Managing Restaurant & Hotel Food Inventory – (Part 3 of 4)
Controlling your month end food inventory and food cost is essential both for your business as well as for your own professional reputation. Controlling your end of month food inventory revolves around four specific tasks: Taking inventory, verifying credits & transfers, verifying the pre-closing inventory balance sheet, and checking posted inventory. Managing each step of this process is vital to being on top of your numbers.
If you want to really dig into analyzing and controlling your inventory, then this page will be very informative. But if you are simply cruising through, better grab a shot of bourbon (Knob Creek please!) because although the content is useful, it is also tedious. Like caviar, it requires a discerning palate.
Check the Food Inventory Sheet Figures
Once your food inventory is entered into the computer the Food Inventory Balance Sheet should be returned to you from accounting for review before it is posted as the final month-end. You want to be sure that you have at least a day to check out the numbers before they are posted as a final month-end inventory number. You’ll want to check the product quantity column and the extension cost column, analyzing a variety of potential problems for each column.
I don’t actually analyze every single line of my inventory balance sheets because there may be several thousand items in food inventory. But I’ll cruise through and look for both item quantity extremes and extension cost extremes with either really low numbers, especially “0”, or really high numbers.
Product Quantity Column
First, check for item quantity extremes to verify low and high amounts entered into the Quantity on Hand column. Check all “0” quantity entries to verify that you actually had “0” of that item on hand. Then check all large quantities. A common mistake happens when entering values into the computer, a person accidentally hits two keys simultaneously. So, instead of entering “1” case of product, they accidentally hit the “4” and “1” keys simultaneously (or some other combination of keys which are right next to each other) and enter 41 cases of product instead of 1 case.
Extension Cost Column
You’ll want to check for extension cost extremes and calculation errors. Again, verify that every $0.00 extension is correct. If there is an item quantity entered on that line but the extension is $0.00 then there is a problem either in the calculation formula, or there is no price entered for that item.
Verify that every high extension cost is correct. If the quantity of product on hand is correct then the extension value should be correct. If the quantity on hand is correct but the extension is too high (or too low), check the unit of measure, the pack size, the calculation formula, and the price.
It is very common for items to be calculated incorrectly, even if you have entered the correct number. This is because someone has to tell the software how to calculate how many items or units are in a case. If they enter the wrong info (and someone always does) then the system will calculate that item incorrectly. Last month my 11 lb cases of vine ripe tomatoes got costed out as one pound per case because accounting entered into the system that 1 cs = 1 lb!
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- Unit of Measure – Having the wrong unit of measure can adversely affect your extension. If you have 15 ‘each’ on hand but the unit of measure is ‘case’ then your extension cost will reflect a cost for 15 cases. And vise versa. Also, meats, seafood and cheese which is purchased by the pound should be inventoried by the pound.
- Unit of Measure – Having the wrong unit of measure can adversely affect your extension. If you have 15 ‘each’ on hand but the unit of measure is ‘case’ then your extension cost will reflect a cost for 15 cases. And vise versa. Also, meats, seafood and cheese which is purchased by the pound should be inventoried by the pound.
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- Pack Size – Before you can check the calculation formula you will need to know the pack size which has been entered into the formula. Verify that it is the correct pack size for that item. For instance, black pepper is sold as 3 each 5 pound containers per case.
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- Calculation Formula – Once you know the pack size used in the calculation you can do the math to determine if the extension cost is correct. Common calculation errors occur with items which are sometimes purchased by the ‘case’ and sometimes purchased by the ‘each’. Some programs will take the last purchased price and consider that to be the ‘case’ price even if it is an ‘each’ price. So, in our example with the black pepper, the formula in the system would be “3 each 5 pound containers per case”. If you purchase just one ‘each’, the system may take that cost and apply it as the ‘case’ price. So if one each costs $50 (which equals $10/lb), the system may apply that purchase as a case price. The result from the system would be $50/cs = $16.67/ea = $3.33/lb. The actual price per pound is $10. You lose $6.67 per pound of inventory due to this error.
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- Price – Lastly, when evaluating extension cost extremes, verify that the price is correct for the item being purchased. Make sure that the price corresponds to the unit of measure and that the final extension cost is correct. Especially check pricing on new items.
Also, verify that the prices used to calculate your inventory are current prices and not prices from several months ago. If you have time to go through and verify every actual price on every single item, more power to you. But generally speaking, you only go through and double check the pricing on key high-cost items such as your major proteins like meats & seafood, maybe your cheeses, and specialty produce. If you have new purchases for the month, be sure that accounting has accurate prices for those items (often they will show a cost of $1.00 or have no price at all). Below is the link button to download this form.
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Do you have the inventory balance sheet for download?
The inventory balance sheet is usually created by your workplace accounting department. You double check it for errors/accuracy before they finalize your period-end inventory numbers.