Restaurant Inventory Management: Best Practices In 2023

Starting a restaurant and owning one remains a dream for many. However, operating the restaurant is much more than preparing and offering a delicious meal.

Inventory management is crucial for restaurants to ensure enough supplies and reduce food waste. Studies show that half of the food in the world is wasted, impacting the sustainable utilization of land, water, and energy. Beyond that, restaurants endure the extra challenge of sourcing perishable ingredients and selling food items made from them. All these make restaurant inventory management a complex, challenging affair.  

In this blog, we have curated the benefits of restaurant inventory management systems and how they help address the challenges in the process. We have also covered the best practices and effective strategies for restaurant stock control and help them achieve sustainable sourcing of ingredients and minimize food wastage. So, if you are exploring how to do inventory in a restaurant, this blog is a must-read.

What Is Restaurant Inventory Management?

Inventory management helps businesses make crucial sourcing, storage, and replenishment decisions. It is all about having the right inventory to meet the customer’s demands without consuming the physical space and draining the monetary resources of your business. 

Restaurant inventory management keeps track of the ingredients, food supplies, and other items like pans and pots used in the cooking process.

 

Since restaurants deal with perishable ingredients and food supplies, inventory management remains cumbersome. The inventory system has to record the supplies coming into the restaurant and track their usage. So, it records the ingredients coming into the restaurant and the food supplies moving out of the restaurant. 

An efficient restaurant inventory management system keeps a record of the following. 

• What are the ingredients sourced from vendors?
• How much food was ordered by the customers? 
• What was delivered to the customers?
• What is remaining in the inventory store?
• When should the stock be replenished?

Traditionally, the inventory management process was performed using paper forms, memos, excel sheets, etc., on a daily, weekly, or monthly basis, depending on the size and scale of the restaurant. They are not only challenging to track but are inaccurate and prone to errors. 

What Are The Benefits Of Restaurant Inventory Management?

From helping restaurants reduce wastage and manage the cash flow to enhance the overall efficiency of the business, an efficient inventory management system offers a plethora of benefits to restaurants. Some of the important benefits that restaurants can achieve by deploying a robust inventory management system are as follows.

1. Reduce Food Wastage

Proper inventory management for restaurants helps reduce food wastage which remains a major problem for restaurants across the world. USDA data shows that 30-40% of food supplies end up in waste in just the USA. It must be noted that around 10% of the food is wasted even before it gets served to the consumer. 

Food wastage can be due to theft, spillage, or excess stock of food supplies. A restaurant inventory management system helps gain visibility into the process, identify the point of loss, and based on the data, restaurants can work out ways to minimize wastage. 

2. Optimize the Inventory

An efficient restaurant inventory management system helps optimize the inventory and minimize food and inventory costs. Using an inventory management system, restaurants can make accurate forecasts and predictions so they don’t stockpile excess inventory. 

The inventory management system also helps automate the replenishment process, so you have the right amount of inventory at any point in time. This way, you can ensure that your cash doesn’t get tied up in excess inventory and enhance your restaurant’s cash flow. 

An inventory management system also helps achieve effective restaurant inventory control. 

3. End-to-end Vendor Management 

Using inventory management for restaurants can automate the vendor management process. They can keep track of the supplies, automate the process of placing purchase orders and sourcing, and payment process. This enhances the transparency of the process and helps restaurants maintain a cordial relationship with the vendors and suppliers. 

4. Better Profit Margins

It must be noted that the profits are very lean in the restaurants and food industry. As they endure high operating costs, a spillage or an error can amp up the costs and impact the profit margins.  

An efficient inventory management system helps minimize wastage, spillage, and errors to drive better profit margins eventually. Businesses can also reduce the cost of food served to the consumer, which in turn helps them gain a competitive advantage.  

5. Enhances Customer Satisfaction

There is no better way to delight the customers than to offer the food they request, more so in a timely fashion. When restaurants have the right amount of ingredients and inventory supplies, they can serve customers right when they receive an order. This mitigates delays, and the restaurant also gets to serve more customers at any given point in time. This helps develop a loyal customer base in the long run. 

Having access to the cost of ingredients and recipes, on the one hand, and the sales data from your Point Of Sale (POS) helps you figure out an optimal price for your offerings.  It also helps determine food items that generate more profit margins for the restaurant and promote the same to the customer. 

7. Track the Effectiveness of Marketing Programs

Restaurants run campaigns, offers, and promotions. Using inventory monitoring software helps track the POS reports so owners can get insights into the effectiveness and success of such marketing campaigns.

What Are Effective Strategies For Managing Inventory In A Restaurant?

As explained earlier, managing the inventory in a restaurant is a complex process. The best restaurant inventory management system has the power to help drive more profits, minimize wastage, reduce operating costs, and automate the process of sourcing ingredients and food supplies.

We have curated some tips and strategies that you can adopt to ensure a seamless flow of inventory in a restaurant. 

1. Keep a Tab of the Inventory at all Times

If you are a restaurant owner reading this blog, make it a point to organize your existing inventory before you bring in new items to the shelf. Using restaurant inventory management software helps you gain visibility into the amount of inventory available daily.

Restaurants usually measure variance when it comes to inventory. Variance is the difference between the stock that should exist per the POS records and the actual stock. 

Wastage is common in food preparation, so 2-5% of the variance is considered normal. If you are experiencing a higher variance, it means that unmonitored spillage or theft is happening in the kitchen. On the other hand, if the stock is higher than what it must be as per the POS, fewer ingredients are being used, so you must keep a tab on the quality of the food offering. 

At any point, you must monitor the inventory and ensure that you maintain the optimal variance. 

2. Follow a Minimal Stock Strategy

If you depend on perishable supplies, always follow a minimal inventory approach. Also, make it a point to finish off the old stock and existing inventory before using the new supplies. This helps minimize wastage and inventory costs. 

Using seasonal ingredients helps enhance the variety of your food offerings and reduce the wastage that comes from perishable food items. 

3. Make the Best use of the Recipe Costing Feature

Managing recipe usage is the best way to minimize the costs in a restaurant. When you feed in the ideal amount of ingredients you need to prepare a food item, you can estimate the following. 

• The selling price of a food item
• Amount of days the existing inventory will last
• Determine the reorder levels

Having a record of the recipe and subtle nuances of the ingredients used will help you maintain uniformity in preparation if you have multiple food outlets. The recipe costing will help you determine the irregularities if certain food items are over-priced or underpriced. You can determine the ideal selling price and re-engineer the menu based on the same.

4. Automate the Shelf-life Management

Shelf-life management is a crucial aspect of inventory management in the restaurant industry, particularly for those that consume more perishables. Certain items, like nuts, grains, etc., have a higher shelf life, while others, like vegetables and fruits, have a lower shelf life. 

Using an inventory management system, record the shelf life of each commodity when they are sourced. In case the stock remains beyond the shelf life due to lower sales, the system should send a notification along with the reason for the same. You should tweak your purchasing strategy based on the data available. 

5. Keep an Eye on Theft and Spillage

A survey shows that more than half of restaurant employees have indulged themselves in stealing or theft at least once in their lifetime. Common ways include stealing the ingredients, consuming the food, not accounting for the food supplied, etc. Keep an eye on such activities so you can minimize your costs and increase your profit margins. 

6. Adjust your Product Mix to Cover Surplus Stock

In case you end up with an excess stock of a food commodity, discuss it with your chef. Check how they can adjust the product mix so the excess stock gets used up. They may add an extra flavor to the existing menu or special appetizers. This helps reduce wastage and handle the excess stock in a righteous manner.

7. Offer Incentives to Reduce Food Wastage

Using the data available from the inventory management system, design incentives and rewards for the employees, servers, and other stakeholders in the restaurant. This keeps them motivated to reduce wastage by all means.

8. Make Informed Decisions When it Comes to Inventory

Using data from the past and present inventory and having visibility into how the ingredients are getting used up helps make informed decisions. You will also gain insights and understand what you can do to improve the process.

What Are The Best Practices For Managing Inventory In A Restaurant?

Automating the process of inventory management for restaurants, organizing the existing stock, and leveraging technology to minimize wastage and costs are some of the best practices that restaurants follow when it comes to inventory management. The following section presents a detailed explanation of the same.

1. Keep Minimal Stock

Always follow a minimal stock approach and ensure that you keep your stock levels as low as possible. Your ideal stock should be sufficient to deliver to the customer’s requirements. This will help ensure that your finances don’t get locked up in shelves and maintain the optimal cash flow for a seamless business. Beyond, having a minimal stock helps reduce wastage and drive better profits. 

2. Automate the Process of Inventory Management

Restaurant Inventory management is a complicated affair, and it is hard to follow when you are stuck to using traditional paper forms or Excel spreadsheets.

Automating the inventory management system simplifies the process. Choosing a platform that offers a mobile app for inventory management helps manage the restaurant inventory on the go from anywhere, anytime.

3. Organize your Stock

Before you order a new stock, make it a point to organize your existing stock. Consider adding labels to the shelves so the staff can figure out the shelf life of a commodity and plan accordingly. 

4. Keep a Tab on All Inventory

Restaurant inventory doesn’t involve just the ingredients, recipes, and food supplies. It covers everything from pots and pans to uniforms and napkins. So, keep a tab on the stock and shelf life of all the items. 

How often you take stock of them varies depending on their shelf life. For non-perishables like uniforms, pots, etc., you can take stock once a year. On the other hand, for perishable items like vegetables, fruits, etc., you may have to take stock often. 

5. Watch Out for the Sell-through Rates

Sell-through rates define how much of a commodity is sold during a particular period. If you order 100 pieces of commodity and end up selling only 70, your sell-through rate is 70%. You may group items according to their shelf life and monitor the sell-through rates for deeper insights. 

6. Automate the Process of Inventory Replenishment

Leverage the benefits of inventory management systems and automate the process of reordering and replenishment. You can set a threshold level for each commodity, and when the existing stock reaches that level, the system automatically places the order. This will help you manage the inventories and serve your customer better. 

7. Use Smart Forecasting Tools

When you automate end-to-end inventory management, you gain access to data and insights over a specific period of time. Smart forecasting tools help determine the optimal inventory level at any given time. Such tools base their forecasts on historical data, existing stock levels, and sales data from POS systems and so are more accurate than manual forecasts. 

8. Hold the Employees Accountable for their Actions

Educate the employees about the importance of inventory management systems and how they can drive business margins. Train them with information on how you are tracking the inventory levels. When they understand the process, employees should be more responsible and accountable for their actions. 

What Are The Different Types of Inventory That A Restaurant Should Be Tracking?

There are different types when it comes to inventory in a restaurant. Following are some of the important types.

1. Food and Beverages Inventory

Food inventory includes all items like fruits, vegetables, meat, dry fruits, spices, herbs, dairy products, poultry, seafood, sauces, etc. It also covers all beverages served in the restaurant, including tea, coffee, water, and so on. 

2. Non-food Inventory

Beyond the food inventory, restaurants also have cooking and serving utensils, pans, pots, knives, straws, tableware, mixers, and several non-food inventory supplies. Restaurants must keep track of the non-food supplies and stock to ensure seamless functioning. 

3. Perishable vs. Non-perishable Inventory

Perishable inventory in a restaurant covers all items with a shorter shelf life, including dairy products, meat, vegetables, etc. The non-perishable inventory covers those that have a longer shelf life, and some examples include grains, spices, pots, pans, etc. Restaurants must monitor the perishable inventory more closely to avoid wastage. 

4. Raw Material Inventory vs. Finished Goods Inventory 

The raw material inventory covers all the primary ingredients for making a dish. Examples include oil, sauce, spices, flour, etc. Finished goods inventory includes the final food items delivered to the customer. 

What Are The Challenges Of Restaurant Inventory Management?

Irrespective of the size and scale of operations, most restaurants endure challenges and complexities regarding inventory management.

Given below are a few common challenges that restaurant owners endure when it comes to inventory management. We have also shared expert tips on overcoming them and simplifying the process. 

1. Inaccurate Inventory Data

Accurate data forms the cornerstone of inventory management in the restaurant industry. Using manual methods or traditional paper forms, or Excel spreadsheets may not yield an accurate picture of the inventory. Beyond food inventory, restaurants must keep track of non-food supplies like pots and wares to ensure seamless functioning. 

You can overcome this challenge by deploying robust inventory management that automates the end-end inventory management of restaurants. This improves the efficiency of the restaurant’s functioning and lets the employees focus their energy and time on performing other critical operations. 

2. Unreliable Forecasts

Not having a reliable forecasting system is a common problem that restaurants endure when it comes to inventory sourcing and management. Without a proper forecast, restaurants are a risk of overstocking and understocking. 

Using an inventory management system helps overcome this problem. It helps you determine the number of items needed to meet the demand in the coming week or month based on historical data and seasonal trends. 

3. Improper Recipe Management 

An inefficient recipe management system impacts inventory levels. This raises food costs and magnifies the cost of operation. Inventory management systems automate the process of recipe management, and they can be programmed to record the standard recipe of each dish.

The automated system calculates the quantity of each ingredient you need to prepare a food item and keeps track of the inventory based on the sales record at the POS. 

4. Managing Multiple Restaurant Outlets

Managing the inventory of a restaurant chain is extremely complex. As they have to deal with multiple internal transactions and transfers, it is hardly impossible to keep track of the inventory, purchases, and sales with spreadsheets and manual methods. 

The best way to manage inventory if you own multiple restaurant outlets is to deploy restaurant inventory management software that has a multi-store management module and supports a central kitchen management system.

5. Lack of Reporting 

Reports and analytics are crucial when it comes to the efficient management of inventory. Restaurant owners need data on sales, consumption, inventory, and variance to be able to make informed decisions and reduce wastage. 

Following are some of the key data that restaurant owners depend on to make decisions pertaining to inventory management.

• Cost of Goods Sold (COGS)
• Sitting inventory
• Sell-through rate
• Depletion
• Variance
• Yield
• Inventory turnover ratio
• Estimated usage
• Food loss cost
• Food cost percentage

These data points help businesses make data-driven decisions, maintain optimal inventory levels, reduce inventory costs, reduce wastage, and achieve greater profit margins.

Conclusion

Inventory forms the lifeline of restaurant businesses, and it is essential to maintain optimal inventory levels to be able to manage the costs on the one hand and meet customer needs on the other hand. Since inventory for restaurants extends beyond food and beverages to cover non-food supplies like uniforms, pots, pans, etc., it is impossible to maintain the inventory using traditional methods like Excel spreadsheets or paper forms. 

The key is to use a restaurant inventory management system and leverage its features and functionalities to automate the end-to-end management of inventory. You should check out the cloud-based inventory management software solutions as they are cost-effective, and you ought to pay only for what you use.