. If you’re running a small eatery with 100 customers a day, your needs differ from a larger establishment with four bustling restaurants serving 4,000 customers daily.

2. Check Your POS Compatibility

Check if your existing POS system plays well with the new inventory management addition. It’s like ensuring the spices in your kitchen complement each other. If your POS can’t track stock, it might be time for an upgraded system that includes inventory management.

3. Prioritize the Features You Need Most

When evaluating inventory management systems, don’t get bogged down by every feature under the sun. Instead, focus on the ones that truly matter to your restaurant. Here are some key features to consider:

Real-time tracking: No more guessing games! The system should automatically update inventory levels with each customer order, giving you a clear picture of what’s in stock and what’s not.

Automatic purchasing: No need to chase down suppliers every time you’re running low on something. The system should generate purchase orders for suppliers when inventory levels fall below a set point, ensuring you have the ingredients you need without overstocking.

Financial assessments and reports: Get a handle on which items are bringing in the dough and which ones are dragging you down. The system should generate detailed financial reports that track the performance of individual inventory items, allowing you to make informed decisions about your menu and purchasing strategies.

User-friendliness: Don’t let a complex system slow down your staff. The system should be intuitive and easy to use for all restaurant employees, regardless of their tech-savviness.

Scalability: Your restaurant is going places, and your inventory management system should keep up. Choose a system that can easily expand its capabilities as your business grows.

4. Consider Cloud-Based Systems

Inventory management systems come in two primary forms: in-house and cloud-based. In-house systems are installed on-site at the restaurant, while cloud-based systems are accessible through the internet. Cloud-based systems offer greater flexibility and accessibility, allowing you to track inventory from multiple devices and locations.

5. Evaluate Cost

The cost of inventory management systems varies depending on the size of your operation and the complexity of the features you require. Carefully evaluate the cost of each system and ensure that it aligns with your budget and provides a worthwhile return on investment.

End thoughts

Imagine your restaurant kitchen as a well-oiled machine, where every ingredient is in its place, every order is executed flawlessly, and every dollar is spent wisely. That’s the power of effective inventory management.

By implementing the strategies and tips discussed in this guide, you can transform your inventory management from a chore into a strategic advantage. Picture this:

No more last-minute scrambles to the grocery store because you’re out of key ingredients.
No more throwing away perfectly good food due to spoilage or over-ordering.
No more wondering which menu items are actually profitable and which ones are dragging you down.

Remember, inventory management isn’t just about numbers and spreadsheets; it’s about ensuring that your restaurant has the resources it needs to thrive. It’s about the peace of mind that comes with knowing you have the right ingredients, and the confidence to keep your customers coming back for more.

Frequently Asked Questions

1. How do I control food inventory?

Food inventory control encompasses a range of practices to ensure that you have the right amount of food ingredients at the right time. Here are some key steps to effective food inventory control: