Restaurant Inventory Management: How Do Restaurants Do Inventory?

How do you identify your best or worst selling items quickly? Are you making informed purchase decisions for your restaurant? Does your kitchen often end up with way too more or way too less stock? All these answers lead us to one thing: the importance of restaurant inventory management.

If you’re not giving enough attention to your restaurant’s inventory management, you can potentially be losing a lot of money– and that’s a scary position for any restaurant business.

How do restaurants maintain inventory?

Restaurant inventory management involves keeping a track of raw and processed goods to plan purchasing, understand food costs and avoid any wastage of material.

While some restaurants still rely on the old pen and paper method, digital methods have caught on.

The two most popular methods of inventory management at restaurants are:

  • Spreadsheets better known as par inventory sheets
  • Automated inventory management (using software)
Par Inventory Sheets

Restaurant managers set levels of how much of an item they want in-house. This is known as the par level.

The par inventory sheets help in guiding what and how much should be ordered based on the what’s sitting in your inventory already. It also helps in identifying any event in which you might require additional inventory or any items that are going to waste due to under-utilisation.

Inventory Management System

While the par method is a good starting point, it is advised to use a system that ties up with your POS to automate inventory management.

It automatically tracks the material usage by matching:

    1. Orders entered in your  POS.
    2. Recipes entered in your inventory software.

At any point in the day, owners or managers can look at the inventory system and generate reports. This helps in identifying how much of the material is used, what’s left, and what will be needed for the coming days. All in real-time.

So while pen and paper methods can still work, you might put your business under risk of loss by relying on them. With an automated inventory management system you can not just maintain inventory but even stop over and underutilization.

How to calculate food inventory?

The shelf to sheet/system method of taking inventory is considered the most ideal in the restaurant industry.

This is what it looks like in real:

1.  Check what’s in your storage

2. Match it with your inventory taking system. This way you count every single item on each shelf and everything will be double-checked.

3. Account any ‘write-in’ items as well. These are items that are on your shelves but missed out on the system.

Tips for effective restaurant inventory calculation
Conduct regular audits

Mark auditing as your power process. Inventory management is bound to be tricky, auditing makes it manageable and easy. It shows the accurate picture of your stock and helps in identifying any wastage or theft.

#Tip: Use the information from the audit to go to the core of your mistake patterns and reasons behind them. Auditing is not just for fixing, but also for the improvement of your processes.

Use the FIFO approach

FIFO (first in first out) approach means that you first use the food that arrived first in your inventory so that nothing is spoiled. It also helps in optimising the use and purchase of raw materials for the kitchen. Use the food that has a chance of spoilage or expiration before, and always keep track of what’s running out or what’s available in the kitchen.

#Tip: Label all your food with the date you received it and the date it expires.

Train your team well

restaurant staff

Ultimately, these are the people that are going to handle your inventory work all the time. Make sure to implement standardised processes and provide them with effective training for the same. It’s always helpful if you keep more than one person accountable for the inventory management work so that mistakes could be checked and avoided.

Have a dedicated tool

Are spreadsheets taking a toll on your processes? While spreadsheets are also a way of maintaining inventory, they can get tiresome and also affected by human error a lot more than a dedicated software. An inventory management software automates a lot of your manual processes, saving time and also money that you can potentially lose because of errors. Many of these softwares can integrate with your POS system to streamline the entire operation.

Terms you should know for restaurant inventory management

To manage your restaurant’s inventory well, these are a few terms and processes you should know and definitely keep a check on:

COGS

COGS is the cost to create the food that you’ll sell to guests. To calculate COGS, you need to record inventory levels at the beginning and end of a given period, and take into account any additional inventory purchases.
Cost of Goods Sold (COGS) = Beginning Inventory + Purchased Inventory – Final Inventory

Variance

Variance is the difference between the theoretical usage and the recorded usage. For example, you sold 1000 rupees worth of food but your inventory says that 1200 rupees worth has been spent. Then 1200-1000= 200 rupees is your variance. Restaurants on an average have a 2-5% variance.

Food Cost Percentage

This is the percentage of the sale price of your food that makes up the cost of the ingredients used. The ideal food cost percentage suggested is between 28%-35%. It is very important for restaurants to maintain this percentage considering the constant fluctuations from the supply side of the ingredients.

Base Kitchen 

It’s the kitchen where the food is fully or semi-prepared and then transferred to multiple outlets. For big franchises, it acts as a connection between the warehouses and the outlets.

Sitting Inventory

Sitting inventory

This is the amount of product (or the money it’s worth) you currently have with you in-house. Always ensure that you’re consistent everywhere in the type of measurement you’re using to indicate this figure.

Waste

Any food that’s wasted before it’s served to the customers comes under this category. All restaurants want to avoid the unnecessary loss it creates. It could include spoiled food or not properly prepared food etc.

Wondering how to reduce your restaurant waste? Read this handy guide for various tricks.

Cost of Goods Depleted

It is the cost related to the depletion of goods during a certain period.

Recipe Management & Costing

For effective inventory management, it’s important to have standardised recipes. Your inventory can be spent and managed according to these. Ask your chef to prepare these for you with the exact amount and material required and keep updating these with the updates in the menu items.

The new-age restaurant inventory management software

Having a software helps in tracking how inventory moves through your restaurant – from procurement to being utilised in full.

A restaurant inventory software helps in bringing all working parts of your inventory – be it materials, vendors, recipe and even taxation under one system. Here are these parts explained:

Material and Recipe management

This part helps in managing the materials, setting par levels and declaring recipes for finished and processed items.

Vendor and Tax management

This part includes declaring multiple vendors and what you are procuring from whom. Additionally, some software also offer to declare tax here.

Multiple Outlet management

When running multiple outlets or base kitchens, having a software to manage opening, closing stocks and transfers in between is essentially important to avoid any mistakes.

Audit and Waste tracking

Inventory software connects with your POS and update in real-time. Many systems offer the audit facility and manual reconciliation feature in case you want to update something from your end.

What are the benefits of restaurant inventory management?

Inventory management might seem tedious to a lot of restaurant owners, but the restaurants which realise its value get considerable benefits in:

Managing food costs

restaurant food

Optimising food costs can help restaurants achieve maximum profits. With all the data at your fingertips that effective inventory management provides, you have the flexibility to adjust your menu planning, expenses and have a better view of how each order impacts the overall profitability of your business.

Never over-ordering again

Over or under ordering is never an ideal situation for any restaurants. Inventory management powers you to see and audit what the status of your current stock is so that you can plan your purchases accordingly.

Catching theft and pilferage

Would you want your hard earned money to go into the drains? Theft and pilferage are two of the most serious concerns in any restaurant kitchen. To solve this, inventory management helps in capturing any discrepancies in the stock once audit operation is run for food costs and the inventory available at the end of a given period. This way the staff stays accountable and any wastage can be avoided.

Time to get organised!

How your restaurant inventory is managed affects all other processes at your restaurant from serving the customers to revenue generation. Hope this blog was helpful for you to understand the various aspects of restaurant inventory management.

It’s now time to get organised and take action! We’d love to know the inventory management tips and techniques you use at your restaurant. Share them in the comments.

Restaurant Inventory Management: How Do Restaurants Do Inventory?
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Niharika Maggo

Niharika Maggo

Niharika is a Content Marketer at LimeTray. When she’s not busy wearing down the keys on her keyboard, she's found listening to podcasts, reading or drinking tea. She can be reached at marketing@limetray.com.