Restaurant Inventory Management Tips and Cost Reduction Strategies

| January 2, 2018

updated on November 18, 2021 at 12:52 pm

Restaurant Inventory Management

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Restaurant inventory management is the process of tracking raw and processed restaurant products from the time they are ordered till they are used up, lost, or leftover as waste.

Products include food items, drinks, and non-food items such as linens, employee uniforms, cooking equipment, and more. In the case of chain restaurants, it involves tracking products and their movement across all outlets.

Restaurant Inventory Management Tips and Cost Reduction Strategies

Effective inventory management is crucial for making better purchase decisions by understanding costs and maintaining optimal stock levels based on item-wise demand.

If you follow the right practices, you can lower the CoGS (cost of goods sold) and minimize wastage. Otherwise, you might end up facing huge losses. But how to ensure that you are managing your inventory the right way? Read this article to find out.

What Are the Benefits of Restaurant Inventory Management?

What Are the Benefits of Restaurant Inventory Management?

Managing the restaurant inventory efficiently has huge benefits for restaurant owners. It enables restaurants to provide the freshest products to consumers while saving time and money. Some of the major advantages of smart inventory management practices are:

  • Stock organization and control

    Food items, which form a major part of restaurant inventory, are many times wasted before even being consumed. By knowing the current stock status, you can plan your purchase such that there is never an under or over ordering situation. This way, you can prevent any wastage of items, especially perishable food.

  • Theft prevention

    Regular audits to check for financials and available inventory enable businesses to know about any stock discrepancies. The staff becomes accountable, and instances of pilferage or theft are avoided.

  • Better vendor management

    Along with accounting and POS management, you can use an inventory management system to ensure planned purchases and timely vendor payments. This leads to a better relationship with vendors.

  • Accurate reports & forecasts

    Restaurant owners and managers get detailed reports on purchase orders (items and quantity), usage, waste, inventory on-hand, and so on. These insights improve the accuracy of demand forecast and ensure minimal inventory wastage.

  • Higher profits

    Businesses can better plan their menus and expenses when they know about all orders, losses, and other restaurant-related data. The cost of goods sold (CoGS) reduces with the decrease in waste, boosting the overall profitability of your business.

  • Increased customer satisfaction

    Restaurants can replenish food supplies to the right quantity at appropriate times. By always having ingredients available, you can provide customers with anything they order and win over new customers. You can also maintain data of repeat clients and offer them personalized services. This helps them beat competitors and expand their customer base.

How to Calculate Restaurant Inventory Accurately?

Depending upon the size and type of your restaurant, inventory management and calculations will vary. Some of the popular restaurant inventory calculation techniques are:

How to Calculate Restaurant Inventory Accurately?
  • Lock-in long term prices

    When buying inventory, purchase in bulk and negotiate with vendors to lock in long term prices for frequently needed items. Before making the final decision, compare the various prices that different vendors offer.

  • Unit cost calculations

    Unit of measurement changes with how food ingredients and other items are sold. Always add the unit of measurement for each purchased item to avoid miscalculations and confusion. Document these and ensure that the unit cost of each item is calculated to standardize the procedure.

  • Maintain good practices like FIFO

    Using items in order that they arrive (FIFO or first in, first out) can mitigate the chances of spoiling or expiry before use. For this, inventory storage (walk-in included) is organised so that the recent purchases can be accessed easily. Details like the quantity of items, date of order, arrival, expiry, and the like must be stored. It also becomes easier to track stock items and make calculations accordingly.

  • Regular audits

    Check your storage to know the status of different items like food ingredients, dinnerware, tabletop items, cleaning supplies, and more. Then, match it with the stored inventory records. This helps keep track of items that were missed in the records and got wasted or stolen. Hence, the calculations are more accurate.

  • Team’s training

    The team handling inventory should be trained well to implement standard processes and avoid mistakes. Apart from training, they must be held accountable to keep the inventory management work in check. This reduces the chance of inaccuracy.

  • Use a dedicated tool

    Dedicated inventory management software for restaurants can save time and prevent manual errors by automating inventory management and streamlining the operations.

How to Perform Restaurant Inventory Calculation?

Also known as inventory turns, stock turnover, and stock turn, this term represents the number of times your restaurant sells out its inventory in a time period. This is important in understanding your business efficiency.

A low ratio means lower customer sales or over-ordering of stock, while a high ratio of more than 100% denotes inefficient purchasing plans with 86’d menu items. An optimum ratio compared to the industry average denotes good sales.

Inventory Turnover Ratio = Cost of Goods Sold (CoGS) ÷ Average Inventory

CoGS (cost of creating all of the items on restaurant menu) = Cost of Sales or Cost of Revenue = Beginning Inventory + Purchases – Ending Inventory

Average Inventory for a time period (annual, monthly, etc.) = (Beginning Inventory + Ending Inventory) ÷ 2

  • Inventory Turnover Period

After calculating ITR, you can calculate the inventory turnover period. This value is the average number of days it takes for complete inventory sales.

Inventory Turnover Period = Days in one year (365) / Inventory Turnover Rate

  • Days’ Sales in Inventory (DSI)

This indicates the average number of days your inventory remains on the shelves. Its value tells the restaurant team how many days are left for them to go out of stock at the end of a chosen time period. It is important when the ITR is high.

Days’ sales in inventory = Ending food inventory/ Average daily food cost

Average daily food cost = Food cost/ Number of days in the chosen period

Restaurant Inventory Management Tips and Techniques

Restaurant Inventory Management Tips and Techniques

Inventory management is a crucial part of restaurant business management. Using your inventory calculations at any time, you can understand the scope of improvement in your current inventory practices.

Some of the best inventory management practices while operating a restaurant are:

  • Analyse the pattern of utilization

    Check items of different types regularly to understand patterns of utilization in a period. The inventory sheet should include the location of storage of items for easier tracking. Items must be labelled for faster restocking.

  • Simplify inventory taking process

    Making the team solely for managing inventory helps in ensuring that the workers are trained well to identify issues. Managers must be assigned to check the work of other employees.

    Communication amongst team members should be clear, and everyone must know about any changes being made. This will help your food inventory tracking to be accurate and up to date at all times.

  • Use excess items before expiry

    Avoid wastage of inventory items by using them timely. For example, if you know that certain ingredients will go to waste if not used on time, add them into other dishes or prepare special dishes.

    You can also use containers that are meant for FIFO (first in, first out) dispensing. This way, you can gain profits from selling those items.

  • Manage the waste sheet

    By maintaining a waste sheet, you know about the lost ingredients and supplies that are not accounted for by sales. Main details include item, time and date, quantity or weight, the reason for waste, etc.

    This will help you come up with necessary solutions such as lowering purchases, training workers well to prevent errors, utilizing items differently, and so on.

  • Analytics for future orders

    Based on reports stating over or under-utilization of items in previous orders, you can make better decisions. You can also use POS and accounting systems tools to understand forecast demands based on time of the day, week, or year. This helps in adjusting the orders and menu offerings as per customer requirements.

How Can Digirestro Restaurant Inventory Management Software Help?

Digirestro restaurant management software can simplify inventory management to a large extent and help boost sales. Some of the ways this restaurant inventory management software can boost your business growth are:

  • Comprehensive data storage

    It is easier to store and manage all types of data related to inventory in detail. It is difficult to keep track of consumer complaint resolutions, errors in preparation, theft or pilferage, among other reasons for losses in a manual process. With an inventory management system, you can ensure more accurate insights and improved decision making.

  • Recipe management

    An automated food inventory management system enables restaurants to standardize specifications for each recipe on their menu. Ensuring consistency in item quantity, processing time, temperature, and other parameters across all locations makes it easy to ensure food quality.

  • Faster order placement and invoicing

    Inventory management software for restaurants helps compare prices offered by different vendors and close the best deal. You can place orders and deliveries online with desired vendors and suppliers and track the process.

    You can also speed up the invoicing process for vendors and reduce the chances of manual errors with inventory management software. It is also easier to spot any contract violations on the vendors’ side.

  • Nutrition information management

    As customers are becoming more health-conscious, it is important for them to be aware of the nutritional value of what they are consuming. Inventory management software for restaurants helps in maintaining nutritional and allergen information for each menu item.

    This data can be displayed on websites and menu boards to help customers feel more in control and increase their satisfaction.

  • Automated forecasting and suggested ordering

    Digirestro software can predict future demands of different items based on past trends, time of the year, and other preset metrics. It can also help track the theoretical vs actual food cost variance in real-time.

    When integrated with a POS system, it enables automatic ordering suggestions when stock items reach par levels.

  • Integrates with sales and accounting

    By connecting sales with inventory levels in the inventory management system, item levels decrease in the system automatically as soon as online and in-house orders are received.

    Integration with accounting systems helps remove errors, complications, and delays during the creation of financial reports.

Check the detailed Digirestro reviews, ratings, pros and cons on Techjockey.com

Conclusion

If you are still using a manual system, it is high time to switch to a restaurant inventory management system. It will allow you to scale your business by maintaining a smooth flow across the supply chain and controlling all aspects of stock with a centralized system.

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