Like purchasing products and pricing your menu, inventory is another process where profit can either be gained or lost. No matter how careful you are at preparing products, utilizing trim and leftovers or how accurately you calculate your selling price, failure to properly manage and account for products can quickly consume any profits made from sales.
Managing and controlling inventory is not something you can wait to worry about at the end of the week. Managing inventory is a continuous process that must be part of your day, every day, all day long. This does not mean you have to stand in the storeroom or walk-in all day long, but it does mean you have to be aware of what you have on-hand, how much your staff is using, how products are being used and processed and how and when products are being counted.
Inventory: Products purchased and stored in-house for the purpose of resale. A complete list of items such as goods in stock
Inventory Management: The management of inventory and stock, which includes controlling and overseeing ordering inventory, storage of inventory, and controlling the amount of product on-hand
Shelf to Sheet: Inventory on the Shelf is in the same order as the items listed on the inventory count sheets. The process of counting product on the shelves and then locating the items on your inventory count sheets and documenting
Physical Inventory: The process of physically counting all products on hand that make up the inventory for the purpose of inventory management and calculating product usage to determine food cost
Extended Inventory Values: The calculation of the value of products that are in-house at the time of your physical inventory using the formula: Amount on hand x Cost of Product = Total Product Value
Beginning Inventory: The beginning values for on-hand inventory at the start of a period. Typically the ending inventory from prior period
Inventory Padding: Artificially over inflating on-hand inventory levels to intentionally lower the food cost as a percentage of sales
Product Usage / Cost of Goods: The amount of product used within a determined amount of time. This is calculated using the formula: Beginning Inventory + Purchases - Ending Inventory
Spot Checking: The periodic counting of a specific product or product to ensure you have on-hand is accurate. This is particularly important for high-cost items
"Simply stated, your inventory is your investment, it's money on the shelf"
When we talk about “Taking Inventory” we are referring to the process of accounting for all on-hand inventory by physically counting each item by the each or piece, case or by weight. We then calculate the value for the products counted for the purpose of determining the total value of the inventory within the operation. Why is this important? Because, without knowing how much inventory is on-hand, you cannot accurately determine the amount of product that was used for the period, which is required to calculate period food cost as a percentage of sales.
If you recall, food cost as a percentage of sales shows us how effective we were in managing and utilizing our products. Additionally, it is a good indicator of whether our menu items have been accurately priced to ensure we hit our target profit margins. Calculating Food Cost is another measurement to show how well we performed.
While period food cost percentage isn’t a measure of profitability, it does have a direct correlation to our overall bottom line profit. The lower the food cost percentage, the better the job we did in managing our business. Understanding what your period food cost tells us about our business and how well we performed is an important step in running a successful operation.