Food Inventory and Food Cost Calculations
Effective inventory management for restaurants relies on several elements that work together as a system. This system, if executed well, provides guests with consistently great food and restaurant operators with the means to help achieve their intended financial results.
The parts of the system are:
Merely completing these tasks while running a restaurant can feel like, and at times may very well be, a rather large accomplishment. Effectively managing inventory will take a solid understanding of these key elements and the discipline to ensure they are done properly day in and day out.
Nevertheless, dedicating the time to understand how to do effective inventory management and adopting inventory management software is an investment that is will surely pay off.
It is also worth to keep managers and staff members in the loop with how these inventory controls work and with what your company’s targets are for areas such as food and supply costs. A team that knows not only how to follow procedures but why they are done, is more likely to achieve great results.
Ordering – The Foundation of Inventory Management
Successful operators understand and teach their staff that the goal of a restaurants’ ordering system is to keep a minimum number of products on hand without running out of items before the next scheduled delivery. This is accomplished by calculating workable par levels as explained by CPA, JD, MBA Sal Curcuru.
✓ Creating an order guide with accurate item descriptions and updated par levels. Remember to account for food that will be prepped and sold the day the order is placed when establishing par levels.
✓ Fill out each order guide completely with quantity on hand and quantity ordered every time. This will help to paint a clear picture of how much of each product is used between orders and when par levels will need adjusting
✓ Communicate the need to raise or lower order quantities for upcoming changes in sales volume, such as ordering extra product for a large event, or ordering less for an anticipated lower sales day like a holiday
✓ Review the order guide regularly and use it as a tool to train the staff by pointing out perfect orders and ones which had opportunities for improvement.
An example of an effective order guide:
Creating an order guide is one thing, using it properly requires putting in the time to train staff on filling out the guide completely for each order and how it affects profits. Having the staff members initial the guide once each order is completed will provide accountability.
Receiving Deliveries and Storage – Neat, Clean & Organized (NCO)
Receiving, rotating and organizing all items on a restaurant’s shelves serves an important role in successfully managing inventory. “The fact is that receiving is vitally important and needs as much attention in the food-service industry and it gets in every other industry”. Upon delivery, making sure that every item on the invoice is received is of the utmost importance to running your budgeted food cost percentage. Even if a restaurant staff executed flawlessly with little-wasted food, any items that are paid for and not received will leave money on the table. Just follow these simple rules:
✓ Organize and rotate all products on shelves, racks, etc. before deliveries arrive to make room for new items and to create awareness of all items in the building. (This should actually be done throughout the day, or at the very least between shifts and at closing).
✓ Ensure that every item on the invoice is received, inspected, and is the correct product with no damage. Communicate immediately with suppliers regarding anything that is missing, damaged or unacceptable in order to have the item replaced or refunded.
✓ Refrigerated and frozen items are to be stored right away and returned to its correct holding temperature.
✓ Check that all perishable items like produce, dairy, and meats, etc. are delivered fresh and have sufficient shelf life before they will expire.
✓ Date items for rotation purposes using the FIFO (first in first out) method.
Food Preparation – Making the Most of the Prep Sheet
Food preparation is the next part of an effective inventory management system and plays a direct role in food quality, freshness and hitting targeted food cost percentage. The proper use of a Prep Sheet as part of an inventory management system has a great impact on profitability by keeping the optimum volume of prepared foods on hand; too much and you’re throwing away food and spending labor dollars unnecessarily to prepare it, too little and you may run out of an item which impacts the customer experience, the shift, and ultimately sales and profits. Some specifics that will make the Prep Sheet a useful tool include:
✓ Keep it organized and complete to include all recipes, cut fruits and vegetables, and pre-made items such as desserts or appetizers for the day or shift so that all items are checked for quantity at least a few times a day when the prep sheet is reviewed.
✓ The prep sheet needs well thought out pars for all recipes and prepared items. Include the shelf life for all prepped items and recipes on the prep sheet as well.
✓ Check that there is enough product on hand to complete all prep items planned for the day. A good practice is to complete the prep sheet at the close of business for the following day, giving a heads-up on any potential product-related problems.
✓ Finally, the manager on duty should be aware of what items are being prepped that shift and spot check prep workers for recipe consistency and proper food handling. Have prep staff and managers sign off on the Prep Sheet every shift after inspecting its proper completion.
Inventory – How to Ensure Accurate Counts
The purpose of conducting food inventory is to get the total dollar amount of all sellable food items in a restaurant at any given time and is a critical piece of one’s success in inventory management. According to QSR Magazine, how you approach taking inventory at your restaurant is critical to the success of your small business. Inventory should always be done outside of normal operating hours, either before opening or after closing, so no items are missed. Inventory sheets must contain updated pricing as commodities such as produce, dairy and meats may have price changes weekly. This means you must update the price of raw products as well as any recipes that they are used in. Here are some tips for performing accurate inventory counts:
✓ Use complete, organized inventory sheets that list all items, preferably broken down by categories like produce, dairy, meats, etc. using the last price paid for each item. Sheets should include raw products and prepared recipes.
✓ Count shelf by shelf throughout the restaurant rather than following the inventory sheets so no items are missed.
✓ Have two people conduct inventories; one to count and one to record to minimize mistakes and increase consistency.
✓ Determine the units of measure such as case, pound, tube, etc. There can be more than one unit of measure for an item, for example, ground beef could be counted by the 80 lb. case and by the 10 lb. tube, just be sure the inventory team clarifies it when counting.
✓ Review the inventory sheet after it is complete for mistakes or concerns. Ensure all items are accounted for and that no items are over-counted, accuracy is the most important part of the inventory.
It is recommended to take food inventory throughout the month, generally on a weekly basis, to keep a close eye on food cost percentage and make sure there are no surprises at the end of the month. Inventories can even be taken daily to track a certain product or category of food cost. Daily counts are normally done for high-cost items or for a food cost category that may be very high to help determine where the problem is coming from such as the end of day waste, theft, mishandling, over portioning, etc.
Cost of Goods Sold (COGS) and Food Cost Percentage
Food Cost is a huge part of the financial performance of any restaurant and may account for 30% or more of a restaurant’s total food sales. Cost of goods sold is a calculation to determine how much money was spent on inventory during a defined period of time. The basic formula for cost COGS is:
BEGINNING INVENTORY + PURCHASES – ENDING INVENTORY = COST OF GOODS SOLD(COGS)
Beginning inventory is the amount of food or supplies in dollars that is in the restaurant to start the month (which is also the prior month’s ending inventory). Purchases are all the inventoried items that were bought between the beginning and ending inventories. Ending inventory is the total amount of food or supplies in dollars counted at the end of the financial period (for the day, week, month, etc.).
Food cost percentage is then figured by taking the COGS and dividing them by sales for the determined time period. The entire calculation to attain food cost percentage is:
BEGINING INV + PURCHASES – ENDING INV = COGS/ FOOD SALES = FOOD COST %
Note that in the example above, the total food cost percentage of 25.21% is broken down into several smaller categories. These categories make it possible to pinpoint where high food cost issues are coming from so they can be addressed directly.
To Sum It All Up
There is no real secret to effective inventory management, but rather like everything in the restaurant industry, it requires knowledge, planning and most of all the discipline to do the right things right, every shift. To be successful with managing inventory, operators must effectively manage their people. Give them the knowledge to uphold these systems, hold them accountable, and their success will be yours as well.