Running a restaurant is one of the toughest challenges there is in the food industry. With so many things to juggle at one time, it’s no wonder this is the case for most restaurant owners. One of the most difficult aspects, which is perhaps less known to the public, particularly in restaurant operations, is restaurant inventory management. In particular, dealing with inventory variance (also known as the difference between recorded and actual amounts of stock).
Effective inventory control is often the key to the success of a restaurant. Managing inventory well ensures that you always have the correct ingredients on site and are ready to serve your customers. But restaurant inventory variance can be a major issue for many restaurants that results in wasted money, inefficient operations and inaccurate reporting.
This guide will walk through actionable steps you can take to prevent inventory variance in your restaurant. We will discuss best practices in inventory management and staff training, as well as how to better utilise technology to keep inventory variance to the minimum.
Inventory Variance Explained
Let's first address what inventory variance is and why it occurs so frequently before getting into some of the solutions. The inventory variance is the difference between your theoretical (what records say you should have) and physical inventory (what you actually have).
To make it simple, let’s say your record show 50 cartons of milk, but the manual count reveals that you only have 20. In this case, you are short 30 cartons, and that's what inventory variation is in its simplest form. The resulting discrepancy can be due to a number of factors, such as human errors, inaccurate recording, theft, spoilage and many other miscellaneous factors.
Reducing discrepancies in inventory lets you get a better understanding of the financial condition your restaurant is in, enabling informed decisions around purchases and menu planning while improving overall operational efficiency.
Implementing an Effective Inventory Management System
The foundation of reducing inventory variance lies in a strong, standardised system for managing your inventory. This system should encompass both the processes and tools that help you to trace, monitor and control your stock levels accurately.
Establishing Clear Procedures
The first step is to establish clear procedures for the handling, storage and utilisation of your raw materials. Assign different areas for each category of inventory items and make sure to label all the materials with receiving and expiry dates. Set up a system based on FIFO (first in, first out) so that the older stock is used before new items come in to reduce spoilage and waste.
Menu Engineering & Recipe Critical View
It’s also important to regularly check what you have and adjust your inventory based on ingredients that are needed more in the kitchen. This practice, also known as menu engineering, is crucial to identify your high-margin best sellers along with those menu items that might be contributing towards inventory discrepancies.
Understanding how each menu item performs allows you to make data-driven decisions about which dishes are working well and which need slight tweaks or complete removal. This also allows you to identify high-demand ingredients for better inventory management.
Setting Par Levels
Analyse historical usage data for each ingredient and forecast demand to set par levels. Par levels are the minimum amount of each product or ingredient you would need to have on hand to meet the expected demand - per day, week or month. Holding the right levels of stock can reduce overstocking (which causes waste) or understocking, resulting in various sales losses.
Update the par levels regularly; these par levels are based on seasonal fluctuations and customer preferences. Keep a close eye on any inventory variations for items going under par level quciker than others.
Inventory Management Software Investment
Purchase a scalable inventory control software package and integrate it with your point of sale (POS) system. This integration allows you to monitor ingredient usage in real time as menu items are sold, providing more accurate and up-to-date inventory information.
The latest inventory management systems come with features for things like automatic reordering, variance reports and data analytics to ensure you are making informed decisions about your stock on an ongoing basis.
Regular & Accurate Reporting
Accurate and timely reporting is by far one of the best things you can do when it comes to minimising inventory variances. The process includes manually counting the available stock and comparing them to those shown in the reports. This might sound like a lot of work, but it's crucial to regularly count your stocks to identify discrepancies early and maintain your inventory.
Create a periodic inventory count schedule that is suitable for your restaurant. Certain restaurants might prefer weekly counts, and others may choose to do biweekly or monthly audits. The overall frequency will depend on the size of your restaurant, menu complexity and turnover rates. However, the more you count your stock, the easier it will be to keep you stock variance down.
Restaurant Inventory Management Best Practices
Inventory counting isn't a complex task, though there are a few things you should keep in mind when conducting inventory counts.
- Select a regular time – Conduct the counts on the same day of each week (or month) to prevent variation from occurring. This, of course, helps reduce errors due to time differences between consecutive counts.
- Count all items the same way – Create a procedure for how to count inventory items in each storage space so you and your staff make fewer mistakes. That might include carving out a design path through your storage spaces or just using uniform count sheets.
- Proper training – Make sure every staff member involved in inventory counts is trained thoroughly on proper techniques to ensure consistency. Hands-on training and refresher sessions once familiar with systems for consistent use. Also, ensure that each of your staff members uses the same techniques and formulas.
- Technology – Scan barcodes or use mobile apps to speed up the counting routine and decrease human factors. These tools can greatly expedite the counting time and increase accuracy.
- Cross-examining – Always cross-check your results. The four-eyes principle can help catch errors in time and clean up your inventory records.
- Record everything – Write down every inventory count of the date, time and persons involved. This documentation may be useful in detecting patterns or problems over time.
Compare previous records – Analyse trends and determine if there are any significant discrepancies from previous counts. This can be useful for potential recurring problems or areas you could improve on with inventory management.
Training Staff for Effective Inventory Management
Your staff play a crucial role in maintaining accurate inventory records and minimising variances. With the correct training and clear communications, errors can be dramatically reduced, which in turn will vastly improve general inventory management.
Educating on the Importance of Inventory Management
Educate your staff on the importance of inventory management and how it impacts your restaurant's profitability. Help them understand that they are not just running a kitchen, serving guests good food. Make them realise that the little things they do, such as accurate portioning and proper storage, can directly impact your overall business.
Teach them why putting one extra item on two or three customers' plates daily can create massive discrepancies in the inventory records. When staff understand the "why" behind inventory management procedures, they are more likely to follow through more consistently.
Mandatory Systems & Processes Training
Provide in-depth training for your inventory management system and processes. This training should include receiving procedures (verifying accuracy and quality of deliveries), storage techniques to extend shelf life and reduce spoilage, proper portioning technique per recipe adherence, proper usage of POS for tracking sales and inventory, along with the training on how/when to report discrepancies or issues.
Promoting Transparency & Open Dialogue
Promote open discussions about inventory concerns within the staff. Develop an environment where staff members are comfortable submitting potential problems or proposing improvements to the inventory management system. That open dialogue helps to make problems visible early and create a sense of shared ownership with your team.
Implementing a Rewards System
Reward your staff for excellence in inventory management. This can inspire your team to be more aware of inventory accuracy and reduce variance. Options for rewards may include cash bonuses, extra time off, or other incentives important to your staff.
Using Technology to Boost Inventory Control
Today, technology is the key to managing inventories in an effective way. Investing in the appropriate tools will produce a massive drop in inventory variance and allow your operational efficiencies to soar.
Selecting an Inventory Management System
Opt for a robust inventory management software that operates with your POS system. Key features to seek include the following:
- Real-time inventory tracking
- Auto reorder with par levels
- Recipe costing and menu engineering tools
- Variance reporting & analytics
- Auto ordering
- Cost analysis
- Usage patterns
- Demand forecasting
- Theft control
- Scan and count
- Mobile accessibility
Choosing a comprehensive inventory management system with all these features will ensure effective management of your inventory and keep variances to a minimum.
POS System
Choose your POS system very carefully too. Go with a modern yet comprehensive system such as the 3S POS to ensure it has all the features you would need to keep inventory under control. These features include seemless integration with any 3rd party inventory management system, abilities to weigh ingredient usage based on the dishes sold, inventory turnover analysis and cost/profit analysis. All these features can help you in data-driven purchasing decisions and menu planning.
Barcode Scanners & RFID
RFID-enabled barcode scanners can help you speed up the inventory counting process and reduce human errors. These tools can be more cost-effective for larger inventory storage and high-value ingredients. While there will be considerable initial costs associated with the tools, the long-term benefits of financial savings, reduced inventory discrepancies, and time savings are substantial.
Cloud Service-Based Solutions
Use cloud-based inventory management systems that can be automatically updated in real-time and accessible from many devices. This allows for improved team training and provides you with a live snapshot of your inventory levels in real-time. The cloud also provides automated backups and updates, ensuring that you always have access to the latest features and security measures.
Using Forecasting & Analytics Tools
Use software that provides demand forecasting based on historical data, seasonal fluctuations, and other similar factors. These types of tools can help optimise your par levels and prevent unnecessary overstocking or understocking. Analyse previous sales data, taking into account future events and seasonal trends, to better predict how much inventory you should have on hand.
Best Practices for Inventory Control
There are several best practices in addition to the above-mentioned strategies that would help you reduce your inventory variance and allow for better overall control of ingredients.
Recipe & Portion Control Standardisation
Have all recipes documented and train your staff on how to portion each correctly. It's also important to avoid eyeballing the measurements and use standard measurement tools to ensure consistency. Not only does this help with inventory management, but it also provides a consistent experience for your customers.
Implementing a Cycle Counting System
Instead of completing a full inventory count each time, consider having a cycle counting system or ABC counting, where different parts of your storage systems can be counted on a rotating basis. This allows you to distribute the workload and provide more frequent checks on specific items. You could, for instance, set up a higher counting frequency on high-value or fast-moving items than your stable, long-shelf-life products.
Analysing Vendor Performance
Regularly review your suppliers' performance in terms of accuracy and time delivery, product quality, and price on a regular basis. By having great relationships with trustworthy vendors, you can lower discrepancies in received goods. Consider consolidating your purchases with fewer, more reliable vendors to streamline your receiving process and potentially negotiate better prices.
Monitoring Waste & Spoilage
Install a waste/spoilage tracking and recording system. With this information, you can pinpoint where storage, ordering, or menu planning is lacking. Make sure that older stock is used before newer stock. You can track where and why waste is generated to take the necessary targeted actions in order to reduce it, which helps increase your inventory accuracy, thus improving cash flow. The best method of increasing profitability is to by measuring food cost percentage against cost of goods sold.
Conclusion
Better restaurant management with reduced inventory variance is crucial for a restaurant's survival. It focuses on four key areas: investing in technology (inventory management systems and POS systems), improving the accuracy of physical counts, staff training, and portion control.
Inventory management is a continuing process, so keep that in mind when aiming for improvements. Track performance and results, be receptive to obtaining more data and be willing to pivot if necessary. Remember, a reduction in inventory variability can significantly increase your revenue and profit margins, so you should take all the necessary steps to make it happen.
For almost 20 years, 3S POS has offered one of the most flexible EPOS systems to international brands such as Caffe Concerto, Chaiiwala, Heavenly Desserts, Pepe’s Piri Piri, GDK and thousands more delighted customers.
If you are looking for an Restaurant POS System that will not just help you accept payments but includes inventory management, loyalty programs, and much more, speak to our sales for a free demo.