PERPETUAL INVENTORY: RESTAURANT MANAGER

While all licensed establishments, no matter the size, could likely benefit from some sort of inventory control system, Bednarovsky says the type of system they can best benefit from depends on their gross sales volume.

“If a given inventory control system can help a business cut its food and beverage costs by 10 per cent and if its current food and beverage costs run about $100,000 a year, the business would be wise to incur an additional $5,000 a year in payroll costs to properly implement that inventory control system,” he says. “On the other hand if the projected cost savings are less than the payroll cost to operate the system the benefit is less clear.”

Smaller businesses usually benefit from a simple “stock counter” system while larger businesses can realize significant cost savings from systems that track “perpetual inventory” and require dedicated staff to operate.

Perpetual inventory involves entering each inventory “stock item” (every item bought from the vendors) into the system and linking that stock item to menu items. This is essentially a recipe of ingredients used in the preparation of each menu item. By linking the individual stock items to each menu item sold, the system can then “deplete” each ingredient as it is sold.

Cocktail example:
Menu Item: B-52 Cocktail
Stock Items: Kahlua, Baileys, Grand Marnier
Link to Menu: Each time a B-52 is sold, deplete from stock the following:
25ml Kahlua, 15ml Baileys, 5ml Grand Marnier

Perpetual inventory gives highly detailed reporting and analysis of profitability of each menu item, detailed shrinkage and surplus.

Other reports can indicate so-called “price creep,” the increase in supplier price of products over time, which might not otherwise be noticed in the daily routine, allowing bar owners to re-negotiate pricing with the vendor (in the case of a price increase) and push the sale of menu items prepared with those items whose price has decreased.

One downside to perpetual inventory is that it can be highly labour-intensive. The initial setup of each stock item and the linking of each item for menu explosion can take 40 to 50 hours to complete. Subsequent maintenance during the inventory cycle, including stock-taking and entering invoices as new shipments arrive, will require more manual effort up to several hours per week.

Perpetual inventory is best suited for ‘number’s people.’ They want highly detailed information at a granular level, and do not mind the amount of time and labour it takes to provide this type of data.

In addition, this type of system is ideal for very experienced staff that has a well-established routine for counting, ordering and invoicing. The cost to implement this system is dependent on software and training costs possibly starting at $1,500 and up depending on the region and company. There is an additional labour cost involved in setting up the initial stock items. Most companies have the client do all of the inventory programming after training.