Inventory Management Best Practices
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1 InventoryManagementBestPractices Countlesstimes,FoodBuyersNetworkhasbeenengagedbyfoodserviceoperationsof allsizestohelpuncoverthereasonsbehindapparentfoodcostcontrolandprofitability issues.whenwebegintoinvestigatepotentialcauses,however,itoftenbecomes quicklyapparentthattheprimaryproblemisnotwithrestaurantcostcontrolpractices, butratherwiththerestaurantinventorydataandfoodcostaccountingmethodsusedto generatetherestaurantcostaccountingfigures.unlessrestaurantinventorybest practicesandproperrestaurantcostaccountingmethodsarebeingobserved,foodcost controlfigureswillnotbeabletoprovideanyaccuratepictureintorestaurant performanceandprofitability.thefollowingarticlewillexaminesomeofthecritical restaurantinventoryandfoodcostaccountingbestpracticestoensurereliable restaurantcostcontrolfigures. DecidingWhattoCount&RemainingConsistent Oneofthemostimportantbestpracticesincreatingaccuratefoodcostfiguresis remainingconsistentwithwhatitemsarecountedduringeachrestaurantinventory. Whenitcomestomakingthedeterminationofwhatshouldbecounted,thereisawide rangeofindustrypractices.someoperatorsbelieveincountingeveryiteminthe restaurant,whereasothersfocusonlyonhighdollarandsensitiveproducts,suchas meats,seafoodandpoultry.regardlessofyourparticularinventorymethodology,the importantthingtorememberisthatthedecisionmustbeconsistentlyexecutedduring eachinventory.inotherwords,makeadecisionaboutwhatgetscountedeach inventory,andsticktoit.alteringwhatgetscountedwillcreateanomaliesinyour inventoryvaluedeltabetweentwoconsecutiveperiods,skewingtheactualfoodcost figure. TheRightTime&Date Achievingaccuraterestaurantinventoryfiguresisgreatlydependentonensuringthe correctdateandtimeofthephysicalrestaurantinventory.specifically,itiscriticalthat inventoryisvaluedpriortotheuseorconsumptionofanyproductforrevenue attributabletothenextfoodcostaccountingperiod.further,itisequallycriticalthat inventoryisvaluedafterallproducthasbeenconsumedforallfoodrevenuethatwillbe attributedtothecurrentfoodcostperiod.forexample,ifarestaurantmanagerwanted tocalculateafoodcostforthemonthofaugust,theninventoryshouldoccuronceall foodproductionhasceasedonthelastdayofaugust,butbeforeanyfoodisconsumed onseptember1.simplyput,thismeansthattheinventoryshouldbeeithertakenafter thecloseofbusinessonthelastdayoftheperiod,orbeforethestartofproductionon thefirstdayofthefollowingperiod.unfortunately,thistypicallymeanslatenightor earlymorningcounts. Thereareadditionalbenefits,aswell,toexecutinginventoryduringnon operating times.countingduringthesetimes,whilenotenjoyable,typicallyenablesthose executingtherestaurantinventorytofocusonthetaskathand,whichisensuringthat anaccuraterestaurantinventoryisexecuted.attemptingtotakeaninventoryduring operatinghoursmeanstryingtomanuallyadjustandcontendwithproductsbeing FoodBuyersNetwork (800)
2 InventoryManagementBestPractices removedfromstorageasneededorputbackintostorageduringendofshift procedures.further,ifamanagerisinvolvedinthecountingprocess,itisverylikely thattherewillbefrequentinterruptionstotheinventoryprocessbecauseofother operationalneedsthatrequireattention. TheRightTools&Technology Thedaysoftheblackinventoryledgerusedtomanuallycountproduct,updatepricing andcalculateextendedvaluesisgone.atleast,theyshouldbe.today,restaurant managersandoperatorshaveaccesstoawiderangeoffoodcostcontrolandrestaurant inventorytools:fromtheultra expensiveandcomplexfoodcostcontrolandrestaurant inventorysoftwareprograms,tothedo it yourselfexcelspreadsheetprogram.with therelativeeaseofcreatingarestaurantinventoryprograminexcel,thisshouldbethe bareminimumforrestaurantoperators.tosavesometime,restaurantmanagersand operatorscandownloadeitherthesespreadsheetsfromourwebsite. FoodBuyersNetwork (800)
3 InventoryManagementBestPractices UsingProperInventoryCountSheets Accurateinventoryfiguresbeginwithcountsheetsthataredesignedproperly.First, inventorycountsheetsshouldbeinstorageshelforder.thiseliminatestheneedto shufflearoundlookingfortherightproductonthecountsheets.thisnotonlysaves timeduringtheinventoryprocess,allowingforamoreconcentratedfocusonthetaskat hand,butalsohelpstoensurethatinventoryisbeingcountedinashelf to sheet fashion,whichwillbediscussedshortly.second,inventorycountsheetsshoulddisplay notonlytheproductname,butalsotheinventoryunitofmeasureandtheprice associatedwiththatunitofmeasure.thisinformationenablesthecountertoensure thattheyarecountingproductbythecorrectunitofmeasure. Oftentimes,productswillbestoredinvariouslocations.Insuchcases,theseproducts shouldbelistedmultipletimesontheinventorycountsheets.again,thiswillhelp ensurethecriticalprocessofcountinginshelf to sheetfashion. OrganizingtheStorageAreasPriortoInventory Oneofthebestwaystoensureaccuratecountsistospendaboutanhourpriorto startingtheinventoryorganizingallstorageareas.specifically,productsshouldbe groupedtogetherin"zones"andorganizedwithlabelsfacingforwardandinastraight line,asmuchaspossible.forthosehighlymotivatedoperators,werecommend labelingthesezonestomakeiteasierforotherstostoreproduct,organizeshelvesand takeinventory.takingthetimetoorganizestorageareaspriortobeginningthe inventoryprocesswillnotonlyexpediteinventoryandensuremoreaccuratecounts, butaffordstheopportunityto"touch"eachproductandgetafeelforwhatisonthe shelves acriticalcomponenttoongoingproductmanagement. Further,productshouldbestoredonshelvesintheunitinwhichtheyareremovedfrom storageduringoperations.forexample,unlessentirecasesof#10cansoftomato sauceareusedatonceduringprepprocedures,theyshouldbestoredontheshelfin cans,notintheoriginalcase.thesamemethodologyshouldbeappliedtoallproducts instorage.storingproductinthesesmallerunitswillensurethatproperinventoryand productordersaretakenandwillmakeitmucheasierforoperatorstoquicklylookat shelvesandnoticeanyanomaliesorpotentialshortages. TwoPeopleCompletingtheInventory Asinventoryvaluesareusedforthecalculationoffinancialfigures,itisalways recommendedthattwopeopleworktogethertoexecuteaninventory.thishelpsavoid thetemptationofmanipulatinginventoryfigurestogainadvantageousresults,aswell ashelpsavoidanycountingoversights. FollowingtheProperOrder:Shelf to Sheet Toensurethatallinventoriedproductsarecounted,wehighlyrecommendthat operatorsstartatthetopleftofastorageareaandworktheirwaytothebottomright, FoodBuyersNetwork (800)
4 InventoryManagementBestPractices usingwhatisontheshelftodeterminewhatgetscountednext,ratherthanusingthe productorderonthecountsheetstodeterminethis.iftheinventorycountsheetsare inorderofshelfstorage,thenthisshouldbearelativelyeasyprocess.thisisthe numberonecauseforcountingerrors,inourexperience. AccuratelyCountingtheInventoryUnitofMeasure Aswediscussedpreviously,restaurantinventorycountsheetsshoulddisplaythe inventoryunitofmeasure,aswellastheassociatedcost,toensurethatproductcounts reflectthesespecificunitsandcosts.forexample,countingpre portionedsteaksbythe "each"willhavedisastrouseffectsonfoodcostaccuracyiftheinventoryunitof measureusedtodeterminetheinventoryproductvalueis"pound." Further,itisimportantthatoperatorsaccuratelyrepresenttheonhandvalueofeach productbyaccuratelymeasuringtheproductbasedontheassignedunitofmeasure. This,ofcourse,isrelativelyeasyforthoseitemswhoseinventoryunitofmeasurecanbe visuallyidentified,suchasthosecountedby"each."however,iftheunitofmeasureisa weight,thenascaleshouldbeusedtocreatetheonhandvalue.everyrestaurant operatorshouldhaveaheavy dutyscalethatcanbeusedduringinventorytocount suchitems.itisworthnotingthatensuringaccurateweightcountsiscriticalnotjustfor creatingaccuratefoodcostfigures,butsothataccurateproductusagevariancescan alsobecalculated. PriceChanges Itisimperativethatbeforevaluingacurrentinventory,thatproductpricesareupdated toreflectcurrentcosts.whilethereareseveralpricingmethods,suchasfirst in firstout(fifo),last in first out(lifo),andaveragepricepaid,ourrecommendationistouse thesimplestmethod,lastpricepaid.usingthelastpricepaidpricingmodelfor calculatinginventorymeansthatallproductsinventoriedwillbeassignedacostbased onthemostrecentinvoicedpriceforthatproduct.toensurethatinventoryvaluesare correct,though,thecostofeachinventoriedproductonthecountsheetsorinventory programmustbeadjustedtoreflectthemostrecentinvoicedcostoftheproduct. NewItems Priortobeginningtheinventoryprocess,newitemsshouldbeaddedtotheinventory countsheets.iftheyareforgotten,however,andthosecompletingtheinventoryare followingthe"shelftosheet"countingprocess,thentheseitemsshouldbedetected duringinventory,thoughtheywillneedtobewrittendowninmarginsuntiltheycanbe addedtothecountsheetsatalatertime.wehighlyrecommendthatanynewproducts areimmediatelyaddedtothecountsheetswhentheyarebroughtintoinventory,asit isnotuncommonforustolookathistoricalinventorycountsheetswhendoing operationalauditsandtofindthesameproductswritteninthemarginsmonthafter monthbecausethetimewasnevertakentoupdatetheinventorycountsheets.this willoftenresultincountinginaccuracies. FoodBuyersNetwork (800)
5 InventoryManagementBestPractices DeterminingtheInventoryUnitofMeasure Determiningtheinventoryunitofmeasureshouldbeaimedatcreatingthemost accurateinventoryfigures.therefore,werecommendthatproductbecountedinthe smallestwholeunitinwhichitisstored.so,inthepreviousexampleofthetomato sauce,anoperatorshoulduse"can"astheinventoryunitofmeasure,andensurethat thecorrespondinginventorycostforthisproductreflectsthisunitofmeasure.inother words,itiscriticalthatthecostassociatedwithtomatosauceisthecostpercan,not case.itisnotuncommonforustofindunitcostsoninventorysheetsthatdonotreflect theinventoryunitofmeasureusedforcounting.forexample,weoftenfinditems inventoriedbythe"each,"butthathaveaunitofmeasurecostbythe"case." Obviously,issuessuchasthesecreatehugeinventoryvalueissues,greatlyskewingfood cost. Aspreviouslymentioned,specificproductsareoftenstoredinmultiplestoragelocations andindifferentstoragecontainers.forexample,thetomatosaucefromtheabove examplemaybestoredincansindrystorage,butinplastic1/3pansinthewalk in.in casessuchasthese,werecommendusingmultipleinventoryunitsofmeasure.aswe alreadymentioned,productsthatarestoredinmultiplelocationsshouldbelisted multipletimesontheinventorycountsheets,andtheinventoryunitofmeasureineach instanceshouldreflecthowtheproductisstoredinthatspecificlocation. InvoiceCut OffDates Anothercriticalmistakeisthefailuretoassigninvoicestothecorrectaccounting period.morespecifically,theamountofaninvoiceneedstobepostedtothecorrect foodcostaccountingperiodbasedontheexactdatethattheproductwasphysically receivedintoinventory.usually,thisdateisthedateoftheinvoice,unlessitwasa drop shippeditem. Weoftenfindproblemswiththisatthebeginningandendoffoodcostaccounting periods.ratherthanpostinginvoicestothecorrectfoodcostperiodbasedonthedate theproductwasreceivedintoinventory,invoicesarepostedtothedaytheyare recordedinthegeneralledger,accountingsystemorinventoryprogram.oftentimes, wewillfindthisisbeinginconsistentlypracticed theaccountingdepartmentcodesthe invoicescorrectlyinthegeneralledger,buttheinventorymanagercodesthem incorrectlyintheinventorysystem.ineithercase,thesemistakeswillleadtoincredibly inaccuratefoodcostfigures. ProperGeneralLedgerAccountCoding Anothercommonrestaurantcostaccountingissuewerunacrosswhenexecutingaudits istheinconsistentcodingofinvoicestothecorrectgeneralledger/p&laccount.while theactualnumberandmethodologyofthesegeneralledgeraccountswilldifferfrom operationtooperation,thekeytoaccuracyisensuringthatoncetheyareestablished, invoicesarecodedaccurately,monthaftermonth,totheestablishedaccounts. FoodBuyersNetwork (800)
6 InventoryManagementBestPractices Oftentimes,singleinvoiceswillcontainproductsattributabletomultiplegeneralledger accounts,suchasfood,paperandchemical.thisisespeciallytrueforbroadlineinvoices fromsupplierssuchassyscoandusfoodservice.becauseofthis,itiscriticalthat operatorsrevieweachinvoicecarefullyandcreatecodedsub totalsthatreflectthe specificgeneralledgeraccountsrepresentedontheinvoice.weoftenfindthat operatorswillmistakenlycodetheentireinvoicetoasinglegeneralledgeraccount, creatinginaccuraciesintheresultingincomestatementfigures. Reviewing&VerifyingtheResults Onceaninventoryiscomplete,itisimportanttoreviewtheresultstoensuretheir accuracy.thereareafewredflagsthatmayindicatepossibleerrors. 1)Theoverallfoodcostpercentagechanged,ineitherdirection,byasignificant amount usuallybymorethan1.5%withoutanyknownexplanation. 2)Ascanoftheproductextensionsuncoversparticularproductsthathaveanunusually highon handvalue.oftentimes,thiswillbeduetodataentrymistakesorimproper costsassignedtotheunitofmeasure. 3)Ascanoftheproductextensionsuncoversproductswithazerovalue,indicatingthat theproductmayhavebeenmissedduringinventory. 4)Therearemajoron handdollarfluctuationsinfoodcostcategories,suchasproduce, meats,grocery,etc.suchshiftsmayindicateacountingerrorinanitemwithinthat category.examiningthecategoryon handamountsmakesitabiteasiertotarget possiblecountingmistakes. 5)Thereisamajorshiftinthetotalinventoryon handvalue. Asafinaltake away,operatorsshouldalwaysbeabletoexplainwhyafoodcostfigure changedduringagivenperiod,regardlessofwhetheritwasapositiveofnegativeshift. Itisnotenoughtogetexcitedaboutagoodfoodcostifthereasonbehinditis unknown.itisverypossiblethatanunexplainedshiftinfoodcostisduetoaninventory oraccountingerror,ratherthanimprovedfoodcostcontrolpractices.iftheshiftis accurate,itiscriticaltounderstandtheunderlyingreasonssothatbehaviorscanbe alteredorduplicated,dependingonthedirectionoftheshift. FoodBuyersNetwork (800)
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