Remember the scene in the movie Rain Man where Raymond is coaxed by his unscrupulous brother, Charlie, to count cards at a Vegas black jack table?
Charlie: Now casinos have house rules: they don't like to lose. So you never show that you're counting cards. That is *the* cardinal sin, Ray.
Raymond: Counting cards is bad.
Charlie: Yes.
Raymond: I like to drive slow on the driveway.
Charlie: If you get this right, Ray, you can drive anywhere you want as slow as you want.
It’s a classic scene. While Charlie Babbit’s ethics were absolutely terrible, he definitely understood how to beat the house. There is a hugely profitable advantage in knowing which cards have been used and which remain in the dealer’s deck. This information helps Raymond make an informed choice when it’s time to ask for more cards (or not). But, still, Ray’s right… counting cards is bad.
But, counting food inventory is good! Controlling a restaurant’s inventory by continuously tracking (counting) what’s been used and what remains in storage lets you make an informed choice when placing vendor orders. The goal of the inventory game is to maximize profits by having the optimal amount of inventory at any given time. With food costs usually accounting for one-third or more of a restaurant’s overhead, you need every advantage you can get to beat the house. Even better, counting inventory won’t weaken your moral fiber.
With that in mind, here are a couple of tips for optimizing inventory levels:
1) Count Inventory Daily
In tracking inventory daily, you’d ideally ask yourself three essential questions about each product:
- How much should we order?
- How much do we have on hand?
- Are we likely to run out today?
Counting every item each day would be ideal, but if you’re using a manual system to track inventory, you can keep the job manageable by counting a different set of critical items each day. Perhaps one day its protein, the next day is dairy, and so on.
On the other hand, restaurant inventory software that continually tracks sales of products and automatically depletes them from inventory can make it easy to spot items you might run out of.
2) Set Par Levels
A par is the amount of each item you need on hand to meet typical production demands between vendor orders. When you order, you bring the product level back up to par. The par level is set to avoid the problems of having too much, or too little inventory on hand.
Too much inventory can spoil and go to waste, which is expensive. It also creates overcrowded storage areas and disorganization, which can mask shrinkage. It may even require multiple storage areas for 1 item, leading to under-counting and over-ordering. Even worse, it could potentially create a bad food safety situation for your guests.
On the other hand, too little inventory can create lost sales due to unavailable items, which leads to disappointed guests and stressed servers and managers. The cure for these problems is to set par levels for each item.
How to set an inventory par level
- Analyze sales by periods; weekly is common. REMEMBER TO CONSISTENTLY UPDATE YOUR ANALYSIS
- For each period, track how much of each product you sold. Compare this number to previous years, and adjust for expected growth (e.g. multiply by 1.2 if sales are growing 20% annually.) Add a small amount to create a margin of safety (base it on historic spikes in business)
- Think about implementing a back office solution. This will help give you historic usage combined with anticipated future sales, and will greatly decrease the amount of time you will spend “analyzing” the numbers.
- Continuously updating the analysis is a crucial step. As a note it’s far easier to do updates with the help of a back office system that stores historical data, and can make inventory-needs forecasts based on expected sales.
Conclusion
Managing food costs in the restaurant business, when drilled down, is simple. You invest money in ingredients, and you sell recipes. The point behind putting the effort into tracking inventory is to make it so that you have to invest less money for “supplies” while getting the same return for your “products”. It can be a lot of work, but in the end it is worth it because you make a LOT more money.
So, like counting cards, Inventory Control requires knowing when to hold ‘em and when to fold ‘em (thank you, Mr. Rogers) to help operators maintain a profitable hand in their business.
This post is sponsored by CrunchTime! Information Systems