Nothing can wreak havoc with the success of a busy restaurant shift like a stock-out. Having to explain to customers that the dish they want is off the menu can be embarrassing and can cost you customers — not just today but in the future.

Restaurant inventory management software and proper inventory control can help you monitor and track inventory levels and notify you when you’re running low on an ingredient, so you can re-stock. An inventory management system can help you to better budget and control restaurant inventory, as well, to avoid over-ordering and food waste.

This article will show you why inventory management is so important to a restaurant's bottom line, and introduce you to some restaurant inventory best practices.

The Importance of Restaurant Inventory Management

Of course, income is probably the most important metric you’re tracking right now. But hand-in-hand with income is the need to control restaurant costs with restaurant inventory management.

The importance of restaurant inventory management becomes evident when you understand how much food waste is costing your restaurant. A good inventory management system can help you

• Manage stock through par levels and automated ordering to maintain food inventory
• Maintain food cost by tracking the cost of supplies coming in and comparing that against goods sold
• Monitor waste with inventory tracking to reduce the amount spent on food that is disposed of before it ever reaches the customer

Inventory Management Basics

The amount of inventory you need on hand depends on how busy you typically are, your storage space, and the number of deliveries you receive each week. As a rule, though, you should carry at least enough inventory to cover your sales plus a little extra to cover emergencies and waste. Typically, that means carrying around five to seven days of inventory.

Then, there’s your inventory turnover. How do you keep your stocktake moving to prevent food from spoiling or expiring before it’s used?

That is where inventory management PAR (Periodic Automatic Replenishment) levels come in handy. That is a minimum and maximum limit on the quantity of any item of inventory so that you don’t under or overstock.

Your inventory management software should allow you to set PAR levels for your stocktake. When an ingredient hits PAR level, you get an immediate notification to reorder.

Managing Inventory for Efficiency and Cost Savings

There are a number of ways that effective inventory management practices can result in improved efficiency and cost savings. Properly tracking, recording, and managing inventory can have an impact on your COGS (cost of goods sold) and your net profit, for example. Here are some tips for better inventory management.

Lean Inventory Management

Lean inventory management is the practice of focused waste reduction by carefully balancing inventory levels to keep only enough stock on hand to meet demand — reducing waste. Lean inventory management can reduce waste by cutting the risk of carrying excess inventory, thereby cutting the risk of spoilage due to expired goods. Reducing the amount of inventory on hand at any time also cuts your carrying cost, as you will be carrying less inventory.

FIFO vs. LIFO

FIFO stands for first in, first out. It is the stock-rotation practice in which the oldest stock is used first, to reduce the risk of spoiled or expired stocktake. LIFO stands for last in, first out. In LIFO, the stock is rarely rotated, as the most recent stock to be added is also the first to be used. This can be helpful for tax purposes, because when LIFO is used when prices are rising, it can result in lower net income - and therefore lower taxes owed. LIFO can help reduce costs by minimizing the need to buy from a fluctuating market where food prices may rise.

FIFO is typically the best stock rotation method for restaurants and hospitality businesses managing inventory, especially when you are dealing with fresh food and produce that is likely to spoil. Organize your storage areas, fridges, and freezers so that new stock is placed at the back and older stock is moved to the front.

LIFO can be the better choice though for businesses selling ambient or long-dated goods, for example in a wine bar, particularly for aged wines.

Regular Inventory Checks

Taking regular inventory checks and counts lets you keep a close eye on stock levels. This is particularly important for items that spoil quickly, such as meat, dairy, fruits, and vegetables. Checking over your inventory daily can let you pinpoint potential issues, such as items reaching their use-by date, or goods about to go out of stock. Taking inventory on a set schedule also makes it easy to track and compare levels over time.

Take inventory when new deliveries arrive, as well. That allows you to count and rotate stock at the same time, and to check that everything ordered and paid for has arrived undamaged and unspoiled. Good supply chain management practices can reduce costs due to ordering and delivery mistakes.

POS Software

Your POS system gives you sales data that lets you automate inventory tracking based on customer orders. This is a good place to start your stock-take. Your average sales will give you an idea of what your inventory levels should be. Use current sales to anticipate orders and historic sales to forecast future stock.

Week-over-week, month-over-month, or year-over-year; no matter which metrics you look at, you can use past sales data to budget the amount of inventory you will need to keep up with demand,

Finally, compare sales data to inventory cost to make sure you’re charging enough for your dishes and you’re getting the best price from your vendors.

Be wary of relying too heavily on your POS system for inventory figures, however. Sales aren’t the only way to deplete stock. Spoilage, shrinkage, human error and even theft can all cause discrepancies between your sales data and your actual stock on hand.

Recipe Software

Use recipe software to calculate how much inventory you need on hand to make each dish on your menu. This, combined with POS software, can help you to forecast how much inventory you will need to meet demand, so you don’t under-stock (and have to take items off the menu) or over-stock (and have to waste ingredients, or sell them for less with a temporary offer).

Food Waste Calculations

Properly tracking food waste helps you understand the actual costs of your food. Track the time, date, and amount of goods wasted, along with the reason (did it spoil or expire, was it dropped or spilled, or is this due to normal day-to-day shrinkage?). That way, you can pinpoint the main reasons for unnecessary waste easily, and even see if any staff are especially prone to causing waste. From there, you can manage inventory issues to save money spent on wasted goods and ingredients.

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How to Choose the Right Inventory Management System for Your Restaurant

The best restaurant inventory management software for your restaurant is the one that best fits the needs of your restaurant operation. Your restaurant inventory management system should facilitate automated online ordering via PAR levels and integrate with your POS system to compare inventory levels with sales data. Ultimately, restaurant inventory software should help restaurant management to reduce food costs and streamline inventory management operations.

MarketMan's restaurant inventory management software simplifies back-of-house processes, from inventory management to food cost control. Automate daily tasks, reduce waste, and gain actionable insights to boost your restaurant's profitability. Take the guesswork out of operations and focus on delivering exceptional experiences. Book a demo now to see how MarketMan can transform your restaurant operations!