Restaurant Inventory Management Is a Game Changer

Why is taking inventory really worth the headache most restaurant owners see it as? The short answer is it's not just about calculating your cost of goods sold, it's about ordering and cash flow. Let’s talk about inventory management and how it's a restaurant game changer.

Inventory is a fundamental tool you must use if you want to have restaurant success. I often hear from restaurant owners and managers alike that taking inventory is too monotonous, too time consuming and won't make a difference in the restaurant because your chef, your kitchen manager, your general manager, even your bar manager tell you they know what they need and what things cost. They've got it all in their head. Let’s blow this misconception out of the water and demonstrate why taking inventory and managing your inventory is critical to your success.

Let me tell you how I learned the importance of inventory. And funny enough, I learned it from one of the worst managers I've ever worked for in my life. He walked me into a walk-in cooler and said, “David, what do you see?” I looked at him and the shelves and told him I saw food. He said, “No! It’s money.”

By the way, this proves you can learn something from anyone.

You need to understand that your restaurant’s inventory has a direct connection to your cash flow because what is on the shelves is money. I can tell you right now that there are restaurants that have so much food on the shelves that they put themselves in a cash flow crunch. The last time I checked you can't go to the power company and pay your bill with a case of steaks. You need money to pay your bills.

Other benefits to taking and controlling restaurant inventory

• You will get better health department scores because your walk-in doesn’t have dirty, cluttered shelves and everything can be clean and tidy.
• You’ll have less theft because your shelves don’t a have massive amount of food, and you will notice when important inventory – such as some expensive fillets – are missing.
• You can clearly see everything's been prepped because it's all there and easy to identify.
• You won’t incorrectly 86 an item because someone couldn’t find the ingredients on the shelves. Everything is organized and you carry so much less that it’s easier to find the things you need.
• When you take inventory weekly, you can do it faster. I have $2 million restaurants that take inventory in under an hour every Sunday. This is possible when you set up your inventory programs properly, and there isn’t so much to count.
• You’ll put more money in your back pocket or bank account. By taking the food off the shelves and putting it back into the bank, you can run your business to do what's necessary for the business. You could even use it to pay yourself!
• If you implement a simple key item tracker – where every day you track five to 15 items that are your most popular and/or costly items – one more way to prevent theft.
• You can reduce your cost of goods sold using a waste sheet, tracking the inventory that you actually throw away because it’s spoiled, prepared wrong, or some other mistake is made. Paying attention to the mistakes that are happening allows you to proactively stop bad operating practices and save you money.

Teach your line employees the importance of controlling your inventory. By tracking on a daily basis, you're going to teach them how it affects the bottom line and ultimately their potential raises.

Taking inventory is a great tool for accountability when you look at it this way your team knows inventory is important because they're looking at you track it your management team understands their budgetary key performance indicators (KPIs) and what numbers they have to achieve. Everyone benefits when they know that these systems, such as taking inventory, help you control costs.

When you have less on the shelves, you have more conscientious employees. When there isn’t a box (or case) of backup product, they’ll use every bit, scraping jars and bottles to stretch the product.

The key to a fast and accurate inventory is setting your inventory up shelf-to-sheet the idea being your inventory on the shelves is set up in the same order as your sheets that you're counting. They’re in the same order and ordered by unit size.  I have $2 million restaurants take inventory in under an hour. When it's set up properly you're not going to hear about how long it takes from your management team.

If you've been following me for any length of time, you know I'm going to advise you to invest in food and beverage software. The inventory management portion works with your recipe costing cards and uploads your invoices so you can take inventory accurately and place orders. It should look at ideal versus actual product usage as well. You really can't run your restaurant without the software. It really is worth a few hundred dollars every month. If you're not making back 10 times over using the software and taking inventory, then you're not using it right.

While I don’t get any commissions or kick back for recommending them, but my favorite food and beverage software is Margin Edge. It does everything you need to manage your inventory and keep your recipe costing cards accurate.

A quick sidenote, to have accurate inventory, you must then do your batch recipes. These are components to dishes, soups, sauces, side dishes, dressings, desserts, anything you manufacture yourself. If you buy product, put it in a pot, chop it up, do whatever makes something new, that product has value on the shelves.

Set up proper restaurant inventory

The next thing to do is set everything up in shelf-to sheet order. Reorganize your shelves, the way you've always wanted them. You label your shelves to make sure everything lives in the same spot every single time and then set up your inventory so that the product appears on the shelf the same way on the sheet.

You don’t hire your cooks, kitchen manager or chef to do math on the fly. You hired them to ensure the process is working. That’s why you want it all set up in the walk-in and on the shelves so everyone knows where to look for each item and in size units you’ll find the products. This way you don’t end up with $30,000 in shredded cheese because someone counted the wrong unit size and ordered more.

Make sure you have two people take inventory every single time. This is helpful for speed but also to keep honest people honest. Software also helps keep people honest.

Using software and the shelf-to-sheet process, you'll complete your inventory for the third time in under an hour. You’ll know your food cost and your pour cost within seconds of putting the last number into the software. There's no waiting weeks for your accountant. There's no calculating spreadsheets, double checking. 

The only way to know your cost of goods sold is to take accurate inventories, period. Your food cost formula is beginning inventory plus purchases minus ending gives you use. Then, use divided by sales is your food cost.

Be sure to visit my YouTube channel for more helpful restaurant management video tips.