What is restaurant inventory management?
Restaurant inventory management is a way of tracking all of the ingredients, supplies, and beverages, ensuring that you have the right supplies at hand, including:
- Tracking stock levels - Knowing precisely how much of each ingredient and item you have to meet the customer demand and keep the kitchen running without a hitch.
- Ordering - Determining when and how much to order - enough to keep your shelves stocked, but not so much that your budget or ingredients go to waste.
- Storage - Smart organisation of your inventory to save space, keep your ingredients fresh and prevent costly spoilage.
- Usage - Keeping an eye on how ingredients are used to track waste, pinpoint problem areas, and adjust recipes and portion sizes for maximum efficiency.
Effective kitchen inventory management is essential for preventing over-ordering and spoilage, minimising food waste, streamlining kitchen processes and ensuring you always have the ingredients to fulfil the orders, avoiding disappointed customers and potential lost sales.
What is inventory control, and why is it important?
Although inventory control falls under the broader category of inventory management, think of it as the toolkit that keeps your kitchen stocked and your costs in check.
Inventory control is the system that helps you manage the flow of goods that come into your restaurant – from fresh ingredients and beverages to essential supplies, like napkins or takeaway boxes, keeping the right amount on hand to serve customers and avoid spoilage and loss at the same time.
As mentioned above, effective inventory control is more than just knowing what's in stock. Businesses that practice using a stock control system can reap many benefits, including:
- Reduced waste - every year more than 920,000 tonnes of food is wasted in restaurants, pubs, hotels, and quick service restaurants in the UK, therefore by tracking ingredients and pinpointing areas of waste, you can reduce your environmental impact.
- Better cost management - with inflation and rising ingredient prices it's never been more crucial to control your costs. Effective inventory control helps protect your bottom line by preventing over-ordering and spoilage.
- Streamlined operations and improved productivity - an organised inventory system makes it easier for your kitchen to function efficiently, saving time and minimising errors.
- Increased profits - by tightly managing food and beverage expenses, inventory control has a direct impact on profitability.
10 restaurant inventory management best practices
Below are some of the best practices for restaurant inventory management to help you take control of your inventory and boost your bottom line.
1. Conduct frequent and consistent inventory counts
It's absolutely crucial to run inventory counts on a regular basis to get the most accurate and real-time picture of what's on your shelves, what's running low, and what might be going unnoticed.
Running a business that involves handling fresh = perishable ingredients, which are costly, requires a regular counting schedule. Daily counts are best for fresh produce and busy kitchens, while weekly counts might be enough for items with longer shelf lives.
Inventory counts should be conducted outside of your business opening hours, simply because they'll be more accurate. Decide which system works best for you - whether before or after closing the door and make this process a habit. Like with most of the processes that take place in your restaurant, the key is to be as consistent as possible, to not only speed up the counting process but to reduce errors and get the most accurate information.
You might want to assign this task to a specific person in your team, such as a kitchen manager or consider utilising technology to further streamline this process and improve accuracy. Among widely available tools, the hospitality EPoS system with integrated inventory management and hospitality stock control and inventory management are what you should be looking for.
2. Find the sweet spot with stock levels
After consistency, another, and equally important, key to smart restaurant inventory management is keeping stock levels in a perfect balance: low enough to prevent spoilage and wasted costs, but high enough to ensure you can always fulfil customer orders.
Whether you rely on a manual tracking system, such as Excel sheets, or you have inventory management software in place, achieving 'the sweet spot' of your stock levels takes careful planning and attention to detail.
A good starting point and a baseline to work from is to understand the usage by tracking how quickly you go through each ingredient. On top of this, you'll need to analyse your past sales data, and seasonal trends - for example, if your strawberry cheesecake is a summer top-seller, make sure you increase your strawberry stock levels ahead of warmer months, while slightly decreasing quantities of less popular winter desserts at the same time.
Finding the right stock levels is an ongoing process, not a set-it-and-forget-it task, so make sure you're regularly reviewing your usage data and analysing sales trends.
3. Establish clear PAR levels
To ensure you always have the ingredients you need on hand without overstocking, it's essential to establish PAR levels. Think of PAR levels (Periodic Automatic Replenishment) as your inventory safety net, as they determine the minimum amount of each ingredient you should have at any given time to meet demand between your regular deliveries.
Establishing PAR levels is crucial, as it prevents stockouts, meaning no disappointing customers with unavailable menu items, it helps reduce waste - you can significantly minimise spoilage by ensuring you only order what you need until your next delivery and finally, it can save you lots of time, as it'll eliminate the need for constant, last-minute ingredient runs.
Calculating PAR levels
So, how do you determine the right PAR level for each ingredient? Here's a simple formula:
PAR Level = (Average Daily Usage x Lead Time in Days) + Safety Stock
The Average Daily Usage lets you track how much of an ingredient you use on average each day, the Lead Time in Days equals how long it takes to receive an order from your supplier and the Safety Stock acts as a buffer amount to cover unexpected demand or delays.
4. Enforce FIFO (First In, First Out)
FIFO stands for "First In, First Out," and it's one of the most fundamental models of effective kitchen inventory management, especially for fresh, perishable goods.
Following the FIFO method means you should always use your oldest ingredients first to prevent spoilage and ensure you're serving the freshest food possible. Using ingredients in the order they were received helps prevent serving expired or unsafe products, but to further guarantee the success of your FIFO implementation, consider your frozen stock as well. For example, if you have both fresh and frozen chicken in stock, prioritise using the fresh chicken with the closest expiration date, even if the frozen one was delivered more recently. Again, inventory management is all about finding the right balance.
Practising FIFO is also crucial for one more reason - it can help reduce your waste. By ensuring older ingredients are used first, you minimise the chance of spoilage and having to discard unused items, meaning you can directly save money and protect your profits.
Here's how to implement FIFO:
- Clear labelling - Date all incoming ingredients upon arrival - whether it's a case of produce, a bag of flour, or a container of prepped sauce, a clear "received on" date is essential.
- Organise storage - Position older ingredients at the front of your shelves or coolers so older items are the easiest to grab.
- Train your staff - Train everyone on your staff about FIFO and explain why it matters - for food safety, quality, and saving money by preventing waste.
5. Track waste meticulously
You can't fix what you don't measure. To truly understand and reduce food waste, it's absolutely essential to keep detailed records of what's being thrown away as well as why. Although it might seem tedious at first, the insights you gain are invaluable.
Globally, a staggering third of all food produced is wasted. In the UK alone, restaurants and cafes contribute significantly, throwing away approximately 920k tonnes of food each year which accounts for approximately 10% of total food waste in the UK. If your food costs average £10,000 per month, that 10% waste represents £1,000 lost! Imagine what you could do with the money lost in that 10% of wasted food. Tracking waste is about more than just doing the right thing – it's about saving serious money.
How to track waste?
Now that you the value of tracking waste, let's dive into the practical steps:
- Choose your method - A basic spreadsheet or notebook can be effective for smaller operations. For bigger businesses or chains, consider dedicated waste-tracking apps or waste management software that offer easy input, analytics, and reporting.
- Be consistent - For the most valuable data, track waste on a regular basis - whether daily or weekly (depending on your restaurant's volume and how quickly data will become actionable).
- Focus on details - Record each discarded item and why it ended up in the bin – this is where you'll start spotting patterns and areas to improve. Include the ingredient/dish name, the amount wasted (weight or volume) as well as the reason for waste (spoilage, overproduction, error, etc.)
6. Organise your storage space
A well-organised storage space is the key to a smooth-running kitchen- when everything has its place and is easily accessible, handling ingredients and preparing the dishes takes less time, minimises waste, and makes inventory management a whole lot easier.
Remember, an organised system also makes it much easier to follow FIFO practices, ensuring those older ingredients always get used first.
Maintaining clean and well-sanitised storage areas is equally crucial, as it can help extend the shelf life of your ingredients. This includes shelves, fridges, coolers, and any containers used to store produce. Additionally, make sure temperatures are always right to keep your food fresh and safe.
Tips for an effective organisation:
- Label everything - Clear labels are your inventory superpower! Include the date the item arrived, the ingredient name, and any extra notes like "use by" dates for prepped food.
- Designated areas -Think of your storage like a mini grocery store. Put similar items together (all those dry goods, fresh produce, dairy) so you can find what you need in a flash.
- Maximise space - Use shelves that reach high, bins to corral smaller items, and clear containers so you easily can see what's inside.
7. Thoroughly train your staff
Staff turnover and scheduling across different shifts can make consistent inventory management tricky, especially if you delegate this task to just a few of your employees. That's why training your whole team, or at least the back-of-house staff on how to take inventory is essential.
Invest time in ensuring everyone handling your inventory understands:
- Inventory counts - Train your staff on accurate counting techniques, how to use inventory sheets or software, and the frequency of counts while emphasising why these counts matter.
- Receiving deliveries - Establish clear procedures for checking deliveries against orders, verifying the quality, and properly storing incoming items.
Aside from having your staff trained to manage the inventory, they should be well-informed about other processes and practices related to stock, such as FIFO (if you're practicing it), waste tracking, portion control (to keep consistent serving sizes) as well as keeping their workstations, storage areas, and equipment clean - to prevent cross-contamination and wasting produce.
8. Build strong vendor relationships
Your vendors are more than just suppliers; they're partners in your success. Therefore, keeping positive relationships with (reliable) vendors can benefit you with several advantages, such as better pricing, consistent, high-quality products, and flexibility if you need a last-minute order or a special ingredient.
It surely takes time to build strong vendor relationships, but working closely with your suppliers - meaning maintaining open communication, paying your invoices on time, treating their staff with respect, and being understanding if occasional issues arise, is an investment worth making.
9. Utilise menu engineering
With customers spending just a couple of minutes scanning your menu, every dish needs to count. Menu engineering is a strategic process of analysing the profitability and popularity of each item and using that data to make informed decisions, ultimately driving higher profits.
Here are tried and tested ways to make sure your new menu is a success:
- Forecast demand - Understanding your sales trends and customer preferences, such as your most in-demand products and their peaks throughout the week, month, and year, is foundational to creating a menu that sells. Accurate forecasting helps you avoid both shortages of popular items and waste from overstocking.
- Analyse your data - Your sales data holds the key to identifying your most popular and profitable dishes and can help strategically highlight and promote them. Use this information to make informed decisions about what stays, what gets adjusted, and what's new, bearing in mind that these items can vary from site to site and based on various factors- local trends or the diversity of local competition.
- Balance availability vs. cost - Finding the sweet spot between ensuring your popular items are always in stock and managing your costs is essential for both customer satisfaction and a healthy bottom line.
For a deeper dive into the techniques and benefits of menu engineering, check our article - Menu Engineering: 20 Tips to Maximise Profits
10. Invest in inventory management software
As your business grows, so does the complexity of managing inventory. Switching from a manual restaurant food inventory system to a digital solution is one way to make a significant dent in your costs, improve profitability and transform how you handle stock, saving you time, money, and headaches.
One of the biggest benefits of inventory management software is real-time access to your stock data, with an up-to-the-minute picture of your inventory levels. When the inventory management software is integrated with your EPoS system, the impact on the bottom line will be even greater, as it will be automatically updated with every sale. Within the software, you will be able to set the PAR levels that we discussed before and get automatic alerts when it's time to restock, so you'll avoid those unexpected shortages. Finally, inventory management software can also help with waste reduction, as it can track spoilage patterns, identify problem areas, and make data-driven adjustments.
When looking for inventory management software, check if it offers these key features:
- Stock analysis - A fundamental feature that allows you to accurately preview transactions and stock movements for analysis within seconds of them taking place, 24/7 and in real-time
- Integrations - Choose software that connects with your POS and accounting systems for seamless, automatic data flow.
- Real-time reporting - Generate detailed reports on inventory usage, waste trends, and profitability - online, in real-time, build dashboards, track against KPIs and group weekly/monthly/yearly reports and business sheets.
- Ease of use - Look for a user-friendly interface that your staff can easily learn.
Restaurant inventory management terminology/terms
Let’s look at some key restaurant inventory management terms.
PAR Levels (Periodic Automatic Replenishment)
PAR Levels is the minimum amount of a specific ingredient you want to have on hand at any given time.
For example, if your restaurant uses 10 kg of tomatoes each day and your tomato orders typically arrive within 2 days, you decide to keep a safety stock of 5 kg. Meaning, that your
PAR level for tomatoes would be: (10 kg/day * 2 days) + 5 kg= 25 kg to have at least 25 kg of tomatoes on hand.
Reorder Point
Reorder point is the inventory level that triggers the need to place a new order. It takes into account how long it takes to receive an order (lead time) and how quickly you use an ingredient (average usage), preventing you from running out.
You use 5 kg of cheese per day, and it takes 3 days to receive your cheese orders. Your reorder point for cheese would be: 5 kg/day * 3 days = 15 kg. When your cheese inventory drops to 15 kg, it's time to place a new order.
COGS (Cost of Goods Sold)
COGS is the direct costs associated with producing the dishes you sell, which include: ingredient costs, the cost of prepared foods used in recipes and packaging for takeout. COGS is a key factor in determining your restaurant's profitability and tracking COGS helps you understand your food costs and make informed decisions about pricing and menu engineering.
If your signature burger has the following costs: bun: £0.50, meat patty: £2.00, cheese: £0.30 and toppings (lettuce, tomato, etc.): £0.20, the COGS for each burger would be £3.00. If you sell the burger for £10.00, your gross profit on each burger is £7.00 (not including labour, overhead, etc.)
Safety Stock
Safety stock is a buffer amount of inventory held to account for unexpected demand surges or supplier delays, helping you prevent stockouts and disappointing customers.
A big event weekend, like Mother's Day or Valentine's Day, is coming up, and you expect increased demand for your signature steak dish. Normally, you keep 20 steaks in stock, but you've decided to increase your safety stock to 10 extra steaks for the weekend. Those extra 10 steaks act as your safety stock, ensuring you can easily handle the higher demand and avoid disappointment.
Inventory Turnover Ratio
Inventory Turnover Ratio is a measure of how many times your inventory is sold and replaced within a specific period (e.g., monthly, annually). A high turnover ratio generally indicates efficient inventory management whereas a low ratio could mean you're overstocked or holding onto slow-moving items.
If your monthly cost of goods sold (COGS) is £5,000, and your average monthly inventory value is £2,500, your inventory turnover ratio would be: £5,000 / £2,500 = 2, meaning you sell and replace your entire inventory twice per month.
Sitting Inventory
Sitting inventory refers to stock that's on hand but not currently being used in production, such as ingredients waiting to be used in recipes or finished dishes awaiting sale. Keeping track of your sitting inventory not only helps you identify slow-moving items, but it highlights potential overstocking and areas where you might be able to reduce waste.
Depletion
Depletion is the reduction of your inventory over time as ingredients are used in production. Tracking depletion rates helps you accurately predict when to reorder items and avoid stockouts.
Variance
Variance is the difference between your theoretical inventory (what you should have based on recipes and sales) and your actual inventory (what you physically count). It's important to analyse the variance as it helps you pinpoint where waste, theft, or portioning errors might be occurring.
Yield
Yield is the usable amount of a product you get after processing, for example, the amount of meat you can use from a whole chicken after trimming and removing bones. Understanding yield is essential for accurate recipe costing and ensuring you're getting the most value out of your purchases.
Shrinkage
Shrinkage is the loss of inventory due to various factors like spoilage, theft, preparation errors, or over-portioning and it directly impacts your bottom line. Tracking and analysing shrinkage patterns helps you identify problem areas and implement solutions to minimise losses.
How can Access help you with kitchen inventory management?
Managing inventory manually can be a real headache - it's a time-consuming process that's prone to errors, and it can be difficult to scale as your business grows (that includes running more than one site, as well as managing multiple suppliers).
Access inventory management software takes the hassle out of inventory management and transforms the process, saving you time, reducing costs, and empowering you to make better decisions.
Proactive monitoring of stock levels
Access inventory management software allows you to conduct stock audits with ease, using both electronic and physical checks to ensure your resources are always under control.
Real-time visibility
Our dashboards are configured to suit your operational requirements giving you real-time sales, staff and stock data 24/7, meaning you will stay informed with up-to-the-minute updates on all stock movements and transactions.
Comprehensive reporting
Our rich and mature reporting suite has been created on the back of years of industry experience and customer feedback to deliver effective and insightful real-time reporting to optimise your business processes.
Boost sales revenue and margin
Access inventory software lets you easily review your pricing, product mix and supplier process to create responsive and effective promotions, drive sales and protect your margins.
Scalable growth
Whether you have a single location or a multi-site operation, our software adapts to your needs and grows with your business.
Tailored solutions
Our flexible, modular design lets you customise the perfect inventory management system for your restaurant's unique requirements.
Ready to streamline your restaurant inventory management today?
In this article, we've looked at some of the best practices when it comes to kitchen inventory, and we highlighted the importance of a system that integrates sales data, provides actionable insights and actively helps cut costs, saving time and helping reduce waste.
Although there's a lot you can do manually to manage your inventory, dedicated software can streamline these processes dramatically, since - what we tried to prove in this article, smart inventory control isn't just about knowing what's in stock, but it directly impacts your bottom line.
Our specialist teams have years of experience working with customers to achieve profitability and streamline their operations and are always here to help you find a solution that'll perfectly cover your needs.
If you'd like to learn how Access inventory management software can help, talk to our team or learn more by downloading the brochure or watching the demo.
