The Importance of Inventory Control for Restaurant Success
Inventory management is one of the biggest concerns in an investment-heavy sector such as the restaurant industry. Restaurant owners often dedicate a huge portion of the operational cost to procuring perishables. Hence, managing inventory is one of the vital Digital Transformation goals of a food outlet. Over time, restaurant inventory management solutions have become an integral part of restaurant technology as they tackle some of the key operational challenges.
In this blog, we will explore:
- Common inventory control challenges restaurants face
- Why it is important to manage these inventory-related difficulties
- How restaurant management systems with an inventory management module can help restaurants address these problems
Let’s jump right into it!
Inventory Management Challenges & Their Significance: Why Restaurant Management Systems Are Needed
These pointers not only outline the main challenges handled by restaurant management systems but also explain why it is vital to tackle these problems:
- Total spoilage: This inventory control challenge implies an unmitigated loss of procurement expenses, thus negatively affecting the overall profitability of the food outlet.
- Gradual decline in quality of the stock: A great difficulty with perishable is that the inventory is not sharply divided between unusable stock and fresh produce. With time, the taste and the health quotient of some ingredients decline. This compromise in the quality of ingredients can lead to reputation damage, lower customer satisfaction, health risks, and potentially, expensive legal actions.
- Shrinkage: Theft of inventory items is a common problem which businesses across sectors face. This challenge poorly impacts the bottom line by increasing the effective procurement costs or by leading to unforeseen stockouts, preventing order fulfilment.
- Difficult-to-predict replenishment cycle: Factors such as shrinkage and spoilage, due to overstocking or sudden change in menu trends, requiring less of an ingredient, or a technical problem in the storage, can lead to sudden stockouts. In such scenarios, restaurant owners or managers may find it difficult not only to maintain a well-rounded menu but also to procure ingredients at optimum wholesale prices. Additionally, the net logistics expenses that the restaurant had planned for the month, or the quarter also can exceed due to unpredicted inventory loss.
In other words, restaurant inventory management solutions are tasked with helping owners recognise the opportunity cost of lost orders and the increase in the procurement cost (including the price of the ingredients and the logistics costs) which diminish the profit margin.
- Menu engineering roadblocks: Availability of ingredients is central for menu engineering, particularly if the restaurant wants to ride the wave of trends and special days. Having a tight grip on the inventory is also important when the menu is being expanded with the addition of one or multiple new dishes and combo platters. Often menu expansion efforts, which serve as a pilot for testing the market, are announced with schemes such as complementary drinks with a certain dish or buy-one-get-one-free offers.
During such crucial moments if shrinkage or spoilage-induced stockouts occur, then the entire customer engagement and revenue-boosting exercise, which incur a lot of promotional expenses, can prove to be ineffective – in fact, can trigger loss.
Benefits of Restaurant Management Systems: In-depth Exposition of How to Create a Framework for Improved Inventory Control
In addition to tracking spoilage and shrinkage, streamlining the procurement cycle, and overcoming menu engineering problems, there are more direct and indirect advantages of implementing a robust restaurant inventory management solution, such as:
- Automated Inventory Logging (upon procurement): When the products arrive at the cold storage, the inventory information must be recorded. Traditionally, once the newly arrived stock is weighed and tallied against the bills, the details are typed into the POS. Needless to say, manual logging is error-prone.
This is where a POS system with an in-built or integrated weighing scale can be helpful. As soon as a batch of products is weighed, it gets automatically recorded in the POS. On the other hand, by leveraging the OCR (Optical Character Recognition) capabilities of advanced POS software, the user can directly extract and record the bill details, which are then tallied against the stock measured. In this manner, the errors that usually occur due to manual intervention can be eliminated.
The following step in inventory logging is labelling every batch of ingredients with a barcode or QR code. By scanning the label, the staff can learn about the key details of the batch, including the (approximate) expiry date, the quantity of the product in the batch, and the dishes the ingredient is used in. Notably, the choice between barcodes and QR codes varies from one restaurant to another. The decision should be made according to the number of fields logged against each ingredient batch, and how opting for the type of label impacts the profitability of the restaurant.
The other scenarios where the automated inventory logging capability of the restaurant management system comes in handy are a) when the kitchen staff carries the ingredients from the cold storage into the kitchen, and b) during stock audits.
- Improved Inventory Logging Accuracy (from cold storage to kitchen): Shrinkage can occur because the quantity of an item brought from the cold storage to the kitchen is incorrectly logged. In this regard, the in-built or integrated weighing scale again saves the day by eliminating manual logging.
While the staff may not be typing data, the POS only records the data when the user gives the go-ahead. Therefore, between measuring and logging, shrinkage may occur. To further ensure stock loss, the cold storage must be kept under CCTV surveillance.
- Faster & More Accurate and Frequent Audits: A quick scan with a handheld barcode scanner can make regular audits quicker.
While daily stock audits allow the management to stay agile with vital decisions such as menu innovations, measuring spoilage and shrinkage can still be time-consuming. This is because audits to determine stock loss require the staff to manually sort the perishables.
It is true that restaurant inventory management solutions, such as the one described above, may still require some manual intervention. However, the labour involved is significantly reduced when the POS setup is installed. Apart from making auditing more effortless, the POS systems also make the process more accurate.
- Effortless Implementation of FIFO (First In, First Out): This stock management best practice ensures that the quality of the products remains top-notch.
Many of the products that are often used in any eatery undergo quality decline progressively. Thus, as a rule of thumb, it is safe to assume that batches purchased earlier are likely to be spoiled before those bought later. By enabling accurate inventory logging and audits, restaurant management systems help the staff prioritise the use of each batch of ingredients based on its shelf life.
Further, the restaurant can do much more than arrange the cold storage efficiently based on FIFO by crunching the data related to every batch of products. Access to granular data of each product batch can potentially help owners or managers with several activities aimed at minimising spoilage and optimising the profit margin derived from the inventory. The said activities include planning the “chef’s specials” for the day/week, involving ingredients that need to be used quickly, and promoting certain combos with attractive offers, among other decisions.
However, to get the in-depth analysis needed for organising these activities, the restaurant must: a) implement a POS with robust data-crunching ability, b) maintain accurate inventory logging sheets, c) install CCTV cameras in the cold storage to avoid theft, — and most importantly, — d) adopt a detailed reporting standard. It is important to note that from the data-processing capability of the solution to reporting, every step involved in inventory tracking can be brought into a single touchpoint by opting for a holistic restaurant management system.
- Hassle-free Inventory Reporting: For restaurant inventory reporting to yield satisfactory results, managers/owners must measure several metrics and determine:
- How profitable it is to keep a dish on the menu (This analysis can be easily done by plotting a performance graph of the dish. In this chart, the preparation cost of the dish — which is calculated based on the cost and quantity of each ingredient used — is mapped against the performance of the dish, determined by the number of dine-in orders and orders on food aggregator channels and the average profit margin of each order.)
- The relationship between the spoilage of each ingredient and its procurement cycle
- Shrinkage and spoilage in terms of number of units and percentage
- Effectiveness of a strategy which was aimed at maximising profits by reducing spoilage/shrinkage and optimising procurement expenses and cycle
Perhaps, many more reports can be generated based on the inventory control mechanism of the cold storage. However, the critical point to note is that the extraction of these valuable insights depends on the calibre of the report-making module of the restaurant management system.
- Reduced Manual Labour & Enhanced Employee Satisfaction: With inventory audits, reporting, and logging made easy, the work pressure of the staff is decreased. In other words, potentially the productivity of each employee goes up without requiring as much manual labour as earlier. This improvement in the working environment can boost employee satisfaction, thus mitigating attrition and the loss it incurs. Another, financial edge that restaurant inventory management solutions offer is the potential for expansion in operations or workforce reduction. In both cases, the business can make the best of its employee expenses.
- Improved Customer Satisfaction: It is a well-known industry hack that “chef’s specials” or offers can be clever ways of managing inventory. However, improvement in stock planning is not just linked to restaurant novelties, an effective way of attracting new customers and greater order volumes — leading to increased revenue growth. Having better visibility of the inventory levels, restaurants can avoid stockouts or overstocking, thus ensuring improved order fulfilment rate, which in turn enhances customer satisfaction.
Today, restaurant success is not solely based on dine-in orders. The integration of food aggregator platforms into one’s restaurant has become an important source of revenue which has also made inventory management more challenging than ever. Hence, let’s also consider some unfavourable stock control-oriented scenarios which if left unchecked can lead to a poor customer experience.
During busy days, the inventory can swiftly dwindle with each order, leading to stockout. In such a case, a robust restaurant inventory management solution can flag the issue to the staff, allowing them to temporarily remove the item from the menu on the food aggregator sites, thereby avoiding unpleasant instances involving order cancellation or refusal.
Due to stockouts, order fulfilment of dine-in orders is also negatively affected. However, it is better to inform the diner that the item is unavailable than to be unsure about order fulfilment. Awareness about the stock signals that the restaurant respects the customers’ time and has good control over the inventory.
- Remote Real-time Access & Franchise Management: Business owners can be on a vacation or on a work trip to meet a supplier. Yet, they may want to or be required to keep a tab on the inventory levels and the performance of the procurement efforts. Similarly, franchise owners may want to monitor the inventory in each cold storage. This is where a cloud-based restaurant inventory management solution or a cloud POS becomes an enabler of business success by allowing managers or owners to access inventory or other key business data remotely in real time. The remote accessibility of their business’ functioning not only helps avoid stress but also intervenes by providing actionable insights.
Depending on the reporting module of the solution, they can also successfully track how the business has performed in their absence.
It is interesting to observe that regardless of which aspect of the inventory control the restaurant management system addresses, profit maximisation, which can also be called restaurant success in this context, remains the central purpose of the solution.
Streamlining Inventory Management in Restaurants with QPOS, the Industry-Specific Solution
Businesses eager to overcome their inventory management challenges should note that among the several POS and inventory management solutions in the market, QPOS is one of the most in-demand, comprehensive restaurant management systems. Here are some main attributes of the solution:
- Easy integration with a large number of operating systems, computer models, and other restaurant management product hardware
- OCR capabilities, eliminating the need for manual data entry from physical bills
- Franchise Management and inventory management modules
- Chatbot feature, powered by NLP(Natural Language Processing) ability, which can fetch specific data points or generate reports based on simple instructions in English
- Detailed on-demand report-making capabilities that simply data insights and make them actionable
- Cloud-native environment allowing remote access to business data
Take your restaurant’s success to the next level with the efficiency-boost capabilities of QPOS!
Do you want to know more about our restaurant management system? Contact us today!