To improve the profitability of your restaurant or bar, an effective inventory management strategy is crucial. To gain clear control and visibility into your inventory processes and make more strategic inventory decisions moving forward, you must understand your inventory usage.
Your bar or restaurant inventory usage is the amount of product (which can be expressed in terms of dollars used or quantities used) that your business has used over a specific period of time. This data can be used to track the performance of your bar or restaurant, empowering you with insights such as pour cost, product shrinkage, PAR levels for better ordering and much more!
If you are using bar inventory management software or restaurant inventory management software (which is far more effective at controlling your inventory than manual spreadsheets), then you should be able to set up an inventory usage report.
In this blog, we’re going to take a look at how your restaurant or bar can calculate its inventory usage and why inventory usage data is so important to the overall profitability and financial health of your business.
How is restaurant and bar inventory usage calculated?
Inventory usage is calculated with a fairly straightforward formula:
Opening inventory + purchases received - closing inventory = inventory usage.
Here are three easy-to-follow steps that clearly define how your organization can use this calculation to work out your bar or restaurant inventory usage for each product.
Step #1 - Conduct a beginning of period inventory count
The first step in calculating your inventory usage is to determine the starting inventory in your bar or restaurant, and that begins with a beginning-of-period inventory count. Count every item in your kitchen and your bar.
For example, if you have 2 bottles of Jack Daniels whiskey at your bar and 4 bottles in your storage room, then your total inventory is 6 bottles of that specific product.
Step #2 - Add any additional received inventory during the time period
If you receive any additional products from your suppliers during the inventory time period (which you are likely to if you restock your shelves) then you need to add those to the calculation.
For example, if you ordered an additional 4 bottles of Jack Daniels whiskey then your inventory of that product during the specific time period is your original 6 bottles + the additional 4 you have received from your supplier.
Step #3 - Record your closing inventory with a final count
To finish your specific inventory period (which is typically weekly, monthly or quarterly), you need to finish with a closing inventory count. This will be the amount of Jack Daniels whiskey you have left.
For example, if you finished with two bottles of Jack Daniels whiskey then your inventory usage is 8 bottles.
6 bottles starting inventory + 4 bottles received inventory - 2 bottles = 8 bottles.
Of course, your inventory counts will never be this simple. These examples are simply to make these steps clearer. It’s unlikely in the real world that you will be left with full bottles at a time. There are plenty of ways to conduct inventory counts, but (particularly for bars) we recommend that weighing is the most efficient and accurate inventory method.
Why is bar and restaurant inventory usage data so important?
For accurate and effective inventory usage data that gives your business real insight into how to make smarter business decisions in the future, you need to count all of your inventory and break them down into different categories and brands.
You can’t simply count all of your whiskey products and find out your overall whiskey usage, as that will give you no real insight into what products are selling better, which specific products you are experiencing shrinkage on and which ones you may be either over or under-ordering.
Inventory usage data into each of your restaurant or bar’s products gives you incredibly valuable insights, empowering you to make more strategic decisions that improve the profitability of your business. Some of these key insights include:
- Finding your restaurant or bar’s periodic automatic replacement (PAR) level for smarter ordering.
- Calculating your pour costs so you can improve the profitability of your bar.
- Empower your bar or restaurant to detect which products are experiencing excessive wastage and shrinkage.
- Identify which products are not performing well and enhance how you design your menu around greater profits.
Want to learn more about the importance of inventory management in your restaurant or bar, and why inventory usage is an essential calculation? Contact Sculpture Hospitality’s team of inventory experts today. We would love to help.