management | 3 mins read

The Importance of Inventory Management for Small Businesses

the importance of inventory management for small businesses
Michelle Jaco

By Michelle Jaco


It is important to monitor your restaurant's inventory on a regular basis to make sure that you do not run out of ingredients to prepare your dishes, especially the popular ones.

Inventory management is certainly one of the most crucial running parts of a restaurant's success.

Questions like the following will help you to evaluate your inventory management process

  • Have you had the right ingredients available when you needed them?
  • Did you lose money when certain food items were out of stock?
  • Did you lose money due to having an excess of some food items?
Here is an overview of the basic management techniques that will effectively make the best use of your in-house and replenished inventory. We will also take a look at what you should look for in inventory management software.

Inventory Management at a Glance

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Inventory management is the process of tracking inventory coming in and inventory going out. In the restaurant industry, the same concept applies, however, it can grow to be more complicated as it is vital to ensure that the right amount of food and ingredients are well-stocked at desirable quantities and still in a saleable condition.

Because perishable goods are being dealt with, it is imperative that these standards are being followed thoroughly.

If done correctly, restaurants save money by maximizing sales and maintaining stock at optimum levels. By doing so, you avoid over-ordering and under-ordering, which saves you tons in costs. You will also avoid food spoilage and wastage another contributing factor in wasted costs.

With effective inventory management, you can track incoming orders in real-time, while also streamlining the whole process to better suit your restaurant's individual needs.

Some would prefer to apply the hands-on approach of inventory management, but the most accurate way to secure stock levels is to utilize the technology that is available to restaurateurs, which aid in running the business.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

Inventory Software

With so many easy-to-use tools available at our disposal, why wouldn't anyone want to try them, especially if it's going to make your life easier? Here are the benefits you can expect from a superior software system

  • Accurate forecasting features
  • Reduce costs in supply spending
  • Real-time tracking
  • Boost the restaurant's bottom line
  • Prevent ingredients shortage
  • Prevent the storage of too many raw materials
  • Prevent excess food stocks
  • Provide easy access to inventory analysis on all devices
  • Optimize food organization
  • Save on time spent at back-of-house
  • Eliminate paperwork

Best Practices for Small Businesses

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The following are effective techniques that can be applied to small businesses to better manage restaurant inventory.

Accurate Forecasting
The first thing that you should ensure is that forecasting is perfect. The process of forecasting usually includes many perimeters. Some examples include average rush hour times, most popular dishes during a given season, least popular dishes in general, or the literal forecast outside, and so on.

With these parameters in mind, you should be able to predict (as accurate as possible) the food usage and the amount of ingredients required to meet the demand. When you have the proper data, you can make accurate predictions.

FIFO Approach
First In, First Out approach, also known as FIFO, is the best approach for restaurant inventory management. It is mostly used for perishable food items (that expire or rot).

According to this practice, you should use the food items in the same chronological order in which they were brought in.

So, the newer the stock, the longer the expiry date, and it should be used only once the previous items have been utilized. This practice is effective in reducing food wastage and spoilage.

Identify Unpopular Items
Unpopular items are usually those that are not used frequently. This could be due to the dish where the ingredient is applied not being popular, or an uncommon ingredient that is simply not utilized on a regular basis.

If there are such items in your inventory, you should stop stocking it at a higher than needed volume and determine a way to rid of it.

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Stock Audits
Even if you have good inventory management software, you'll still need to actually count the stock levels in your inventory in order to verify that the stock matches with the software's calculations.

Every restaurant uses a different approach to this. Some prefer to audit stock annually, whereas others choose the monthly approach. The audit consists of counting every single item in stock and by doing spot-checks.

Use Cloud-Based Software
It is pertinent that you go with real-time cloud-based inventory management software because it is most effective for small businesses. This software usually allows for real-time data and automatically adjusts the stocks whenever a sale is made.

You also get daily email alerts, which help, in monitoring stock levels, allowing you to order according to the demand.

Stock Level Tracking
You should have a robust system in place in order to track stock levels, prioritize products according to popularity, and costs. Effective inventory management also saves huge amounts of time by doing the heavy lifting.

Quality Control
Lastly, no business can survive without quality control. So, no matter what your specialty is, you should always ensure that the products you are using in your dishes are not spoiled or expired.

Never compromise on the quality of food, because if the quality of food is compromised, you'll lose customers and put your restaurant in jeopardy of going out of business.

Online employee scheduling software that makes shift planning effortless.
Try it free for 14 days.

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