Drive Efficiency with Effective Inventory Control (Part 2 of 2)

Inventory cost control in foodservice has always been a focal point; recently it has taken on an even more prominent role as escalating energy costs, manufacturing prices, and transportation and delivery bottlenecks have begun impacting restaurant operations. What is the best way to ensure an optimal mix of products in inventory without over-committing capital to storeroom items? Part One of this series looked at the benefits of moving from a par stock based inventory control system to a minimum-maximum algorithm. However, that is just one piece of the puzzle.

Purchase order link
Back office purchasing modules maintain a purchase order file that is typically organized by vendor account and purchase order number. The value of a purchasing module lies in its ability to generate purchase orders and internally update subsequent tracking files. A purchasing module can generate purchase orders by accessing and analyzing par stock or mini-max inventory data. The order point is the number of purchase units in stock when an order is placed. In the par stock system, a purchase quantity to replenish inventory, a physical inventory is conducted. For each item, the difference between what is on-hand (physical inventory) and the par level for the item is the order quantity. In other words, the quantity ordered brings the item to par level. The order point is reached when the number of purchase units in inventory equals the lead-time quantity plus the safety (minimum) level. If products are ordered at the order point, the quantity in inventory will be reduced to the safety (minimum) level by the time the ordered products are received. When the order arrives, the inventory levels for the product will be brought back to the maximum level.

Mini-max inventory levels help managers determine when products need to be purchased and how much of each product to order. The minimum level is the safety level - the number of purchase units that must always remain on hand. The maximum level is the largest number of purchase units permitted in storage. Using minimum/maximum inventory levels, data transferred from the inventory module to the purchasing module can be applied to generate purchase orders based on an order point established through usage rate and lead-time factors.

The usage rate is the number of purchase units used per order period. This is an important factor for determining when more purchase units need to be ordered. In addition to usage rates, managers must also determine a lead-time quantity for each purchase item. Lead-time quantity refers to the anticipated number of purchase units taken from inventory between the time an order is placed and the time it is delivered.

Inventory costing
Effective inventory control procedures can lower cost of goods sold (COGS) while also enhancing efficiencies in product receiving, tracking, replenishment, and auditing functions. Sound inventory policies help identify shrinkage, automate purchasing, retain historical data, and present automatic reordering of depleted products. Maintaining stable inventory prices assists management with determining feasible menu prices while generating effective item contribution margins. In addition, inventory reports can be customized to address many important operational concerns, including optimization of stock on-hand inventory based on supplier lead and lag times.

Inventory control software
Despite the fact there are several brands of inventory control software available in the marketplace, there are ten common functionally questions that all operators should ask themselves when selecting a solution:

• Does it provide a basis for efficient receipt of goods through e-invoices?
• Does it create and maintain ingredient, recipe, and menu item data files?
• Does it track food costs seamlessly among ingredients, recipes, and menu items?
• Does it enable vendor bid [price] comparisons for procurement savings?
• Does it simplify physical inventory procedures through product organization?
• Does it forecast needs based on a perpetual inventory on real-time sales data?
• Does it auto-generate replenishment (purchase orders) lists?
• Does it calculate food cost percentages and contribution margins?
• Does it apply menu engineering model based on menu item margin and sales mix?