RESTAURANT INVENTORY MANAGEMENT: BECOMING A COST OF GOODS NINJA
You don’t need a Stanford MBA to effectively manage restaurant food costs; however, what you do need is military-like discipline paired with exceptional organizational abilities.
Fortunately, these traits can be acquired over time through a little structure and repetition. By mastering these basic inventory management skills and recruiting some help from your team members, you will be rewarded with the consistency and accuracy you’ll need to become a Food Cost Ninja!
WHY RESTAURANT INVENTORY MANAGEMENT IS IMPORTANT?
Let’s start with the “Why Factor.” Why should you even worry about taking inventory in the first place?
Let’s state the obvious: restaurant inventory management takes up your time – you have to wake up early or stay late to do it, it’s hard, it’s never correct, and it seems like a complete waste of energy solely based on the fact that you do the ordering, so you know exactly what product is on your shelves.
This is the madness we’ve been hearing from our new clients for the last 15 years and do you know what? After listening to them describe their inventory control processes, they’re exactly right!
So really, why even take inventory? You take inventory because it is the equivalent of your restaurants’ DNA. It’s the point where all essential restaurant management begins; and if done properly, performing inventory enables you to better manage general restaurant volatilities such as Food Costs and Labor Costs, Gross Profit, Repair and Maintenance, and also your Cash Flow.
Mastering this process truly can have THAT MUCH of an impact on your restaurant. There is indeed a world out there where restaurant inventory management isn’t a monthly pain in the butt with your results rendering the whole ordeal a complete waste of time.
3 FUNDAMENTALS OF RESTAURANT INVENTORY MANAGEMENT
Master these fundamentals of inventory management, and you’ll be grinning like a kid with a Disney Fast Pass on a sunny summer afternoon.
FUNDAMENTAL #1 – TWO-PERSON INVENTORY SYSTEM
You are not alone! The average restaurant has over 475 items in the BOH (Back of the House) alone. Combined with the bar, we’re looking at 800-900 items that need to be counted. Somewhere in the book of illogical decisions, it was decided that performing this tedious act by yourself was a good idea. WRONG! It is NEVER a good idea to go it alone.
Performing a Two-Person Inventory is a required fundamental. One person calls the product, while the second person writes it down. This is not optional. I’ll say it again… this is not optional. The benefits of performing a two-person inventory are as follows:
- Having an extra person in the process ensures accuracy & consistency within your results. A two-person inventory allows each team member to focus on the task at hand. By going through this process every single time you count your inventory, you begin to develop a rhythm with accuracy & consistency not only in your results but in your time as well.
- You now have a Plan B when one of your team members moves on to another career. Ask any coach… you always want depth within the players on your team, and inventory is like playing a position on a team. The more you master your own position as well as get to be familiar and versatile with other positions, the more helpful you are to your team as a whole.
FUNDAMENTAL # 2 – INVENTORY ISN’T JUST ABOUT COUNTING
Wait, what?! You just spent the last few paragraphs talking about counting! True, however, there’s much more to taking inventory than just counting bottles and food products. That’s merely the tip of the iceberg.
Taking inventory enables us to focus on keeping an eye on these key factors, which if left unmanaged, can lead you straight to bankruptcy:
A) VERIFICATION OF SIDE WORK:
There are two universal restaurant truths. First, every restaurant has assigned side work. Second, when not checked regularly, 80% of the side work assigned is completed poorly or not completed at all. Performing a weekly, two-person inventory enables team members to also focus on the cleanliness of the restaurant that results from consistent side work.
They say that cleanliness is next to Godliness; however, in the restaurant business, cleanliness is next to passing your health department audit. A good rule of thumb is to have your side work built into your count sheets so that you can cross-reference it (or even grade it) when you’re moving through the inventory process.
B) REDUCTION OF REPAIR & MAINTENANCE:
Repair and Maintenance, or R&M, is like the Boogeyman under your bed. Except in your restaurant, the Boogeyman is everywhere. He’s the PVC under your dishwasher that has cracked, the HVAC System with the clogged intake vents, the compressor in the beer cooler, the O-rings around the cooler doors, the iced-up freezer, the burned-out light bulbs, wobbly tables, and of course the leaking toilet in the bathroom. Life and business tend to get in the way and R&M can rapidly run you into the ground.
Each week, keep a rotating list of “big ticket” items that are critical to the success of your restaurant and perform a mini preventative maintenance check on these items during your inventory. Trust me, the time spent doing what we call a PMC will save you thousands of dollars when you have to shut down on a Friday night because your coolers are at 56 degrees, not to mention the impact on Food Cost and Cash Flow when you’re throwing the unusable product out.
FUNDAMENTAL #3 – YOUR PRODUCT IS AN INVESTMENT
If your walk-in, liquor storage, and beer coolers were bank vaults they would have round wheels and Fort Knox-like security. The point here is that we normally keep our cash in a bank. In our restaurants, however, we keep our cash in the form of products, and as stated earlier, there’s about 800-900 of them.
When added up each week products can tie up $15,000- $150,000 of our cash flow. Your products need to be treated like an investment. Inventory and proper restaurant purchasing are the 2 best ways of increasing your cash flow. Here are the best ways to keep a watchful eye on your investment in order to manage your cost of goods and increase your cash flow.
BEST WAYS TO MANAGE COST OF GOODS SOLD
As a quick refresher and reminder, our Cost of Goods Sold is calculated with the COGS Formula below:
COGS = BEGINNING INVENTORY + PURCHASES – ENDING INVENTORY
A) KNOW THE VALUE OF YOUR INVENTORY:
Just like stocks, inventory value fluctuates because items such as Produce, Dairy, Meat, and Seafood are commodities. The prices on these items can change weekly. Items such as Wine can be purchased at multiple price points due to allocations and varietals. Make sure that your inventory prices are updated before each time you take inventory.
This is absolutely necessary and also a non-negotiable. If your prices have changed and you are calculating your inventory based on outdated pricing, the accuracy is blown to bits. You’ll have a meaningless value and have no chance of knowing whether you’re paying too much for the same products and using up too much cash relative to your sales.
It’s like the Titanic hit the iceberg and you’ll be rearranging deck chairs. If it’s not feasible to update the count sheets prior to taking inventory, then work with an inventory system (Like RASI) that automatically updates the pricing for you.
B) MONITOR THE DELIVERIES:
In the farm to table world we’re living in, freshness and quality are being confused with “I need it delivered daily.” Keep in mind, deliveries cost money and lots of it! The average shelf life of a purchased product is 4 days. Yes, your organically grown jicama from the eastern region of the coldest and purest spot on Earth has a 4-day shelf life.
There is a direct relationship with performing weekly inventory and effectively purchasing for your business. Inventory frequency helps manage product rotation, product rotation helps manage waste, and waste helps manage purchasing frenzy.
Purchasing frenzy is loosely defined as the panic attack that someone experiences when the owner or manager asks the team member “why have we 86’d this item or dish?” There is a strange sense of comfort knowing that you can receive product every day, but the reality is that product delivered daily versus three times a week can cost up to 25% more per delivery. Proper ordering starts with proper inventory management.
ANATOMY OF A GOOD RESTAURANT INVENTORY MANAGEMENT SYSTEM:
- Two-person counting team
- Count weekly, and always on the same day/night
- Have access to side work so you can spot-check for cleanliness
- Keep a rotating list of preventative maintenance items to review during the inventory
- Have an inventory system that does the following:
- Enables you to procure items from multiple vendors without having to create unique items
- Displays the last date that you purchased the particular item
- Updates that product pricing automatically each time the item is ordered
- Allows you to create a “shelf to sheet” inventory method
- Provides you with the unique counting unit for that item