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A good understanding of your restaurant inventory gives you a clear indication of your restaurant’s performance. Ensuring a close eye on your restaurant inventory helps you stay on top of your restaurant’s health.
What is inventory management?
The process of calculating how profitable your restaurant is by tracking:
- The supplies that are sourced
- The products that are sold
- The supplies and products that are in store and their value.
An important metric to track is your Inventory Turn Ratio, what is it?
In simple terms, the inventory turnover ratio is the amount of times your restaurant replaces its inventory during a set time period. This could be on a monthly or annual basis. And there are many things that can be discovered by measuring how fast you runs through your stock. Areas influenced by inventory turnover include everything from packaging and shipping to purchasing and ordering. The ratio of a well performing restaurant is anywhere between 4 to 8.
How to calculate your Inventory Turn Ratio?
There are a few different formulas you might use to calculate your turnover ratio. It’s important to find one that works best for your restaurant. Here is a simple calculation method you can use:
Calculate the Average Inventory for the Time Period
(Cost of Beginning Inventory + Cost of Ending Inventory) ÷ 2 = Average Inventory
Calculate Inventory Turnover Ratio
Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory
What are the benefits to turning your restaurant inventory more often?
- With less money lying in unused inventory, you will have more cashflow for other purposes.
- There will be no stockpiling and everything will have a place.
- There is reduced spillage, spoilage and hence wasted.
- You will reduce your risk of supplies theft because you can immediately see when items are missing.
- It will enable you to streamline your ordering and hit the nail on your budget.
How to streamline your inventory management process?
1. Good organization is key
Keep a close eye on all storage at your restaurant - cold & dry stores, meat & produce coolers, dairy & liquor - and ensure that you practice a First In and First Out process.
FIFO simply means that you use the supplies that you receive first and keep moving them to the front, hence allowing you more space to accommodate new inventory at the back. As a result, your remaining inventory consists of your most recent purchases and is accounted for in the goods' current cost.This method is best used when the demand cycle is short or involves perishables, which is most prominent in the restaurant industry.
Proper organization is key, educate your staff to keep note of wastage due to errors, spillage and spoilage. Take a report of the same at the end of each day.
2. Set in place a process to ensure regular counting
Keep aside a particular day of the week or the month to count inventory. This habit will prepare you for success on delivery day. Sorting and counting inventory before service or deliveries will give you the most accurate measure of the supplies you possess and minimizes waste due to mixing of existing and incoming goods. An effective method is to use a shelf-to-sheet counting process where you keep track based on what you have in store instead of what is listed on your sheet. Regular inventory counting will give you a holistic view of the actual versus theoretical supplies that you hold, are using and have paid for.
3. Keep track of the pricing of your usual supplies
You are now measuring the goods you’ve got in store and those that you’ve utilized. But, an important component hasn’t been spoken of yet, your costs! This can be challenging as the pricing of most restaurant perishables such as produce, keeps fluctuating with time and with season. A good way to keep track of an approximate cost of these is to note the last pricing as per the invoice from your suppliers. It is imperative that you know accurately the cost of your goods, leverage your recent pricing in conversations with suppliers for future orders. Maintain a sheet of the variable pricing and try to get deals close to the lowest costs achieved. While this may sound mundane or a very micro task, the savings impact it can have on your bottomline is huge!
4. Calculate the cost of goods sold
Great, you now have a good idea of your stock and it’s pricing, but it is important to note that you’re not selling the supplies as it is to your customers. It is essential that you calculate the actual cost of the food that you’re selling. Why is this important? You should know specifically how much of your budget went towards the food cost of the day, week and month. This will give you a broad picture of what individual ingredients in your recipes are costing you. Is a particular ingredient contributing to the majority of the cost of a dish? Then you may need to look for alternatives, maybe a different supplier, brand, or substitute all together. It will give you an estimate of the quantities of your menu items, you probably have to buy more or stop buying as well. It gives a better understanding of how much specific supplies are costing you? This may even lead you to tweak your menu to include food that require similar ingredients, etc.
It is absolutely critical that you manage your inventory to be up to date on your restaurant health. Stay aware of what is in your storage, what it costs you to source and eventually sell. Using the simple steps as mentioned above will enable you to make informed decisions and set you up for success.