A Step-by-Step Guide to Setting Up Your Restaurant Inventory System

Inventory management is critical to restaurant profitability and success. Many first-time business owners believe that the food costs they calculate when designing their menu will be sufficient. In practice, actual food costs are frequently much higher than theoretical calculations. This could be due to a variety of factors such as wastage, spoilage, different suppliers, price fluctuations, or simply the kitchen staff getting the recipe wrong. As a result, effective inventory control in the food industry is much more challenging than in other industries.

How often do you need to do physical inventory counts in restaurants?

The best practice is to conduct physical inventory counts in your restaurant every two weeks. This may seem like a time and labor-intensive practice, but it will all be worth it.

According to industry statistics, most restaurants and bars lose 20% of their inventory each week. Employee theft, waste, spoilage, or inaccurate record-keeping can all contribute to this loss. Restaurant owners and managers can identify the root causes of these losses and take corrective action by conducting regular physical inventory counts.

Besides that, regular physical inventory counts can help restaurants lower the chances of overstocking and understocking. This can help to reduce food waste and spoilage, which can save money over time.

How do you get started in monitoring inventory for food businesses?

To help you hit the ground running, Mosaic Solutions has a free restaurant inventory template that you can customize for your business. Download it here.

Step 1: List down your ingredients

List your ingredients and their supplier if you use multiple suppliers. It’s best to be accurate when tracking inventory because each supplier may have a different cost. When computing your inventory valuation, we need to take these into consideration.

An optional step is to assign a unique item code to each ingredient. One ingredient can have multiple suppliers, so just make sure that each ingredient has only one item code. This will help you filter for each ingredient and determine the average cost based on all variations and suppliers. This information will come in handy when you compute your recipe costs and cost of goods sold.

Step 2: Determine the appropriate Unit of Measure (UOM)

Regardless of packaging or supplier, you need to identify a standard unit of measurement for each ingredient. Try not to use the packaging that the ingredients come in, like bags, bottles, or cans. For whatever reason, you may need to change suppliers or buy a different packaging size, and that will mess up your inventory counting system. Choose universal units of measure like measuring by volume like Milliliters (ml), Liters (L), or Gallons (gal), or by weight like Grams (g) or Ounces (oz). As a rule of thumb, the smaller the unit of measure the more exact your inventory and food cost calculation will be. Also, to make things even easier for you,

Step 3: Determine the cost per Unit of Measure (UOM)

You can easily compute the cost per UOM of your ingredients by dividing the price you pay for by the packaging it comes in. If, for example, a 500g bottle of tomato sauce costs P1,000.00, and your UOM is in grams, then the cost per UOM would be P2.00 per gram. This is important because regardless of packaging or variation, you can easily compare which supplier is the cheapest, and you can easily monitor if your cost per ingredient is going up or down.

Step 4: Compute the value of your inventory

To compute the value of your inventory whenever your conduct audits, simply multiply the quantity you have accounted for by the cost per UOM. Do this for every line of ingredients and supplier. Add up all the amounts and you’ll have the valuation of your inventory.

How can you take your restaurant inventory system to the next level?

To make things easier by leaps and bounds, use a restaurant POS with inventory software. These purpose-built systems allow you to input not only the list of ingredients and their cost but also the recipe composition of each menu item. This type of POS system auto-deducts your restaurant’s inventory as orders are placed. Therefore, this gives you a real-time view of your theoretical cost of goods sold.

Of course, as mentioned earlier, the theoretical cost is one thing, and the actual cost of goods sold is another. With these systems, however, you would be able to easily compare the theoretical inventory value and quantity with the actual physical count and identify variances per item and determine how much you are losing in inventory. This will prompt you to investigate if your kitchen is overstocking or understocking or conduct additional training for your cooks in terms of recipe management. If you do your inventory audits every 2 weeks, you’ll always be able to catch operational inefficiencies and correct them before it’s too late.

When you get the hang of your restaurant’s inventory management, you can even optimize the profitability of each menu item through menu engineering. The possibilities are endless when you get these restaurant management fundamentals right.