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Operating a profitable restaurant is difficult without an accurate grasp of your ingredient usage and how it contributes to your overall food cost. Keeping tabs on your ingredient usage, in turn, is difficult without control of your inventory. Knowing what you do have on hand and comparing that to what you should have is fundamental to understanding your real costs.

Simplify Your Inventories: Get a Demo of MarginEdge

Ideally, you would have plenty of time and staffing to verify your numbers by methodically counting every single item you use on a regular basis. In real life, time and staffing constraints make that impractical. The goal, then, is to find your own “sweet spot” where your food cost savings pay for the time you spend counting inventory.

1) Accept that good inventories are a practical necessity

Costing out a menu item may be Restaurant 101, but that number – however accurate on paper – is not your real-world cost for the item. In practice, any number of factors, from ambiguities in the written recipe to over-portioning to employee theft, can alter your real-world cost. You can highlight major usage issues by increasing inventory frequency and reviewing results. To go a step further, you can really pinpoint inefficiencies in usage by comparing actual usage to theoretical usage in your restaurant management system (RMS). A top RMS will pull detailed sales data from your POS, know what you buy from processing your invoices and have tools for inputting recipes and inventories.

For any given period in which you want to track usage, you’ll need the starting inventory and the ending inventory for the period. You’ll also need details on all orders you’ve received for the period, and ideally your RMS is capturing these details on a daily basis. Here’s the formula for usage of an ingredient: take the starting inventory, add the incoming orders and subtract your ending inventory. The resulting number equals your actual usage of that ingredient. If that number doesn’t correlate closely with the usage you’d expect based on your sales figures, you have an inventory management problem that needs to be addressed.

2) Define your ideal inventory cycle

Getting a tighter grip on your inventory usage is usually easiest with more-frequent counts. Some businesses can get by with monthly or quarterly inventories, but not restaurants. When your inventory consists largely of highly perishable items ordered on very short cycles – sometimes daily – your inventory cycle needs to be correspondingly short. Any operational issue that cuts into your profits needs to be addressed as quickly as possible, so ideally you’d do inventory weekly or even daily.

Doing a full inventory that frequently is impractical for most restaurateurs because of the labor cost it represents and the disruption to operations. A powerful alternative is to schedule full inventories as necessary – monthly or quarterly, perhaps – and do partial inventories of key ingredients on a weekly, daily or even per-shift basis. Adding new partial inventory sheets should be made easy in your restaurant management system.

3) Find what moves the needle

Not every inventory item is going to impact your bottom line enough to be worth tracking closely. Some items – canned goods and spices, for example – are commodity items with stable costs, long shelf-lives and predictable yields and usages. At the opposite end of the scale are ingredients like lobster, with high and variable costs, low and variable yields and extreme perishability.

It’s those high-impact items that warrant your attention. If the cost of an ingredient is high enough that sloppy prep or over-portioning can make your menu items unprofitable, it needs to be tracked. If it’s a high-volume item that accounts for a large percentage of your overall sales, it needs to be tracked, even if it’s not innately high-cost. If an item is desirable enough to be a risk for employee theft – alcohol and premium ingredients, for example – it needs to be tracked.

Reviewing your sales figures, your ordering and your current inventory numbers should give you the information you need to compile a shortlist of key items, specific to your operation, that justify close management and frequent counts. Check out this blog for more on how to identify and track key items.

4) Partial inventories can yield powerful results

That list of key ingredients can be surprisingly short. Consider the case of Roots Natural Kitchen, operator of a five-unit natural foods concept in Delaware, Pennsylvania and Virginia. The company’s compact menu of salads and trendy grain bowls is personalized to order, but ultimately revolves around just a few high-impact ingredients.

“When I first started working for Roots, I found it very odd that we didn’t do any sort of daily inventories,” recalls Dionis Taveras, Crew Leader at the Richmond, Virginia location. “After looking at our recipes, we came up with a shortlist of six of the key ingredients that have a big impact on our overall food cost.”

With accurate daily counts available, it quickly became obvious that Roots was over-ordering on those key ingredients. “Once we had a good grasp of how much we use on a daily basis, we were able to adjust our ordering pars to a much lower weekly amount,” Taveras explains.

5) Waste less, profit more

That reduction in ordering pars is key to Taveras’ management philosophy. “Always keep the money in your pocket versus on your shelves,” he says. “I don’t order it unless I need it. Over-ordering leads to more waste, more time putting orders away, more time organizing your walk-in. And time is a precious commodity.”

At Roots, the time invested in added inventory counting was minimal and the reduction in ingredient-related waste yielded immediate, dramatic benefits. “We added an eight-minute [counting] process to our closing procedures,” Taveras says, “and our cost of goods sold dipped an average of 15 percent at each location. That’s huge!”

Your own operation probably has more menu items and a longer list of ingredients, but the principle is applicable anywhere. It takes relatively few minutes for line or prep cooks to inventory the items at each station and in the walk-in, either at close or at the end of a shift. That few minutes gives you the information you need to fine-tune your ordering and bring accountability to each station, and also sends a clear message to staff that theft will be spotted in a hurry.

6) Calculate theoretical vs. actual usage

With the right restaurant management system in place, your partial inventories will help you dive even deeper into the task of managing product usage. Knowing your usage of an ingredient is helpful, but to really uncover inefficiencies, you’ll want to know your theoretical usage of that ingredient for the same period of time. The theoretical usage is simply the amount of an ingredient you should have used in a perfectly run restaurant. If you use 8 oz. of salmon per salmon dinner, and you sold 4 of those in a day, your theoretical usage would be 32 oz. (8 oz. x 4 sold).

Luckily, the right RMS will make it easy to see your theoretical versus actual usage. You simply use a recipe tool to capture the key ingredient portions you want to track, and the system will automatically pull from your POS the number of corresponding plates sold. You’ll be able to see any variance in what you used versus what you should have used without having to accumulate a bunch of numbers from various sources and calculate by hand.

Don’t have an RMS? You can use this theoretical usage calculator.

Frequent partial inventories can lead to better profitability, whether by managing inventory more tightly or by providing the information to pinpoint usage issues with particular products. Luckily, the tasks of doing full and partial inventories, as well as the challenge of tracking usage, are all made easier by using a top restaurant management system like MarginEdge. The MarginEdge platform lets you easily create partial and full inventories, can quickly reveal usage issues by comparing theoretical to actual product usage and offers many additional tools to reduce costs and increase efficiency for restaurants.

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