12 Terms to Make Inventory Management Stress-Free
Inventory management gives you the information you need to analyze day-to-day operations at your restaurant and maximize profits as a result. Rather than a simple, one-time calculation, you’ll need to monitor it frequently so as to minimize food waste and prevent theft.
Why Does Inventory Management Matter?
Keeping a tighter control over inventory saves money. For one, it helps you understand where money is going to waste in your current system, whether via overstocking or through plain old theft and mismanagement. Eliminating these issues streamlines your operations and cuts unnecessary costs, saving you a lot in the long run. With the right information and the correct data, you can make smarter purchasing decisions and set off on a better track for the future.
Getting into a smarter, more cost-effective rhythm will improve service throughout your business, standardize those refined systems and ensure that you’re optimizing operations at all times for the future. Understanding your inventory is also useful for calculating the different costs that make up your restaurant so you can streamline each and every one of them.
You need to stay on top of your inventory. Do inventory management at least once a week so you can calculate things like turnover, understand if you’re buying too much or if business is slow, and cut costs by readjusting wherever money is going to waste.
Inventory Terms to Know
Before you can effectively manage your inventory, you need to know and understand some of the relevant terms. Here’s a primer to get you started:
- COGS, or cost of goods sold, measures how much you spend making food and drinks to sell. To calculate this, take the beginning inventory, add any purchases you’ve made during the week and subtract the ending inventory from that total.
- Catch Weight, also known as the Approximate Weight. This is how restaurants measure unprocessed foods like meat, whose weight varies each time you buy it.
- Estimated Usage. The amount, or dollar amount, of sitting inventory divided by average use.
- Food Cost Percentage. A measure of the cost of ingredients as a percentage of the sales price, to get a clearer picture of how much you’re really making. For most restaurants, this number averages between 28-30%. Learn more about lowering FCP here.
- Inventory Turnover Ratio. How fast you go through inventory over a set time period, usually the course of a year. Find your ratio with this formula: COGS / ((Beginning Inventory + Ending Inventory)/2)
- Less Case Unit, also known as Split Unit or Broken Case Unit, is a measurement used in lieu of Full Case Unit. For example, if you buy a case of beer then the less case unit would be cans or bottles.
- Par Level. How much of an item you need so you can fill orders for a set time period. You should account for a safety margin, since operations are never perfectly streamlined, but if you overshoot then you risk wasting food and spending unnecessary money. If you underestimate, you’ll have a shortage. Analyzing past inventory data is useful for accurate estimation.
- Sitting Inventory is the amount of product, or the dollar amount of the product that you’ve got with you in-house. Always use a consistent unit of measurement for sitting inventory as it makes for easier analysis. For example, measure everything by the pound rather than using cups, liters and ounces all together.
- Theoretical Usage, usually compared with actual usage. This is the amount that the Point of Sale or staff reports that you’ve used measured against when you actually have used. Use this to manage food waste and account for all of your inventory so you know if and where you need to make adjustments.
- Variance is the difference between product cost and the cost of what you use. Many businesses set this as a percentage to more easily analyze what it means; the average restaurant has a variance of 2-5%. You can calculate your own by subtracting actual usage from theoretical usage.
- Waste. It’s one of the biggest eaters of profit there is. Find out more about reducing food waste here, but remember that 4-10% of waste is pre-consumer, meaning it comes mostly from kitchen staff and managerial negligence. Reduce kitchen waste from overproduction or spoiled ingredients by streamlining your inventory.
- Yield. This is the percentage of your product that’s accounted for in sales compared to the theoretical amount that should have been used, assuming all else is perfect.
The right Point of Sale system can calculate a lot of these numbers for you and even analyze some of the data so you can get your restaurant on the right track.
What does the right Point of Sale look like and how do you know you’re getting the best one for your business? The most advanced systems have real-time inventory management, including overseeing customer and vendor relationships to make it easy to place shipment orders. Your system should do a lot of the financial reporting for you so you can understand the cost and see your most profitable meals. Theyre also equipped for scalability; no matter how much you expand or grow your restaurant, the right Point of Sale will have no problem tracking all the new business. It should also be able to protect all this data by restricting access to certain staff members only, making it easy to manage your team.
At eatOS, we’re dedicated to making your business as streamlined and efficient as possible. Schedule a demo with us today and let us make your restaurant and inventory management simpler.
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