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Inventory Best Practices

The Who, What, When and Why of Inventory

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• POS systems are adept at informing you WHAT you sold.

• Unless you know what you used in producing products for your customers, you only know what disappeared from inventory.

• Your in house recipes don’t just ensure your customers get quality food, they allow you to measure what raw product you SHOULD be using.

WHY Inventory

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• More profitability is giving your customers a great product and never skimping BUT closing the gap between what you put on the plate and what you used. That means controlling:– Raw Waste– Finished Waste– Unauthorized Use – Shrink

WHY Inventory

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• There are two ways to maintain inventory tracking:– Periodic Inventory• Starting Inventory + Purchases – Ending Inventory = Cost

– Perpetual Inventory• Starting Inv + Purch – Recipe Usage = Ideal Cost• Ideal – Waste – Comp Waste – Transf = Theoretical End• Theoretical Ending – Count = Shrink

WHAT To Track

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• BOTH ways are useful in your restaurant:– Periodic Inventory• Items you don’t control (sugar packets, napkins, salt and

pepper)• Items with low cost per unit (bulk condiments)

– Perpetual Inventory• Key cost ingredients (CHEESE, meats, seafoods)• Indicator items (cups, boxes)• Highly seasonal items (produce)• High volume items you control (flour, oil?)

WHAT To Track

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• What does this mean:– Periodic Inventory• DON’T include in recipes, not worth chasing • Count weekly for reorder purposes

– Perpetual Inventory• Include in ALL recipes where the item is used• Determine yield percentage for prep shrink items• Closely track usage and shrink• THIS IS YOUR INCREASE IN GROSS PROFIT!!

WHAT To Track

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• Key Philosophy for Successful Inventory:– Accuracy Takes DISCIPLINE!!

• Ordering – should reflect weekly needs• Receiving – must be kept up DAILY for accuracy• Recording waste, transfers, etc. (you won’t sell it, but you know

why)• Physical counts – the graveyard of all bad input!!

– Is the Manager the BEST person to do this?• “Management Is Getting Things Done Through People”• Can a senior crew person record inventory receipts and waste?• Managers can do orders and counts• Managers should KNOW THEIR NUMBERS!

WHO Does It

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• Ordering – As many times a week as you expect to receive goods

• Receiving – Every day for what came in that day (you can’t sell what

you don’t own)• Recording waste, transfers, etc. – Every day for the current day (unless you waste nothing)

• Physical counts– As often as daily for key cost items (Cheese, meats)– Prior to order for other items

WHEN Inventory

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• Item setup– Each item has a unit by which you• Order it (e.g. “Case 6 #10 Cans”)• Count it (e.g. “# 10 Can”)• Use it in recipes (Oz, or Fluid Oz)

– There is a conversion factor between these• Are all 3 units of measure correct?• Is the relationship between them accurate• Is your purchase cost set up properly (e.g. If you buy an

item by the case, but input a cost by the #10 Can, your recipe cost will be too low)

Why Are My Numbers Whacky?

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• Item setup– Some items take subtle management techniques• Beef items and block cheeses are “catch weight” items

you may order 3 boxes but each box has a different weight. IF you use these by the ounce or LB, set up your purchase unit as the LB• Chicken Breasts are catch weight, but you serve them by

the piece, so the weight doesn’t matter! If you get 16 pieces in a box, you will sell 16 portions – it doesn’t matter whether the box weighs 11.5 LB or 12.25 LB, it’s still 16 pieces.

Why Are My Numbers Whacky?

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• Recipe setup– Using a computer shows where recipes need work• Look at the recipe unit of measure – does it say LB and

you’re putting in an 8 OZ portion but you wind up using 8 LBS?• What about yield percentages? If you pour spirits, do you

REALLY get 100% yield, or does spill, evaporation and overpour account for 3%? If you buy raw top round and cook it for roast beef sandwich, you only get 68% yield!!• Are your “paper” recipes just wrong? Sometimes, we

spend YEARS assuming a portion that isn’t correct.

Why Are My Numbers Whacky?

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• Take Time First to Get Setup Right– Don’t count on setup being accurate from day 1• Look at your first reports with an eye toward fixing errors,

not controlling costs• Get your hands dirty! Find your false assumptions in the

kitchen and correct them• If several recipes that use the same item are wrong,

chances are the item setup is the problem

Why Are My Numbers Whacky?

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• Run 2-4 cycles before making ANY changes– What items are showing large discrepancies

between theoretical and actual usage?– Make it your goal to recover HALF of the discrepancy• Better vigilance in portioning• Better crew training• Best yield items from suppliers

– Trying to recover 100% can never happen, but 50% usually costs less than you make in added profit

Using Inventory

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• Example:– My shop does $10,000 sales per week– I order 800 LB of cheese per week– Live inventory usage shows I’m 4% off ideal usage• 32Lb per week• At 1.75 that’s $56/Week

– I can recover half of that ($28) with proper tools– That pays for my added cost of entering invoices and

counts on my computer– Anything else I save on ANY item is PROFIT!

Using Inventory