Last Updated:
April 19, 2022

The best restaurant inventory management guide

We'll provide you with some helpful inventory management tips, terminologies, and strategies for tracking inventory and to count inventory.
The best restaurant inventory management guide
By
Bogdan Patynski
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Ultimate Restaurant Inventory Method™

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Table of Contents

Are you a restaurant owner seeking for a solution to keep track of food consumption and waste? If so, you have come to the right place! We'll go over the ins and outs of restaurant inventory management on this page.

We'll provide you with some helpful inventory management tips, terminologies, and strategies for tracking inventory and to count inventory. So, what are you waiting for? Continue reading to find out more!

What Is Restaurant Inventory Management?

Restaurant inventory management is a real-time procedure for managing the materials and supplies you have on hand, allowing you to make more cost-effective food, beverages, and supply orders. This can be accomplished by counting the actual amount of supplies that are brought in and documenting how much is consumed, allowing you to ensure that you are not ordering excessively large or little quantities. It also aids in the detection and control of food waste and losses, therefore helping you to save money.

Restaurant industry terminology

Restaurant owners use some standard terms to explain elements of inventory, including restaurant food inventory and bar inventory. Here are some of the common terminologies:

Sitting inventory

The entire quantity of a product in your inventory. Sitting inventory can be measured in terms of financial value or another physical or unit measurement. Maintain consistency in your measurements, no matter which method you choose will improve your sitting inventory.

Depletion

Depletion is the financial worth of a product your restaurant utilizes over a set period of time. You may keep track of depletion on a daily, weekly, monthly, or annual basis.

Usage

An indication of how long it will take before a product is completely gone if you don't buy any more. Divide the sitting inventory of a product by the depletion rate for that product to calculate usage. For example, if you have 250 pounds of patties in your sitting inventory and consume 50 pounds every day, you will have used it for five days.

Variance

Variance is the difference between a product's depletion and how much your records indicate was sold. It's usually expressed as a percentage. For example, your pizza dough inventory is down by 200 pounds at the end of a weekend. However, according to your POS system, you sold pizzas weighing 190 pounds of dough. The variance is ten pounds. In this case, the variance would be 10/200, or 5%.

Yield

The yield is the ratio between the amount of merchandise reported as sold by your POS system and the amount actually consumed. The POS indicated you sold 190 pounds of pizza dough in the preceding example, but you only had 200 pounds of pizza dough, thus the yield is 190/200, or 95%.

A chef preparing a pasta dish

Why is inventory management important for restaurants?

Managing a restaurant comes with a variety of challenges, there will always be something that demands your attention. The primary goal of keeping inventory is to track how much of each item your restaurant uses over time, compare that to sales, and look into the discrepancy between production value and sales. Food, beverages, small items, cleaning supplies, and other products are tracked by inventory control. Restaurant inventory management also facilitates order fulfillment and the reduction of food waste.

What is included in restaurant inventory management?

As your restaurant business grows, inventory management becomes a significant part of your operations.  Below are essential restaurant inventory management guidelines to ensure you avoid mistakes, allowing you to lower your food cost percentage and streamline your restaurant operations.

Always Keep an Eye on Your Consumption and Maintain a Stock Level

You must always monitor your consumption on a daily basis. By doing so, you'll be able to keep the stock levels of your inventory items consistent throughout all of your locations.

Raw Material Management

It is vital to consider the concept of "less is more". To reduce wastage, it is important to keep track of your restaurant's inventory.

You should try to keep your inventory to a minimum level, especially when it comes to perishable goods. When possible, try to use seasonal products and ingredients. This will attract customers to try something new, resulting in the usage of all raw materials and the avoidance of perishable waste.

When you run out of supplies, a good restaurant inventory software, will remind you to reorder. Ordering only what is needed helps to avoid waste. It allows you to define a re-order level for each of your items when the ingredient level falls below a certain threshold. Real-time alerts are especially useful for bestselling products and perishable items that must be refilled frequently, as they assist you to avoid running out of supplies during business hours.

Always ensure that items are used in a FIFO (first in, first out) manner. Monitoring the Shelf Life of stock goods is a crucial consideration when managing inventory. The stock must be consumed in FIFO (First In, First Out) order and according to the expiration date. To avoid wastage, use the older stock first, and then use the freshly purchased things once the previous supply has been used up.

Recipe Management and Costing

Having integrated recipe management tools in your inventory management system is essential to maintaining a proper and consistent inventory management process, as it helps to keep food costs in check. The recipe pricing feature assists you in estimating the projected cost of a menu. For example, you can keep track of raw ingredient use based on the number of orders placed in the POS system for a specific item. Simply enter the recipe and the portion size for each component, and the restaurant inventory management software will calculate the food costs for you. This allows you to set a standard recipe for each item and aid in the selection of ingredients.

By calculating the deviation daily, recipe management also helps you to reduce pilferage in the restaurant. It also allows larger chains to document how much raw material is necessary, including the quantity, how the item is prepared, the temperature at which it must be made, and how it should be placed on the plate, among other things. As a result, consistency across all outlets is maintained, and the risks of undesired kitchen waste generation are greatly reduced.

Centralized Kitchen Management

This allows you to control the overall flow of food based on the needs of your outlets. It handles inventory inquiries, orders, waste analysis, and correct reporting. A Multi-Store Management Module allows you to keep track of stock supply across many locations. You may take control of your franchise locations by automatically receiving needs.

Three chefs working in a kitchen

Stock item shelf-life management

Is another essential factor in inventory management. The inventory management for a restaurant's business includes shelf-life management. The shelf life of each product item in the inventory is specified. When it comes to stock consumption, the FIFO (First In First Out) method is important. You may create alerts and reminders for when a certain item is going to expire if you use smart restaurant inventory management software. You won't be able to use the expired stock ingredient in your food as a result of this.

Roles and Permissions  

Despite your best efforts, pilferage seems to be uncontrollable in your restaurant. Monitoring the variance characteristics allows you to spot a stock disparity and prevent your employees from pocketing raw ingredients and materials. Roles and permissions on your system can assist you to prevent such acts. It's important to be able to assign defined roles to each activity and appoint people who will be held accountable for them. All activities are recorded, and various users can be assigned different inventory-checking modules.

Real-time restaurant reporting and analytics

Real-time restaurant reporting and analytics provide significant inventory management insights, especially for major restaurant chains. It provides better monitoring analysis and control in restaurant operation. Profit and loss reports are prepared based on stock sales and consumption. The sales reports and raw material utilization help predict and formulate strategies. These features also allow you to analyze restaurant food inventory trends, keep track of stock, and maintain accuracy. Thus, you should ensure that your restaurant's POS system has these in-demand features.

How to get started with tracking inventory?

Effective inventory management is critical to the smooth running of your restaurant's day-to-day operations as well as its long-term success. Here are a few pointers to keep in mind if you want to manage your inventory accurately and consistently.

Count your stock items consistently

Count inventory consistently because your restaurant business entails handling a range of perishable food items, this is the most important component of stock item management.

You'll want to make sure that you're keeping daily stock to avoid food waste and that you're not using expired items on your menu. It's recommended practice to take food inventory at the same time to ensure consistency in tracking your inventory level and avoid reporting discrepancies. If you follow this approach as closely as possible, you'll be able to receive the most precise data for stock level management.

Organized product storage spaces

One important component that contributes to a speedier inventory count is having organized product storage spaces.

You should sort products by food category and name your shelves to keep your stockroom, pantry, and walk-in freezer organized all year. To extend the shelf life of perishables, you must store them appropriately. Separate fruits and vegetables from animal products, for example.

Assign a stock-taking team

You must ensure that everyone working in the kitchen is aware of and understands the inventory system. You should designate a few members of your team to be in charge of stock-taking at all times, and the same people should also be in charge of receiving orders and updating physical inventory records. Creating an inventory counting routine is highly recommended.

A chef evaluating the vegetable stocks

Create an inventory sheet to track your consumption

Create an inventory consumption spreadsheet. This par inventory sheet will help you keep track of how many goods you consume per day, how much you waste, and how much you spent on food inventory. This will provide you a clear picture of what comes in and out of your restaurant's inventory, as well as make re-ordering inventory more precise.

The food waste sheet for a restaurant varies depending on the products sold, and you should consider having detailed food inventory reports that include ingredient name, unit of measure, quantity used, cost per ingredient unit, total cost, beginning inventory, ending inventory, daily consumption rate, waste quantity, and waste cost.

Having a software that records inventory without needing a par inventory sheet will help you lower costs in the long run. WISK does all of that for you.

Train your team to take inventory with a par inventory sheet

Managing your restaurant's food inventory cannot be the job of just one person. This is especially true if your restaurant has many locations.

It's critical that your supervisors, shift leaders, and other employees all understand the process of taking inventory. Additionally, both front-of-house and back-of-house personnel can help with taking inventory. For example, if something spills or spoils, they must immediately alert someone so that it can be recorded on the inventory consumption sheet.

Monitoring sales

Tracking your daily sales, in addition to inventory management, is an important aspect of your business. You'll be in a better position to respond to actual changes as a result of this. If your restaurant is running low on ingredients because a menu item sold far more than expected, you can place an order to meet the demand without temporarily removing it from the menu.

Keep extra supplies on hand

For ingredients that are easily depleted, you may want to keep some "just in case" inventory on hand.

Invest in good restaurant inventory management software

Managing restaurant inventory is a difficult task that can be time-consuming if you don't have the right tools. You'll need to invest in a system to enable your employees to become comfortable with accurate inventory counting techniques. A dedicated restaurant inventory management software program was developed to assist restaurants to overcome inventory challenges.

How often should a restaurant do inventory?

Proper inventory handling is one of the most important aspects of running a successful business. The notion of inventory management is the same regardless of the size of your business. It keeps your service running smoothly, but failing to do so might impact your financials.  Keep track of your inventory by doing regular and consistent inventory inspections. This will make it easier to manage.

Inventorying can be done on a daily, weekly, monthly, or quarterly basis. Keeping a close watch on your inventory frees up storage space, reduces food prices, and ensures that the menu items that consumers desire are always available.

Below are lists of restaurant inventory management tips:

The best method to manage inventory is by conducting daily and weekly inventory checks. The daily and weekly checks will have distinct objectives, and each will require a different amount of time. Because you're only looking at a few essential areas, daily checks shouldn't take much of your time while weekly checks will take a little longer as you'll be looking at your entire inventory and making business decisions based on what you do or don't have in the stocks.

Daily Duties

Perishable commodities with a short shelf life must be counted daily. There's should be no guesswork when it comes to estimating your food costs. Once you'll determine immediately what's selling and what isn't, it would allow you to adjust your menu accordingly.  A daily-to-day inventory of high-ticket items also discourages stealing. You should also include on your daily inventory lists items that are unexpectedly running short such as kitchen towels and pepper mills. Intensive short-term monitoring aids in the identification of the problem and helps you find a solution.

Weekly Watch

Restaurants aim for a four to eight-times-per-month inventory turnover rate. At least once a week, orders are delivered. Dealing with multiple suppliers allows restaurants to take advantage of competitive pricing. Each vendor's ordering lead times and delivery times vary from each other. Before it's stowed, tally all-new product as it arrives. Take a count of all food, beverage, paper goods, and cleaning supplies once it's on the shelf. This will serve as your baseline. Take another full-spectrum inventory the following Monday, following the busy weekend. This will give you a clear image of what to order and how much to order.

Monthly Matters

Within your four-week inventory will go beneath the surface, maybe uncovering items you didn't realize you have, such as uncommon spices, condiments, and other products bought for a one-time event or a special that didn't make the cut. Write-offs lessen as you gain inventory knowledge and become more aware of usage patterns. Four-week inventories are a good time to clean out the freezers as well as cleanout the bar coolers.

Take a look at the reservation calendar to see what's coming up and make a checklist of what you'll need to order and where you can utilize the remaining inventory on the menu. Also, don't forget to track inventory like front-of-the-house items like wine lists and salt and pepper shakers on a weekly basis.

Quarterly Quantities

Consider taking a big-picture inventory during different seasons like winder, sprint, summer, and fall, potentially in combination with a deep cleaning of long-term dry storage rooms, dining room wait stations, and the mop closet/cleaning supply shelves. Tally linens, uniforms, guest-check books, and office supplies are all examples of goods on hand, in addition to flatware, dishes, and other serving equipment.

Continual Inspections

Require employees to keep a running record of things that are out of stock, lost, damaged, or squandered in all sections of the restaurant. Without excellent communication, it's impossible to record inventory accurately. Running lean is cost-effective, but running out of essentials like credit card machine tape and toilet paper is unimaginable. Keep track of the items you've received. Most major software providers and numerous vendors have created useful inventory software. In most cases, the only investment is time to master the application.

A restaurant employee using a tablet

Why is Inventory Management Important in the Restaurant Industry?

Inventory management enables restaurants to retain the proper amount of food and materials on hand in order to service all of their customers while avoiding spoilage and loss. Restaurants that employ excellent inventory management are more likely to achieve long-term success.

Restaurants' Inventory Management Advantages

Restaurants that manage inventory effectively reduce food waste and loss faster. Using the right inventory management system will help you collaborate with vendors, lower total food costs & labor costs, boost profitability, and keep consumers satisfied. The following are some of the advantages.

Food loss is reduced

Up to 10% of the food purchased by restaurants is thrown away before it reaches the customer. Restaurants purchase far too much food at once, causing it to perish before being offered to consumers. Food inventory management can help to reduce losses.

Lower food costs

Food prices typically account for 28 percent to 35 percent of a restaurant's overall food cost. When food is lost or spoils, the food cost rises.

Improvements in vendor management

Restaurants may employ inventory management to keep a better track of their food and purchases, making it easier to handle purchases and vendors. Having proper inventory management integrated with purchasing will help lower labor costs in the long run.

Automatic inventory replenishment

Food inventory management gives information on the inventory levels in a restaurant. Inventory tracking also provides automated procedures that ensure that food supplies are replenished in the proper proportions and that waste is avoided. With proper automated ordering, you can minimize food waste by ordering the right amount only when you need it.

Inventory tracking leads to happier customers

By having ingredients on hand for all of your menu items, you can develop repeat customers and keep them pleased

Maximize Profits

The total cost of goods sold is a significant parameter for measuring net profits. Food inventory management helps reduce waste, which leads to a lower cost of items supplied and, as a result, increases profitability.

A proud restaurant worker at the cash

How much food inventory should a restaurant have on hand?

Have just enough goods on hand to cover your sales and keep a little extra in case of an emergency like spillage for instance at large party dines at your restaurant. A decent inventory to sales ratio is 4 to 8, which implies you should sell your complete food or beverage inventory 4 to 8 times each month. If you receive 1-2 deliveries each week, this usually equates to around 5-7 days' worth of inventory for most restaurants.

What to Consider When Choosing a Restaurant Inventory System?

When choosing a beverage and food inventory management system, consider the size of your restaurant, the additional software you'll need to integrate with, and the pricing.

Take into account the size and complexity of your business

If you own four restaurants that serve 3,000 clients each day, your demands will be substantially different and more complicated compared to owning a small restaurant with 100 customers. Any restaurant can benefit from inventory management software, but smaller establishments may just require simple software.

Examine the interaction between your POS and inventory management systems

Check to see if your current point of sale system will work with the new inventory management system. Consider upgrading to any POS systems that incorporates inventory management if your current system can't track stock. Or POS systems that integrates with external restaurant and bar inventory software like WISK.

Identify the most prevalent characteristics

Ask yourself the following questions concerning general attributes, checking which ones are most important to you:

  1. Real-time inventory tracking: Can the system modify inventory levels in response to each customer order?
  2. Is it possible for the program to automatically produce purchase orders for suppliers when a certain item runs out?
  3. Financial evaluations and reports: Is it possible for the platform to track how each item sells and which are the most profitable?
  4. User-friendliness: Is the system simple to learn and operate for a constantly shifting restaurant staff?
  5. Scalability: Is it simple to make system adjustments as your restaurant or group of restaurants expands?
  • Make an assessment of whether you want a system that is installed on your premises or one that is hosted in the cloud. A cloud-based solution provides to track inventory across numerous devices and restaurant locations.
  • Consider the unit price. Weigh the actual cost of a system in relation to the size of your business. Don't waste money on software that is more complicated and expensive than you require.

Benefits of Inventory Management Systems for Restaurants

Inventory management software can greatly assist you in keeping track of your inventory process. The systems, among other things, can provide insights into spending and sales that manual inventory tracking just cannot simply provide. Connect back-end financials, POS, and inventory in a unified cloud platform with restaurant management systems.

Inventory visibility in real-time

Inventory management software can be integrated with your point-of-sale system to track even a single meal order and how much it impacts your inventory.

Easy sales tracking

Inventory software that is associated with a point-of-sale system can give you detailed information about which goods are the most popular and profitable in your restaurant.

A more effective and efficient approach to track inventory

Inventory software allows your employees to keep track of inventories digitally in an efficient and precise manner.

Inventory control software can automate your purchases

When items reach a certain threshold, you can use the system to automate orders.

Comprehensive reports to help decision-making

Inventory software delivers key performance indicators (KPIs) and other restaurant data which may help you in making better business decisions and improve revenues.

A manager evaluating restaurant data

What are good KPIs to manage your restaurant inventory?

Various key performance indicators (KPIs) can be used to assess how effectively a restaurant's resources are being utilized. Keeping track of sales, labor expenses, and inventory costs allow you to track and quantify these and other KPIs to identify areas where you're excelling and areas where you can strengthen. Many indicators are associated with the cost of commodities as well as the loss of items.

The importance of KPIs include the following:

Cost of goods sold

The beginning inventory includes the purchased stock you have at the start of the period. Subtract the ending inventory afterward. Use the following formula to calculate the cost of goods sold:

COGS = Starting Inventory + Purchases - Ending Inventory

Food waste costs

Calculate the average food waste by monitoring it in a day or a week (make sure to use a period representing an average level of activities). Put all food trash in a separate bin. Weigh that bin after a set amount of time and deduct the weight of the container.

Then, compute an anticipated average cost of fresh food by the pound. Multiply the amount of food lost by this number. Add the restaurant's per-pound disposal fees. Then multiply by total staff expenses how much it costs tracking to prepare the disposed of food. Use the following formula to calculate the cost of food waste.

Food loss costs = food loss in pounds x average cost of fresh food per pound) + (food loss in pounds x average cost of disposal per pound) + (food loss/total food used * average staffing costs)

Food cost percentage

The food cost is calculated as a percentage of total sales in this KPI. Use the following formula to compute the proportion of food costs:

Food cost percentage = food costs / total sales

Liquor loss cost

It's a little more difficult to quantify the cost of liquor loss. Consider putting a manager in charge of keeping track of liquor losses (spillage, free drinks given to customers to make up for bad service, liquor consumed by staff, employee theft etc.). Multiply the amount to the average cost of all alcoholic beverages. Use the following calculation to figure out the dollar value of how much liquor loss costs:

Liquor loss cost = amount of liquor lost in average per day * average total liquor cost

Editor's note: WISK integrates with your POS to track your inventory and matches it to your sales and calculates variance and losses for you. You can learn more about this here.

Liquor cost

The procedure is identical if you wish to compute liquor expenses separately from overall COGS. Determine the inventory's monetary worth at the start of a period. Include the cost of any alcohol you purchased throughout the time period. Subtract the amount of alcohol leftover at the end of the period. Use the following calculation to figure out how much liquor costs:

Liquor cost = Starting Liquor inventory + purchases - End Inventory

Liquor cost percentage

These estimates total liquor expenses as a proportion of total liquor sales, just as food cost percentage. Use the following formula to compute the proportion of liquor costs:

Liquor cost percentage = Liquor cost / total liquor sales

A bartender pouring a cocktail

Average Inventory Turnover Ratio

Determine inventory turnover ratio will provide you with better control over waste, utilization, stock levels, expenses, and profits, and it's also an important metric for determining how much inventory your restaurant should have. It shows how many times the inventory was sold out in a given time period. A low inventory turnover ratio implies that there is too much inventory on hand or that sales are poor, whereas a high inventory ratio suggests that the inventory purchase strategy is faulty or that sales are robust. The average in the restaurant industry is around 5.

While total restaurant sales can be used to compute this ratio, the cost of goods sold (COGS), which includes markup expenses, may provide you with a more accurate result.

Begin by deciding on a time frame for which you wish to collect data (monthly, annual, etc.). To determine the average inventory, first locate these three numbers: initial inventory (dollar value), ending inventory ( dollar value), and the cost of goods sold.

Calculate the Average Inventory Over a Period of Time

(Beginning Inventory + Ending Inventory)/2 = Average Inventory

Calculate Inventory Turnover Ratio

ITR = COGS / AVG. INVENTORY

For comparative reasons, here are some general ordering guidelines to consider:

  • 4-6 times per month for food (5-7 days worth of product on hand)
  • Liquor: Once a month (depending on the idea and sales mix).
  • 2-3 times per month, bottled beer
  • 1-2 times per month (depending on concept/number of beers on tap)
  • Wine: Once a month (depending on the size of the wine list and the mix of sales)

Calculating your turnover gives you an insight into several facets of your inventory management and indicates when you should investigate any concerns further. Your desired ratio will vary greatly depending on the sort of restaurant you run. To make intelligent comparisons, research turnover rates in your niche.

Prime cost formula

Add all labor expenses to COGS to get prime cost. Use the following formula to calculate the prime cost:

Prime Costs = COGS + Labor Costs

Prime cost as a percentage of sales

The prime cost as a percentage of total sales is represented by this value. Use the following formula to calculate the prime cost as a percentage of sales

Prime costs as a percentage of sales = Prime Costs / Sales

All KPIs mentioned above including other inventory management KPIs can assist you in keeping track of your stocks and making choices about them.

How Restaurant Inventory Affects Net Profit?

Striking that sweet spot is a key. You'll need an adequate inventory to ensure that your customers can always order their favorite menu items. But not to the point of spoilage or expiration. Having enough inventory to improve sales while minimizing losses will increase your net profit, or the money left over after expenses and taxes.

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Taking inventory should not take hours.