Restaurant Inventory Management Software: The Essential Guide
Posted: Mar. 27, 2019
Running your restaurant comes with its own set of challenges. You have to schedule staff shifts, keep your menu up-to-date, focus on customer service, and more. However, one of the most essential things you need is an effective food inventory management system.
Tons of food go to waste every day as a direct result of poor inventory management. By automating your restaurant inventory controls, you can maximize your profit and reduce food waste in the process. But where should you start?
In this article, we will discuss the following key points:
- What is restaurant inventory management?
- How do restaurants take inventory?
- Why use inventory software?
- What features does the software need?
- Best practices for tracking restaurant inventory.
- How much does the software cost?
- What types of restaurants need inventory management?
- Free inventory management software and tools.
Are you ready to explore all the essential pieces of taking inventory in your restaurant? Let’s dive in!
1. Restaurant Inventory Management: What Is It?
Restaurant inventory management is the process of analyzing your food supply, making the most of what you have, and using this information to inform your next purchases.
Restaurant inventory systems are essential tools that can help you reduce food waste and costs, while also maximizing your profits. Before we jump into specifics, let’s define some key terminology you should know.
- Inventory: This is the amount of product you have in-house. You can refer to this either in terms of dollar value or by physical amount, but whatever you choose, be sure to use that method consistently.
- Depletion: This refers to the amount of product used in a certain period of time (daily, weekly, or monthly). You can calculate this with your sales report data from your POS system.
- Usage: This is the amount of inventory divided by the depletion rate within a certain window of time. For instance, if you have 14 gallons of milk and you plan to use two gallons a day, that’s a week of usage (7 days’ worth).
Having an understanding of these terms will help as you determine how to do inventory in a restaurant more effectively. Next, let’s take a look at how restaurants typically take inventory.
2. How do restaurants take inventory?
Depending on the type of POS system your venue has set up, the process of taking inventory will vary. Whether you use a legacy or cloud-based system will impact your process, as well, so you should consider the following factors:
- Legacy. A legacy POS system is hardware-based, and data is collected and stored on local servers. However, you can still take inventory using your sales report data. The downside to using a local server, of course, is that it’s vulnerable to crashing. This could result in downtime during your opening hours. Overall, it's advisable to use a robust POS system that integrates with inventory management software.
- Inventory management software. Restaurant inventory software tracks your actual usage and is the most accurate method of taking inventory. This software is not available on all POS systems, so make sure your restaurant POS system can integrate with inventory management tools.
When thinking about how you take inventory, you should ask yourself if your current system is keeping up with your needs. Do you have a lot of food waste at the end of the week? At the end of the day?
Depending on your restaurant’s needs and current setup, your food inventory management system will vary. However, it’s important to keep your restaurant’s level of food waste in mind and reevaluate whether you need to switch to restaurant inventory software that can address those issues.
Calculating the average daily cost of the restaurant
If you want to determine the average daily cost of your restaurant’s inventory, you should determine the food cost percentage. This is the ratio of the cost of ingredients (or inventory) to the revenue that those ingredients bring in when dishes are ordered.
To figure out the food cost percentage for your restaurant, take a look at your weekly inventory:
- Identify the food supplies you received at the beginning of the week.
- Add up the value of each item (in dollars).
- Track the other purchases that you made during the week.
- Take inventory again at the beginning of the following week.
- Add up the total food sales per shift.
- Determine the actual food cost for the week, using this formula: Food Cost Percentage = (Starting Inventory + Purchases – Ending Inventory) ÷ Food Sales.
The average food cost percentage for a fine dining restaurant is 35%, while the average food cost percentage for a casual restaurant is 25%. If your food cost percentage is too high or low, be sure you’ve counted the items correctly and accounted for all purchases.
Calculating this percentage can help keep you on track, and can be facilitated by your restaurant inventory management software.
3. Why use restaurant inventory software?
Restaurant inventory management serves as a loss prevention tool. In other words, if you’re not fully tracking your food inventory, you could be losing part of your profit. Tracking your inventory means knowing what supplies come into your restaurant, what leaves your kitchen, and what’s leftover.
Poor inventory management means lower profits. Your goal should be to have exactly what is needed, and cut back on wasteful spending and food waste. This will also help support your business margins as a result.
In addition, you can use your inventory software to track stock of merchandise, such as custom shirts and other items.
It’s important to invest in a restaurant inventory management system for these reasons, but you also should ensure you’re investing in the right features that are best suited for your restaurant. We’ll discuss this more in the next section.
4. What features does restaurant inventory software need?
Not all restaurant inventory management systems are created equal. As mentioned before, a key factor to take into account when using inventory software is what your restaurant actually needs. As a result, you should focus on the specific features that would benefit your restaurant.
In general, your restaurant inventory system should allow you to:
- Manage all of your vendor relationships in one place. Your restaurant inventory management software should list the items you typically order, allow you to get alerts for when items are low in stock, create purchase orders for suppliers, and make price adjustments. You should also have the ability to update inventory levels automatically with purchase orders, or update them manually.
- Get real-time inventory updates. Link your inventory items with your menu items—including modifiers—which will allow you to keep tallies in real-time. This way, servers will be notified with an item is about to run out.
- Create accurate, immediate financial reporting. Capture all the data you need and generate reports concerning your inventory whenever you require it.
- Transfer items to meet location needs. If you're running multiple locations, transfer products from one location to another via the inventory system. This will help prevent you from running low on menu items.
- Integrate with warehouse and commissary options. If your restaurant uses a warehouse or ordering hub, use a food inventory management system that can integrate with it. Order items to be delivered to the warehouse, and then to the locations, or use your system with your commissary, where ingredients are distributed and then made into menu items.
By using robust restaurant inventory software, such as the one in Lavu’s iPad POS system, you can access all of these features and meet your restaurant’s needs from one system. Even more, you can learn what your guests like by understanding what’s selling and what’s not. This will lead to greater efficiency, less waste, and more profit.
5. Best practices for tracking restaurant inventory.
When running your venue, there are multiple restaurant inventory best practices to keep in mind. In this industry, taking inventory is more than just scanning barcodes, and it can become overwhelming when there are several factors to take into account. By following these best practices, you’ll help ensure you maximize your profit and keep track of all the extras.
In order to efficiently track your inventory, you should:
- Automate your system with POS software. Using robust restaurant POS software reduces your costs, as you don’t have to hire extra staff to do inventory management, and you can automate and streamline much of your process.
- Train your staff. Teach your staff how to use the automated system so that it can be used efficiently and anyone can help out, if necessary.
- Set a limit for storage. Identify the maximum and minimum storage levels for certain products at your restaurant to keep inventory fresh and edible.
- Allocate access to your data accordingly. You can create separate login credentials for different members of your team so they only have access to whatever data is necessary to their role.
- Regularly check inventory. Try incorporating a cycle count into your daily inventory process so that you don’t disrupt the ongoing process or item usage. This will help avoid long hours at closing and miscalculations.
- Track inventory requests. When your staff wants to use a certain item, set up your process so that you receive a request each time this occurs. This eliminates stock misuse and guarantees that you’ll have to approve all orders sent to your vendor.
- Transfer items. If you’re running a restaurant chain, consider sending some unused inventory to other outlets where they use it more often. Your food inventory management system should allow you to update this data.
- Have a backup inventory. Keep an emergency stock of frequently ordered items, though you should also set a limit on this so the items don’t go to waste.
- Keep an eye on changing menus/seasonal items. Adjust your inventory according to changing menu items based on factors like changing seasons.
Depending on the size of your restaurant and its needs, these best practices can be incorporated to ensure you efficiently track your inventory. However, the most important element you can use is an automated restaurant inventory system. By including this software in your process, you’ll increase your accuracy and streamline your daily operations.
6. How much does restaurant inventory management software cost?
The cost of restaurant inventory management software will vary, and it’s helpful to note the factors that influence the cost. First, it depends on the complexity of your venue; if you’re a larger restaurant serving 1,000 customers a day, you’ll have a wider variety of needs than a smaller venue serving 100 customers a day.
When determining the costs for your restaurant inventory systems, consider the following:
- Add-on costs. If you want to add on restaurant inventory software to your POS system, you’ll want to make sure they can integrate with each other. In this case, consider investing in a robust POS system; the time and money you save by streamlining your inventory process may very well make up for the upfront investment.
- Setup and training costs. Legacy POS systems will be more time-consuming to set up, as different installation tasks will be required. If you use a POS system with restaurant inventory software, you’ll likely be using a cloud-based system; the setup will be less time-consuming and it’ll be easy to train your employees.
Ask yourself if your restaurant has the capability to incorporate a legacy system, or if it would benefit more from a cloud-based POS system. The takeaway? Understand what your restaurant needs and can afford, and what kind of system will work best for those needs.
The costs of your restaurant inventory system will vary, but as long as you determine the specific needs of your restaurant and what features it would most benefit from, you can prevent yourself from investing in features you don’t need and paying extra when it’s unnecessary.
7. What types of restaurants need inventory management?
The short answer? All restaurants can benefit from restaurant inventory systems. Whether you’re a large chain of steakhouses or a small food truck, there are specific features in these systems that would help you.
Check out the ways the following venue types can benefit:
- Bars. You can use restaurant inventory controls to make sure you don’t run out of certain ingredients. You can even determine if a customer orders top-shelf liquor but ends up paying for something of lesser quality.
- Ice cream shops. Your ice cream shop can benefit from restaurant inventory systems by ensuring you don’t run out of certain flavors. You can also track inventory, link the system to your menu, and update inventory automatically or manually.
- Pizzerias. Stay on top of the toppings and ingredients you need and track what you’re running low on.
- Wineries. Determine what wines are more popular and what varietals are selling. Know exactly how much of each wine you have in-house, as well.
- Food trucks. Track your inventory, such as purchase orders and quantities, down to the ingredient level. Get notified when items are running low, and make real-time adjustments to your inventory so your food truck always has what it needs.
It’s evident that restaurant inventory management is essential for any type of restaurant. All you need to do is gain an understanding of how it can benefit your specific venue and how to make the most of the features the software offers.
8. Free inventory management software and tools
If you’re not quite ready to take the plunge into a new restaurant inventory system, there are free tools available that you can still take advantage of! From manual sheets to food cost calculators, you can determine how best to go about your inventory process.
- Inventory sheet. Manage your inventory by food type and/or supplier. You can set how much of a certain item you want in-house (par level). Determine what quantities of each item should be ordered based on inventory, how fast the previous items sold, and any upcoming events that might impact what you need.
- Basic restaurant management key terms. Learn key terminology you should know when it comes to running your restaurant, including when you take inventory.
- Recipe cost calculator. Learn how much it costs to create each menu item, which will help your business succeed.
Take advantage of the tools available to you and use them to streamline your process, even if you’re not ready to invest in a new system. By doing your research and being meticulous in your inventory process, you can still successfully manage your restaurant’s items up to the point where you’re ready to automate everything.
Whether you’re a small venue or a large chain, you can benefit from restaurant inventory software. As important as it is to reduce costs and maximize your revenue, it’s also important to not let excessive amounts of food go to waste. Remember these key elements and get ready to improve your inventory process!
Are you looking for additional ways to be efficient about your inventory? Check out these articles below:
- Inventory Can Make or Break Your Food Truck Business. Learn why it’s important to take accurate inventory when running your food truck.
- The Basics of Restaurant Inventory Management. Round up the basics of restaurant inventory management and what you need to know.
- Mastering Your Bar Inventory System. Learn what you can do to fully master your bar inventory system and increase your profits.
- Using Inventory Management to Maximize Profits. Avoid mismanaging your assets and learn how to maximize your profits through effective inventory management.
- 6 Ways for Restaurants to Control COGS. Learn how to control your COGS (cost of goods sold) by cutting restaurant expenses and waste.
Posted: Mar. 27, 2019 | Written By: Lavu