Inventory Management is one of the most crucial, yet most misunderstood aspects of operating a profitable Restaurant.

So, what is it?

It encompasses three different elements. Firstly, the menu development and pricing strategy, Secondly the control processes that seek to ensure that the assumed cost of each menu item is delivered, and Finally how frequently you sell your inventory, or what is known as Inventory Turnover.

Here, we will look at the control processes and the elements of your restaurant that you can directly impact.

We all know that the cost to the restaurant of the ingredients for every menu item we sell is important.

This Cost of Goods though, is fragile. It is affected by many things; the produce itself, that arrives from the supplier; the preparation of the produce by staff; the portioning on the plate during service; and the errors made both in front of and behind the pass.

The Produce

Raw ingredients, such as Fruit and Vegetable, Milk and Meats, can change depending on the quality of the product, its availability, and with the season.

Whether it is the price of Tomatoes skyrocketing in winter, or Broccoli in summer, the yield (and hence wastage) from iceberg lettuces varying, or the portioning of products like ribs the raw product that is transformed into menu items changes all the time. Even pre-portioned items from suppliers, like butchers, can vary.

Beverages are not exempt either; wines change annually, and pricing of the new vintages can be starkly different. Freight charges can also be additional and add to your COGs.

And with each change, it impacts on the COGs, because the assumption made when designing the menu isn’t always kept. The cost of the ingredients can often be higher than we thought it was.

Supplier pricing errors are more frequent than they should be, and can be difficult to detect, product substitutions happen frequently, and credit notices due to out of stock items can be missed.

At the heart of the problem is the fact that the person negotiating the prices, ordering, receiving and paying for the items are often different people. And it doesn’t help that deliveries seem to arrive at inconvenient times, and junior staff traditionally pack them away.

Suppliers can be out of stock on certain items, and the substituted products can be smaller in size, or more expensive than the product they replace. And sometimes, suppliers simply make mistakes; forgetting products all together, or sending something you didn’t order.

Up to 5% variance in COGs can be attributed to Supplier errors, and mis-adventure. This amounts to over $10,000 per restaurant per year in Australia.

Also, the management of the produce in your own fridges can have an impact on their shelf life. Products provided by suppliers aren’t always as fresh as they could be, and they may not be rotated on the shelves, and date labelled properly in a busy fridge.

Good produce being thrown away through mismanagement is a preventable, and painful error that has a big impact on COGs.

Ingredient prices change frequently throughout the year; the COGs can range significantly depending on these price fluctuations, and the profitability of menu items can decrease significantly.

Preparation

How well your ingredients are managed and handled can impact on the yield possible from those items. Are recipes cards available? Are they costed? With images? Do all of the staff make the food items the same way to the same end result?

Pre-portioned items can be wrong. Assuming a Eye fillet is 120gms when it is 145gms, or a Rib Eye is 350gms when its 400gms, or chicken wing is 30gms when it is 50gms can make a significant difference.

Cocktails at the bar require a specific recipe just like a food menu item; higher value spirits substituted in, or over-poured ingredients can have a real impact on cost. Managing beer lines, and the gas that serves them can impact the yield you receive from each keg; dirty lines can prevent the beer from achieving that desirable head, and the wrong gas, or the wrong gas pressure can dramatically impact on wastage when pouring beers.

Coffee beans must be stored in air tight containers, and refrigerated when not in use. Don’t poor too many beans in at once, change the grinder coarseness as appropriate (it varies with the weather) and don’t over-grind.

Portioning

A kitchen in full flight, in the midst of service is a beautiful thing, but fraught with the possibility of errors. Not necessarily errors in execution, where the quality of the dish is compromised, or a mistake is made, but in the accuracy in the portioning of food items per the menu design. Expensive sauces and condiments that are over portioned when in a hurry can add up to $1000’s of dollars,

During peak trading times, over-portioning is likely to occur, and even small inconsistencies can have a dramatic difference of the profitability of the menu.

Errors and Freebies

Mistakes happen; even a 1% error rate, which in almost any industry would be considered acceptable, can lead to a dozen errors each week for a small cafe. Errors in preparation itself, or in the execution and delivery of the food to the customer.

An error, where the wrong menu item is cooked, a mistake in the kitchen or in the ordering, or due to poor communication, or challenging customers can contrive dishes to be discarded without corresponding revenue.

Every item produced that isn’t creating revenue is increasing your COGs and limiting your profit.

How are these items recorded?

Freebies come in different flavours; some are sanctioned, and some are the staff members trying to correct a problem unseen. Staff meals can be a significant cost; Chefs and Waiters form relationships, and each has something the other wants. It is not unusual for the kitchen staff to feed the waiters in return for drinks, especially alcoholic ones, at the end of a shift.

All of these areas full within the control of the business. They are crucial elements in managing the costs associated with the ingredients of your menu items.

Some simple measures can make a big difference to your bottom line.

Here are 10 simple steps to reduce one of the most expensive costs in operating a Food & Beverage premises;

1. Implementing a purchase order system is a simple way for the items being ordered for each supplier being tracked, and providing visibility for receiving items; prices, product descriptions, and quantities are plain to see.
2. Ensure substituted items, where the item ordered isn’t the same as the item delivered, are the same price, and of comparable quality and quantity.
3. Ensure stock is rotated, so that the existing stock is sold before the most recently delivered, and day dots are kept up to date and specials utilise stock held so that food is not out of date and thrown away.
4. Order in bulk where possible and be organised; don’t place small orders in between your ordering pattern unless essential.
5. Handling kegs and cartons is important; ensure they are in the cold room at least 24 hours prior to usage, and ensuring sufficient glassware for busy periods; nothing worse than trying to cool down glasses to serve drinks in.
6. Spot check pre-portioned items, especially proteins, and check pricing. Use purchase orders that clearly state the price of the item ordered. Do not accept substitutes, unless approved.
7. Produce seasonal menus that utilise produce at its best and most abundant, sourced closet to your venue.
8. Every menu item produced by the Kitchen or Bar must be accounted for in the POS. No hand-written dockets should be accepted in the kitchen, unless approved by management, and followed up with a printed docket through the POS system.
9. Each staff meal should be recorded against a staff meal button on your POS. It must be recorded so that it is seen in the stocktakes, and its value is tracked.
10. Have a specific and clear staff meal and drink policy detailing what is acceptable.

Ivan Brewer