Optimizing your ordering process is critical to ensuring that your bar or restaurant has the inventory it needs to meet demand. It also helps minimize the risk of surplus and dead stock, which can lead to profit losses.
To help determine exactly when a reorder is needed on your food or beverage inventory items, you should be determining the reorder level - which is also known as the PAR level.
This is the minimum amount of stock you can have on hand for a particular product before your business needs to reorder. This will help reduce gaps in your inventory, ensure demand is met and maximize storage use.
In some instances, the reorder point may stay stable, but more often than not, it will fluctuate due to seasonality and fluctuating demand. That means you need to know how much you have of each product and what the sales trends are for it. If you are using bar or restaurant inventory management software, this information can be easily obtained using built-in reports.
Calculating your reorder point
If you aren’t using inventory management software, you will need to calculate the reorder point using the following formula. (Even if you are already using software, you may want to look at the formula – understanding how the math is done can help give you better insight into your business).
Reorder Point = (Average Daily Usage x Average Lead Time) + Safety Stock
Average daily usage is the average number of bottles you sell of the product each day. If you use a point-of-sale (POS) system, you can pull average daily sales from there. If not, you can take your inventory numbers for each product and divide them by the number of days between inventory counts.
Lead time is the time it takes from reorder for a product to be added to your inventory. It is calculated using a formula. If you produce your own product, the formula will be:
Total Lead Time = Manufacturing Time + Procurement Time + Shipping Time
If you are selling products you buy from a wholesaler, the formula will be:
Total Lead Time = Procurement Time + Shipping Time
Safety Stock is simply the number of bottles you want to have in stock in case an order is delayed, or the demand is higher than expected.
Once you have these three numbers for each product, you simply want to plug them into the above equation. Repeat for each product then make sure it is listed on your spreadsheet or updated in your software.
Use your reorder point to optimize your ordering
To better optimize your ordering process and address shifts in consumer demand, you will want to recalculate reorder points daily, or at least as frequently as you can. If you have a large variety of products and are still using an inventory management spreadsheet, it may be time to upgrade to bar inventory management software.
These programs are specifically designed for bars and restaurants and will automate the reordering process (and other inventory management tasks) for you. This will save you time, reduce errors and will allow you to adapt to changes in sales trends.
If you would like to find out how Sculpture Hospitality’s bar and inventory management software can help you streamline your reordering and inventory processes, please contact us for your free demo today.