Restaurant inventory management is the process restaurant managers use to track and replenish consumable products, including ingredients and kitchen supplies. Done well, this practice ensures you always have enough food on hand to serve customers — but not so much that the excess goes to waste. Managing your inventory is a critical part of daily operations. Implementing a specific workflow and utilizing restaurant inventory management software can help you meet short-term and long-term goals.

The inventory your restaurant needs depends on your specific operation. In general, it’s a good idea to have 5-7 days’ worth of food inventory on hand — just enough to fulfill demand and cover any unexpected situations that arise.

What is food inventory management?

Food inventory management involves overseeing the supply, storage, and accessibility of ingredients and products within the food sector. The process ensures restaurants can maximize inventory levels, reduce food waste, and improve efficiency.

To start, familiarize yourself with common restaurant inventory management KPIs:

• Cost of goods sold (COGS). The COGS KPI expresses how much it costs to make your restaurant’s menu items. Find it for any given period with this formula: [beginning inventory + purchased inventory] – ending inventory.
• Inventory turnover rate. This metric shows how often your restaurant restocks food inventory during a specific period. To calculate it, divide your COGS by your average inventory cost (value of beginning inventory + value of ending inventory / 2).
• Average inventory. Get a sense of your overall inventory by adding the value of the inventory at the beginning and end of a period and dividing the result by 2.
• Gross margin by product. With this metric, you can determine how much revenue your restaurant keeps from each menu-item sale (before accounting for production costs). To calculate it for an item, subtract COGS from net sales and then divide by net sales.
• Stock-to-sales ratio. Calculate this ratio by dividing your net sales by the inventory value for a given period. A low ratio means you’re selling inventory effectively; high ratios can indicate problems with over-ordering or inaccurate sales forecasts.
• Sell-through rate. The sell-through rate tells you how fast your restaurant sells each inventory item. Find it by dividing the number of units sold by the number of units you started with, and multiply the result by 100.
• Demand forecast accuracy. See how accurate your forecasts are with this KPI, which uses the formula [actual inventory – forecast inventory / actual inventory] x 100. In general, higher accuracy is better.
• Product sales. This KPI measures your restaurant’s revenue minus discounts and the value of refunded items. 
• Revenue per seat. Figure out the average revenue you get per customer by dividing the revenue for a period by the number of customers served.
• Days on hand (DOH). DOH tells you how long it takes to sell your inventory; it’s critical for perishable items such as meat and vegetables. To find it for a given period, divide the average inventory by COGS and multiply by the number of days.
• Weeks on hand. This metric is similar to DOH, but it’s expressed in weeks. It’s useful for determining how long it takes to sell nonperishable foods with longer shelf lives.
• Back-order rate. Divide the number of food or supply shipments on back order by the total number of orders your restaurant has placed and multiply by 100. A high rate could indicate problems in the supply chain and make it difficult to meet customer demand.
• Lost sales ratio. Determine the financial impact of unavailable or back-ordered ingredients by dividing the number of days a product isn’t in stock by the number of days in the period. This KPI can help you compare suppliers or identify problematic food items.
• Supplier quality index. To quantify the quality of each supplier, create a weighted scoring matrix that measures food quality, delivery accuracy, communication, customer service, and problem-solving.
• Perfect order rate. For each supplier, divide the number of complete, on-time shipments by the total number of shipments and multiply by 100. A higher percentage indicates reliability.
• Time to receive. This metric expresses the time it takes to receive, label, and prepare items for storage. Shorter times are better, particularly for fresh, perishable foods.
• Put-away time. This KPI reveals how long it takes to store and organize food items after they’ve been prepared for storage. If your times are too long, it could indicate a need for standard operating procedures or larger cold and dry storage areas.
• Inventory shrinkage. Find out how much inventory you’re losing due to errors, inefficiencies, or theft by subtracting the value of your physical inventory count from the expected value.

What are the benefits of restaurant inventory management?

Effective restaurant inventory management is a hallmark of a successful food-service establishment. It helps you monitor and optimize every part of your operation, which benefits your business by:

• Reducing food waste. Managing inventory efficiently reduces spoilage and over-ordering — two factors that drive waste in restaurants. If you’re determining how to reduce food waste and food costs at your restaurant, tightening up the inventory system should be your first step.
• Increasing profit margins. Most commercial kitchens throw out 4% to 10% of their food supplies. As an optimized inventory management system reduces food waste, it lowers your food costs and increases profits. When you’re dealing with rising food prices and tight margins, every percentage point counts.
• Meeting customer demands. Modern restaurant inventory management software helps you align your ordering strategy with sales forecasts. Many programs also identify potential restaurant supply chain management problems so you can find alternate suppliers quickly. That way, you always have enough food on hand to fulfill customer orders.
• Keeping customers happy. Careful inventory management enables your restaurant to offer consistent pricing and reliable menu item availability. These factors create the positive dining experience you need to attract more customers.

How do you effectively manage restaurant inventory?

Restaurant inventory management is a worthwhile investment for every food-service business. For every dollar you spend reducing food waste, your restaurant can save an average of $7. Those savings go a long way in an industry with narrow margins.

Restaurant owners use a variety of inventory management methods, but the most effective inventory tracking systems feature a few common best practices:

1. Monitor inventory turnover. If your inventory turnover rate is low, you might be dealing with overly high stock levels or slow sales. High turnover typically means your inventory levels are too low. Larger, less frequent orders could help you save on delivery fees.
2. Label and organize inventory. Label each item with a use-by date. Then, arrange shelves with the newer items at the back and older items at the front; this helps staff use foods before they expire.
3. Keep stock levels low. To reduce the risk of spoilage, aim to have just enough food to fulfill in-store and online ordering forecasts plus a small overage to cover emergencies.
4. Track wasted food. Conduct a food waste audit to determine which foods you’re throwing out frequently and why.
5. Monitor sell-through rate. Low sell-through rates can indicate that a product isn’t moving efficiently and may be a higher risk for spoilage. Unusually high rates may mean you’re prone to running out of ingredients; increasing order sizes can help. 
6. Train staff on inventory procedures. Restaurant operators can’t handle inventory management alone. To ensure you always have real-time inventory data, create standard operating procedures and train restaurant management and key employees to carry them out.

What do restaurants use to keep track of food inventory?

Historically, restaurants managed inventory tracking with spreadsheets. While this is an affordable, low-tech option, it has a high error rate. Restaurant inventory management software and other technology tools can automate and streamline the process so you can save time and increase accuracy.

Common inventory tracking solutions include:

• POS systems. Your restaurant POS system records every order that comes in; third-party delivery services such as Grubhub can even connect to the POS to integrate takeout and delivery data. That information helps you forecast sales, determine ordering quantities, and schedule deliveries.
• Electronic records. Inventory records such as invoices, purchase orders, receipts, and packing slips create a digital paper trail for your restaurant. If your restaurant’s annual sales are higher than $250,000, you may need these records to meet the FDA’s food traceability requirements.
• Restaurant inventory management software. These programs are designed specifically to help you manage vendor relationships and track inventory levels in real time. They often connect to your POS system for accurate reporting and forecasting. AI-powered tools can even analyze past data and recommend ordering quantities and schedules.

Reach new customers with Grubhub

Streamlined restaurant inventory management can transform your restaurant operations. It helps you reduce food waste, control food costs, ensure menu availability, and keep customers happy.Once your inventory system is up and running, Grubhub can help you make the most of your optimized operation. With our industry-leading platform, you can reach more customers and increase delivery volume. To learn how, partner with Grubhub today.