Food Inventory 101: Tips, Terms, and How to Do Inventory

By: AJ Beltis

8 Minute Read

Jul 27, 2018

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Inventory is the hardwiring of your restaurant. Your food inventory plan keeps everything in place, organized, and connected – and one tiny oversight can result in a drastic change for your business.

In some restaurants, up to 10% of food is wasted before hitting a plate – meaning 10% of your revenue may not be realized under your current inventory system.

Let's start with restaurant food inventory 101 - what it is, what terms are important, and some quick tips to help you easily track inventory in your restaurant.

What Is Food Inventory Management?

inventory management software

At its core, restaurant food inventory tracking is a loss prevention tool and a measure of profitability for your restaurant.

Here's the thing about tracking your restaurant's inventory: If you don't know what you're losing, you don't know what you could be earning. 

Inventory tracking means knowing exactly:

  • what supplies come into your restaurant,
  • what goes out of your kitchen, and
  • what's left over in the back of the house.

Without knowing these exact numbers, you won't be able to understand where your supply (and money) is going.

It's one thing to notice that your recent shipment of cheese depleted quite quickly, but it's another thing know exactly why.

Was it all sold to satisfied customers? If so, great! You should easily be able to attribute every ounce to a price point. However, did you take into account these areas of loss?

  • Spillage
  • Employee mistakes
  • Remedying customer complaints
  • Staff meals
  • Theft

All of these are areas of loss, with regard to both inventory and profit for your business. Accidents happen, customers complain, and not every ounce of food makes it onto a plate – these are inevitable truths within the restaurant world.

However, not knowing what supplies have been wasted – for whatever reason – means you don't know exactly how much inventory has been unused, and that means you cannot determine your true earnings for a shift, day, week, month, or year.

Words To Live By: Restaurant Inventory Terminology

food inventory

If you want to become a master of inventory, you can't just walk the walk – you have to talk the talk. Here are four inventory terms you should be familiar with.

1) Sitting Inventory

The amount of product (or dollars worth of product) in-house. Depending on your business, you should refer to sitting inventory as either dollars worth or physical amount - but make sure to consistently stick to only one unit of measure.

2) Depletion

The amount of product (or dollars worth of product) used in a set period of time. Depletion can based on daily, weekly, or monthly sales and is often calculated using the sales reporting data from your POS.

3) Usage

The amount (or dollars worth) of sitting inventory divided by the average depletion in a set period. Here's the formula:

Sitting Inventory ÷ Average Depletion (during a given time frame) = Usage

For example, if you have four gallons of mayo and you plan to use one gallon a week, you have four weeks of usage.

4) Variance

The difference between your product cost and the usage amount cost. Let's say your inventory is down $100 worth of chicken at the end of the day, but your POS says you only sold $95 worth of chicken. This makes your food cost variance -$5, meaning $5 worth of chicken is unaccounted for.

Variance can also be a percentage to help you make easier comparisons. In this scenario, -$5 (the variance amount)/$100 (the usage amount cost) = -5% variance.

Now that you understand the importance and fundamentals behind inventory tracking, here are some inventory best practices to implement in your restaurant.

How to Do Restaurant Inventory

There are a few ways to calculate and track your restaurant's inventory. Here's a list of some of the most popular methods.

1) Automated Inventory Management

The most accurate way to track inventory is to manage it through your restaurant POS system. Inventory management software tracks your restaurant's actual usage, a metric which restaurant owners or operators can compare against their theoretical usage for a better picture into how inventory moves through the restaurant.

Pros: It's the most accurate way of tracking inventory in a restaurant.
Cons: It's not available on all POS platforms. Very few POS systems have integrated inventory management, so make sure your restaurant point of sale platform has this capability.

2) Par Inventory Sheets

A par inventory sheet is a tool used to manage inventory by food type and/or food supplier. Owners and managers set levels of how much of a certain item they want in house, also known as a par level.

When it comes time for their next inventory order, managers use their restaurant's par inventory sheet to guide what and how much they should be ordering based on their sitting inventory, how fast previous inventory moved through the restaurant, and any upcoming events they think may call for additional inventory.

par sheet by food

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Pros: It's intuitive and just requires simple math and forecasting to come to your inventory orders.
Cons: Cost and variance are not taken into consideration – only usage is. Because of this, over portioning and theft can easily go undetected if not compared to actual variance.

3) Wing It

To be clear: this is not a legitimate inventory strategy, but we'd be lying if we said no restaurant orders inventory based on their gut or a quick once over of the walk-in.

Make no mistake – this is not a legitimate way to do restaurant inventory, and it's time to rethink things if this has been your strategy up until now.

Winging it when it comes to restaurant inventory paves the way for theft, inaccurate reporting, and a high food variance that's detrimental to the bottom line.

Pros: You don't have to do inventory.
Cons: You're putting your business at serious risk.

Quick Tips for Managing Your Restaurant Food Inventory

how to do restaurant inventory

1) Train Your Staff on How to do Inventory

Inventory management cannot fall entirely on one person – especially in enterprise restaurants or businesses with multiple locations. Managers and shift leaders should be delivering detailed inventory reports whenever they clock out and alerting the team of any major outage or issues.

This responsibility also falls on your line cooks and back-of-house staff who should be making notes of spillage, errors, and rotten food whenever they come across it. Teaching your staff to become inventory experts or dedicated mathematicians might be tough, but it's easier if you incorporate an easy-to-use inventory system for your employees.

2) Track Your Sales Daily

Even if it's just a daily five-minute review of your metrics (though these check-ins should amount to a bigger, weekly deep dive) the best practice is to track restaurant sales every day. When you check sales daily instead of weekly, bi-weekly, or monthly, you'll be able to track and respond to minute by minute changes in your restaurant, allowing you to make timely adjustments to your restaurant's inventory planning and your provision deliveries.

For example, if you have a seasonal item that you plan on removing from your menu, you can easily see when it's phasing out in the eyes of your customers day-by-day instead of taking it off your menu too early or too soon.

We won't lie - sales tracking and data analysis can be a huge pain if you don't have the right technology. Instead of computing everything yourself by hand from an inventory sheet or shrugging your shoulders and guessing by intuition, make sure you can access data right from your point of sale system. This way, you can pick up on variances and try to figure out the source of loss.

3) Carry Some "Just In Case" Inventory

A few years ago, while I was working at a local pizzeria and sub shop, a huge snowstorm took out the power across our state. Because of this, our bread supplier was not able to meet the needs of the pizzeria. That day, we had to tell all of our customers looking for a sandwich that we were out of sub rolls, and could only give them something on a wrap or in a pocket.

This might not have happened if we were carrying "just in case" inventory.

Your restaurant should keep an extra supply of inventory that tend to go fast. In the event of an emergency, you can use this extra inventory to fulfill orders and satisfy customers. Just be sure to switch out this just in case inventory regularly so that it hasn't gone bad by the time you get around to using it.

Free Inventory Management Tools

If you're not ready or able to equip your restaurant POS with inventory management software, try some of these free inventory solutions.

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