Month-end inventory counts are likely one of the least favourite tasks for Operations Managers. So much so, that many operations neglect to count their food and beverage inventory regularly or accurately, leading to inconsistent results. However, inventory counts are an essential tool to help operators maximize profits.

Let’s look at why inventory counts are despised, how to improve accuracy, reduce the time spent, and the benefits of counting inventory.

Why All the Hate?

To get out of performing this hated but essential task, operators will say that they do not have time and that inventory counts are a waste of time. Instead, they may count once a year or, just as bad, guess their inventory.

The fact is that an operation that lacks Financial Transparency and does not effectively use its tools is more likely to fail and, at the very least, is missing out on anywhere from 2-10% in bottom-line profits. In an operation with $1,000,000 in revenue, 2% equals $20,000. Now, is investing 6 hours each month worth $20,000?

For chefs, managers, and supervisors, inventory isn’t convenient. Month-end counts land on a different day of the week each month. You sometimes must fit it in on weekends, holidays, and always on New Year’s Eve. In addition to everything else going on, inventory seems like a burden, adding workload and stress.

Improving the Accuracy

Inventories that are inaccurate create inconsistent results and cause operators to lose faith in the process. In that case, it is a waste of time. There are a few very simple ways to improve the accuracy of your inventory counts and, at the same time, speed up the process.

What causes inaccuracies is disorganized storage areas, poorly laid out inventory count sheets, unclear or inconsistent units of measure, and conflicting responsibilities.

1) Get Organized

The first step is to organize the storage areas: “Everything has a place and everything in its place.” If everything is in the same place, you will be able to set up inventory sheets in shelf order. This will save a great deal of time, reduce frustration, and decrease the chance of overlooking an item.

2)  Inventory Count Sheets

The next step is to set up the inventory sheets and, if you are not already, you should be using a recipe and inventory software system. These systems allow you to set up inventory sheets in a style that works best for you. You can customize the sheets to specific storage locations, shelf order, or alphabetical order. Depending on your operation you may set up your sheets using one or all styles. The key is to consider what makes the most sense for your operation and then create the appropriate structure.

3) Unit Of Measure

The unit of measure (UOM) or pack size is probably the most important part of an accurate inventory count. The reason is everyone looks at things differently. In some cases, they may count a case that needs weighing or write down six cans when the inventory system is set up for cases. The examples and chances for errors are endless. This is another great feature of recipe and inventory systems. You can select specific pack sizes for different locations and/or enter the information based on multiple pack sizes. Whatever you decide, training inventory takers on the UOM and the importance of following them is essential.

4) Conflicting Responsibilities

All the preparation in the world will not change the fact that month-end happens on a different day of the week every month. When managers have conflicting responsibilities, the margin of error dramatically increases. The manager may be interrupted to deal with other matters or they have inventory in addition to their already full workday, so they may be unable to focus on the task at hand.

Team Up – One of the best ways to count inventory is to team up. One person calls and counts, and the other one records. This dramatically speeds up the process and can make it more enjoyable, and if you need to be available to deal with other issues, one person can keep counting so you don’t lose your place or momentum.

Leave It – Many operations are pressured to get the inventory in on the last night of the month for the accounting team. I get it, they have deadlines, but for the sake of accuracy and not having to work 16 hours, inventory, in some cases, is better left for the next day. Coming in the morning of the first day of the month is the same as doing the inventory the night before. This can only work if the count is completed before any food is sold that day.

Inputting -Keep the operation managers in the operation and have someone else do the data entry into this system. This is a great way for the accounting team to support the operation to help meet the timelines.

The Benefits

Aside from having accurate overall food and beverage cost %, food inventories are the basis for important reporting functions.

    • Aging / Obsolete Inventory
      This report can tell you what inventory items are not or have not been moving. By highlighting these items, you will be able to create menu items and specials to use the product. This prevents potential waste, and it is better to sell the product than it is to have the money tied up.
    • Actual to Theoretical (Potential) Food Cost
      This is the most important food cost measurement, but alone it is not very actionable. Drilling down to the variance by ingredient is the most actionable and effective way to identify waste, theft, inaccurate recipes, portion control issues, etc.

How Often Should You Do Inventory Counts?

The frequency of the counts depends on a few factors. Are you just starting to conduct inventories, do you have contracted pricing, and do you have a strong support system to help with different steps?

If you have never conducted an inventory, start this month and no more or less than every month after that. Conducting an inventory (aside from key items) more than once a month will strain your resources. Any less than that and you may not be capitalizing on menu engineering techniques.

Once your processes are well established and your variance between actual and potential food cost is consistently less than 1.5%, you may be able to decrease the frequency to bi-monthly or quarterly inventories.

Automated Inventory Systems

There are systems that can draw down inventory levels based on sales and other information, such as waste that is entered into the system. Although these systems sound very appealing, it is important to realize that these types of perpetual inventory systems should not replace a physical count.

These systems rely on perfection, perfect portion control, perfect yield, exact sizing of produce that is purchased by count (cauliflower/pineapple), and that all waste is recorded. Although we strive for perfection, the reality is you will not be conducting yield tests on all your produce as it is prepared, and portioning is not always perfect.

Taking the steps to properly set up the storage areas and inventory sheets and providing the right support will make the inventory process one of the best uses of your time and financial systems. You will be on your way to maximizing your food & beverage profit.

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