Restaurant Inventory | 3 mins read

Key Restaurant Inventory Terminology and 9 Best Practices

key restaurant inventory terminology and 9 best practices
Chloe Henderson

By Chloe Henderson

A restaurant's financial health relies on how well they can manage their inventory. Poor restaurant inventory management can result in missed sales, decreased profits, and excessive food waste.

Prioritizing restaurant inventory management allows businesses to minimize food spoilage, boosting efficiency and profitability.

Restaurant Inventory Terminology

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There are several terms restaurant inventory managers must know, including-

  • Sitting Inventory is the amount of product a restaurant keeps on-hand. Sitting inventory can be measured by monetary worth or the physical quantity, but the unit must remain consistent throughout all items.
  • Depletion refers to the amount of inventory used within a specific timeframe, calculated daily, weekly, and monthly based on sales reports.
  • Usage is the dollar worth of sitting inventory divided by the average depletion in a specific timeframe-

Sitting Inventory / Average Depletion = Usage

For example, a restaurant that has 10 cans of tomatoes and plans to use two cans a week has enough inventory for five weeks of usage.

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  • Variance is the difference between the product cost and the usage amount cost-

Product Cost Usage Amount Cost = Variance

For example, if a restaurant determines that they used $250 worth of steak at the end of the day, but sales reports show they only sold $235 worth of steak, there is a -$15 variance-

$235 - $250 = -$15

In other words, there is $15 worth of steak that is unaccounted for. This could be due to food waste, such as spoilage, food scraps, or kitchen mistakes.

Inventory variance can also be presented as a percentage-

(Variance Amount / Usage Amount Cost) x 100 = Variance Percentage

In this case, the variance amount would be -6%-

(-$15 / $250) x 100 = -6%

9 Best Restaurant Inventory Management Practices

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Inventory management is especially important in the restaurant industry as they work with perishable goods. Food spoilage and waste can significantly impact a restaurant's bottom line. Therefore, businesses should consider using the best inventory management practices.

Implement an Inventory Management Solution

Inventory management software tracks stock orders, counts, and usage, enabling restaurants to monitor where ingredients are used and pinpoint discrepancies.

By integrating inventory solutions with a point-of-sale (POS) system, businesses can detect sales, accounting, and customer behavior trends to improve decision-making. Solution integration also allows inventory software to gather real-time and historical data from other platforms to improve algorithms and detect anomalies.

Establish an Easy Tracking System

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Restaurants should have an efficient, straightforward inventory tracking system to ensure any employee can conduct counts. A complicated procedure is time-consuming and may lead to inaccurate inventory records.

By incorporating automated tools, such as barcode scanners with inventory software, restaurants can eliminate manual methods. This prevents miscounts, miscalculations, and other human errors, improving tracking accuracy and efficiency.

Leverage Forecasting Tools

Companies can optimize their business intelligence by integrating forecasting software that collects data from established solutions to project how much inventory is needed in the future.

Forecasting tools also estimate future sales and demand so managers can prepare staff schedules and stock levels to drive sales. Otherwise, restaurants may over or understock ingredients, resulting in food spoilage or lost revenue.

Analyze Inventory Reports

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Cross-examining past sales trends with current inventory patterns enables restaurants to anticipate fluctuating demand and prepare internal operations. Managers can also differentiate their theoretical tracking estimate and actual food cost variance to improve waste reduction strategies.

Take Inventory Regularly

Inventory should be checked on a regular basis to avoid confusing employees and missing cycle counts. Perishable ingredients should be counted daily, while foods with a longer shelf life can be inventoried weekly.

Managers should enforce inventory counts on the same weekdays. For example, if canned goods are tallied biweekly, it should be on the same day of the week.

Conduct Quality Control on Incoming Stock

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Before signing off on a delivery, managers should check all of the ingredients to ensure they are present and meet health standards.

Meat, produce, dairy, and other perishable items should be kept at their optimal temperatures to prevent spoiling. If the goods do not meet regulations, restaurants should return the items and request a refund.

Maintain Low Stock Levels

The less stock restaurants keep on hand, the lower the risk of food waste. However, underestimating demand can lead to stockouts and lost sales.

Therefore, restaurants need to carefully study inventory usage, sales, and waste trends to accurately calculate optimal stock levels. Although buying in bulk can save restaurants money, overstocking items can increase food waste.

Use the FIFO Method

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The first in, first out (FIFO) method requires restaurants to sell their oldest inventory items first. This requires diligent recordkeeping of delivery dates to ensure the newest shipments are reserved until the oldest inventory has turned.

Keep Records Organized

Restaurants must keep organized inventory records on shipment, opening, and expiration dates, as well as routine tallies. This allows management to generate reports to improve their ordering and management strategies.