Most, if not all, restaurant operators understand the importance of knowing which ingredients their menu items need, when, and in what quantities. Having the visibility to identify slow-moving inventory is equally important because it helps avoid spoilage, waste and unnecessary costs. Limiting quantitate of seldom-used ingredients also frees up space to store larger quantities of ingredients you regularly use to prepare your most revenue-generating items.
Here are five tips for how to identify and address slow-moving inventory before it eats into your bottom line:
1. Spot-check four inventory items daily.
After conducting weekly inventory, compare your counts to your point of sale (POS) data. To make this a more manageable task, conduct these spot-checks four items at a time. Choose two food ingredients and two beverage ingredients that seem to be turning sluggishly, then count available quantities every day for the next seven days.
A key to the reliability of the data you collect is not to let employees know which ingredients you are counting. When you notice that certain items are indeed moving sluggishly, investigate why. For example, are you seeing slow-moving inventory because kitchen staff isn’t using the proper ingredient quantities? Or, could it be a matter of inadequate upselling of items made with these ingredients?
2. Calculate inventory turnover.
Take a look at your inventory turnover ratio, which is one of the best indicators of how efficiently you’re turning your inventory into the sale of menu items. Inventory turnover ratio is calculated by adding together the beginning inventory and ending inventory count and dividing by two.
Consider this example from Investopedia: If an operation with $1 million in sales has a cost of goods totaling $250,000 and its average inventory is $25,000, its turnover rate is 10 percent. A low turnover rate signals slow-moving inventory, which can be corrected by adjusting order quantities.
3. Analyze average days to sell (or use).
The average number of days it will take to use ingredients will vary from restaurant to restaurant and from ingredient to ingredient. However, as a general rule, non-perishable ingredients that have had fewer than six months of demand fall into the “sluggish” category.
You may want to utilize forecasting tools to calculate more accurately here. This is particularly valuable for ingredients whose life cycle differs from your mean inventory turnover rate. If items can’t be forecasted and you see significant shelf-life variance, you’ve got a case of slow-moving inventory on your hands.
4. Assess the cost to hold inventory items.
“Cost to hold” is the total of all expenditures your operation incurs from maintaining inventory. This typically includes the cost of storing individual inventory items on the shelves and in the refrigerator or freezer. It also encompasses depreciation, the cost of paying staff to handle the inventory (i.e., labor to move it around in storage), insurance, security, and the overall cost of business capital.
Remember: You may think holding costs, particularly for ingredients as opposed to product sold in retail stores, are inconsequential and irrelevant to a discussion of slow-moving inventory. Think again. Having inventory that turns at a significantly slower pace than its counterparts creates costly operating efficiencies as rapidly as it hurts sales.
5. Predict trends with sales data.
Go back to your POS system and review historical sales data to determine which items (and hence, which ingredients and beverages) are selling and which aren’t. This should allow you to predict what’s coming in terms of demand for menu items and consequently, to weed out slow sellers.
Needless to say, the restaurant industry operates on tight margins, which means you can’t afford to keep slow-moving inventory in house. Use these tips to remain on top of things and pick up the pace.