Effective restaurant inventory management is one of the most critical tasks involved in running your establishment. Restaurants go through a lot of inventory at a breakneck pace. They also often have very thin profit margins on their menu prices. Using the right inventory management system will make an enormous difference to the business's overall success.
Inventory management helps restaurant owners understand profits, recipe costs, how much stock is needed over different periods, and how suitable different suppliers are. By keeping a close eye on inventory items, you can find ways to optimize your menu and your sourcing, reduce costs, and increase your sales.
In this guide, we’ll cover everything you need to know about restaurant inventory management. We will cover what it is, how it works, and provide some of the best tips and tricks to help you improve the way you manage inventory.
What is Inventory?
So, what exactly is inventory in the first place? When we talk about restaurant inventory management, “inventory” refers to any goods, supplies, equipment, or ingredients you need to control. This includes three main categories:
- Food: Any food your restaurant serves. This includes meat, vegetables, fruit, dry goods, spices, etc.
- Beverages: Any drinks you serve. This includes soft drinks, juices, wine, beer, liquor, etc.
- Non-food Items: Restaurant equipment must also be carefully managed to ensure you always have enough in stock. This can include cooking equipment, gas, towels, linen, uniforms, cleaning supplies, etc.
What Does Effective Inventory Management Look Like?
Inventory management is all about keeping track of your business's goods and stock. In simple terms, it’s about managing what comes in and what goes out.
Inventory management is a majorly important task for restaurants, as they have a very high rate of going through their inventory stock. Food inventory also has a limited shelf life, so you need to have a robust inventory management system to ensure nothing is wasted.
Let’s break down a few main objectives and focus areas for restaurant inventory management.
Minimal Food Waste
Restaurants need to avoid buying too much fresh food that could spoil before reaching guests. Food has a limited life, especially when it’s sitting inventory. So, you need to order enough goods to comfortably cover each service, but not too much that it is wasted.
Lowered Food Cost
Food costs generally make up around 35% of a restaurant’s overall expenses. Food wastage increases food costs, which cuts into your profits.
At the same time, food costs can increase if you don’t order large enough bulk quantities. So, when managing restaurant inventory, there is a fine line between minimizing wastage while still ordering in bulk.
By decreasing your food waste, you lower food costs and your overall restaurant expenses. This results in increased profits.
A poor inventory management system can either result in too much or not enough food. Either way, this will affect your profits.
Utilizing Vendor Management Tools
Inventory management software is critical for effective restaurant inventory management. This will also allow you to gain more control over your ordering process. You can track food orders and purchases and manage payments to vendors from the platform.
You could also use an automated inventory supply system that automatically notifies you when your food stock is low to help prevent food waste.
The reason you need fresh, high-quality ingredients is to keep your customers happy. Good inventory management ensures you always have enough ingredients in stock for all dishes.
It also ensures your ingredients are always fresh. This is a must for bringing back return customers.
Restaurant Inventory Management: Tips and Best Practices
Good restaurant inventory management is one of the most important parts of running a successful restaurant business. Here are some of the best tips and strategies to help you improve the way you manage inventory.
Invest in Inventory Management Tools
Investing in the right inventory management software can help you save a lot of money and improve inventory management in a big way. Restaurant inventory management software will also save you time and improve accuracy.
Here are some things that a restaurant inventory tool can help with:
- Recipe costing and menu planning features
- Inventory tracking for everything (food, beverages, non-food items). You can also set custom times for each type. For example, perishable items could need updating on a weekly basis, while non-food items could be changed yearly.
- Software can help you forecast demand. The data from the tool can provide insights on trends and seasonality, allowing you to easily adjust inventory as needed.
- Prevents human error. Everyone makes mistakes, but software will always calculate inventory accurately.
For more information on choosing the right software solution, check out our complete guide on inventory management software.
Optimize Inventory Tracking
There are many processes involved in inventory management for the restaurant industry. Here are some essential strategies to understand when you manage and count inventory:
- Less inventory: Order less inventory on food items that can spoil quickly. This keeps fresh ingredients, like meat, vegetable, and fruit, fresh at all times. Only order enough to turn over in a week to ensure freshness, as these items spoil quicker.
- More inventory: Bulk order on items with a longer shelf life, like dry or canned goods (flour, sugar, rice, etc.). Purchasing in bulk can often result in cheaper prices. If you freeze foods, you can also order greater volumes of these.
- Maintain low stock levels: It’s crucial never to overorder. Try to keep enough stock to always keep customers happy without running out of menu items. However, you should never have an excess supply. Restaurants also don’t have a lot of storage, so it’s crucial to order wisely.
- Stay organized: keeping organized makes inventory management a lot easier. Label all of your items to make stocking and restocking easier. Keep an eye on use-by dates for all perishable goods, and keep a clear record of when your last order of each product was. Keep your most-used items at the front of your fridge and shelves and the lesser used items at the back.
- First in, first out: The first in, first out rule (FIFO) is a key aspect of food inventory management. This is when your items purchased or produced first are sold first. It ensures your stock that has the longest shelf life is used after supplies that will expire sooner. This idea also applies to non-perishable items, like takeaway containers. Always try to use everything before restocking.
Run Restaurant Specials
Running specials is one of the best ways to use surplus ingredients. If you find that a particular vegetable hasn’t been selling, try to incorporate it into a new chalkboard dish, like an appetizer, or incorporate it into your existing dishes. This will help you avoid wastage.
This idea works well with any seasonal fruits and vegetables that can be interchanged. For example, your menu item could be “pork tenderloin with seasonal veg,” where the “seasonal veg” could be any vegetables that you have available.
Be Smart About Your Product Mix
When managing inventory, restaurant operators should carefully analyze their menu items and understand the profitability of each item. This could help you discover ways to save money on your restaurant’s inventory.
To do this, you can follow this system for demand vs. profit on each ingredient:
- High demand and high profit - keep the item the same
- High demand and low profit - revamp the ingredients or find a new supplier
- Low demand and high profit - run a promotion or highlight the item on your menu to increase sales
- Low demand and low profit - replace the item
For example, a pizza restaurant will have a high demand for items like flour, cheese, and tomatoes - all of which bring in a good profit. These are essential, so keep them. If the restaurant has an ingredient only used on one unpopular pizza, like anchovies, you might find that ingredient goes bad faster than it’s sold. If this is the case, take the item off the menu.
Another good strategy when planning your menu is to use the same ingredients in multiple dishes. This increases demand for each ingredient and prevents you from ordering too many different items. Your inventory turnover will be higher and more consistent. Keep your menu simple, and inventory control becomes a lot easier.
Reduce Employee Theft
The goal of any restaurant inventory system is to sell every single item. Two things you want to avoid are wastage and theft.
While a degree of food waste always happens in some form in restaurant inventory management, employee theft is a major issue. This can either include taking food and beverages or pocketing cash.
To reduce theft, invest more time in employee onboarding and training. Get to know employees better and teach them about your systems and inventory control methods. You will also need to keep a strict eye on everything that happens in your restaurant. This includes doing daily inventory counts and comparing this to sales, installing security cameras, reviewing receipts management, and spot-checking cash and stock.
Your restaurant inventory management software and POS system can also make this easier. With these tools, you can:
- Set comp/void limits for staff to reduce the risk of theft
- Track all inventory and deliveries, and compare this to sales
- Some software systems produce reports based on your inventory and sales, and flag issues if any numbers are off
Yes, it’s vital to use inventory software to help you stay ahead of stock. However, tracking inventory should still be a manual process you perform each day or week.
All you need to do is count inventory at the start of a shift and again at the end of the shift. Write this down, and then compare it to your sales.
It’s best to dedicate one or two staff members to inventory management. One person can check inventory each shift. Then, to avoid human error, consider getting another to review the list. This helps you track stock a lot more accurately.
All of this information should be placed in an inventory consumption spreadsheet. You can monitor this over time, and compare inventory levels to your food cost percentage, the dollar value of goods sold, and your food waste sheet.
Restaurant owners and managers must take a hands-on approach to monitoring inventory levels. Otherwise, the data in the spreadsheets or the inventory tracking system might have some discrepancies.
Record All Inventory Use Carefully
How much beverage and food inventory you go through might change due to honest mistakes like spillages, burned dishes, and breakages. This is okay and a normal part of restaurant management, but it's still important to record these events correctly.
For example, a bartender might drop a bottle of beer during a busy service and forget to ring this up as a breakage. Then, at the end of the shift, a bottle of beer will be unaccounted for.
Similarly, a chef might need to take a bottle of wine from the bar to use in a dish. If not recorded, this might look like theft was involved, which could result in unwanted issues in your restaurant.
Make sure you include options in your POS system for breakages, complimentary meals, or any other scenario where inventory could be lost. Understanding this information is also important when evaluating your food cost, cost of goods sold, profits, and how much food inventory is wasted.
There's a lot that goes into inventory management. Doing it properly is one of the most essential tasks for any restaurant. Your inventory is tied directly to your profit. So, if your inventory management strategies fall short, so will the performance of your business.
Investing in the right restaurant management system (hint: grab a free software trial) and knowing which areas of inventory management to watch are incredibly important when running a restaurant. Follow the strategies and best practices above, and you shouldn’t have a problem keeping your inventory in perfect control.