Inefficient inventory management is unfortunately the norm in the food industry. Many businesses rely on educated guesswork to make purchasing decisions — and too much good food is lost to spoilage.
Each year, 12.8 million tons of food is wasted in the food service industry. This means food businesses are losing $139 billion dollars to food waste, while also being squeezed by increased food prices and a labor shortage.
With better food inventory management, you can limit the amount of food you waste, optimize your food production processes, and improve your margins.
In this article, we dive deep into the best practices of food industry inventory management to bring you a bunch of practical ways to be more efficient and cut food costs.
We cover:
- The importance of proper food inventory management
- Concrete practical tips to improve your inventory control and purchasing decisions
- The best technology available to take the stress and guesswork out of inventory management
By the end, you’ll have the confidence to put these tips into action to reduce food waste and lower your overall food costs, while improving your margins and boosting your bottom line.
The Importance of Proper Food Inventory Management
Inventory management underpins the long-term success of any food business and becomes even more important as your business grows.
Without proper control over your stock levels, purchasing decisions, and ingredient rotation, you risk increased food costs, low margins, and reputational damage. Success means controlling food costs, food quality, consistency, and ultimately enhancing profitability—but you can tear your hair out trying to manage such a complex set of tasks.
The tips, tricks, and tools below will help you improve your food inventory management and set up reliable processes and procedures to maintain control.
Once you’ve mastered your inventory, you’ll see a stack of rewards:
- Less food waste → Lower food costs
- More efficient production → Happier team → Better retention and lower onboarding costs
- Better food quality → Happier customers → Better loyalty
- All of the above → Higher margins and more sales → More profit
How to Manage Food Inventory: 7 Tips and Tricks
Inventory management isn’t just about stock counts and purchasing. It also impacts your production planning and recipe development.
Let’s look at how you can manage inventory to create a holistic system that maximizes productivity and efficiency.
1. Get Strategic with Clear Goals
First, define specific objectives and key performance indicators (KPIs) for your inventory management system. Set a baseline metric and track progress toward your goal.
For example, if you set a goal to reduce food waste due to spoilage by 5% in the next month, you’ll first have to measure the amount of food going bad on your shelves (to set your benchmark) and then track waste over the next month to compare the difference.
The initial measurement can help you figure out the extent of the problem and strategize exactly how to improve it (perhaps by ordering smaller amounts of perishable items more frequently).
Clear and specific goals help you stay focused and take direct action toward your most important objectives.
2. Compare Theoretical Inventory to Actual Inventory
Theoretical inventory tells you what your inventory should look like in an ideal world. It’s a measure of the ingredients you should have left after a certain period, given how much you started with and what you sold.
It tells you the ideal scenario, which doesn’t account for human errors, theft, spoilage, or any other real-world factors.
Let’s consider a simple example:
You have 40 kg of steak. Each portion of steak uses 400 g. You sell 50 steaks over the course of a week. You should have used 20 kg of steak, which would mean you’d have 20 kg left.
Your actual inventory is the amount of each ingredient you actually have on your shelves after the elapsed period of time. You figure this out by performing a stock count of what is there.
Continuing our example above:
In reality, the math isn’t quite so simple, because a number of other factors are at play:
- As the chef portions the larger cuts of beef into 400 g steaks, a small amount is trimmed off each end and sinew is removed.
- One of the purchased cuts went out of date before it was sold.
- One cheeky member of staff decided to have a meal on the house and took two steaks home.
So when you look in the walk-in, there is only 10 kg of steak left. Another 10 kg was lost along the way.
3. Calculate Inventory Variance
That 10 kg of steak is inventory variance––the theoretical inventory minus the actual inventory.
Better inventory management would have limited the amount of waste in this scenario. And the first step to addressing the issue is calculating that variance.
There will always be some variance between ideal and actual inventory. The aim is to get it as close to zero as possible. If your variance is too high, you need to look into why it’s so high.
- Are you not accounting for the quantity of ingredients discarded during preperation?
- Do you have a culture where your team thinks it’s okay to take ingredients for themselves?
- Are your recipes inaccurate?
One or more of these factors or a multitude of others could be at play. Whatever the issues are, once you identify the variance, you can take steps to solve it.
4. Measure Trim Yield
Trim yield is the amount of an ingredient that is usable after the ingredient has been processed.
- How much of a carrot is usable once it's been peeled, topped, and tailed?
- How many kilos of tomatoes do you need to make 1 kg of tomato sauce?
- How much of that pricey steak was lost to trim?
Neglecting details like trim yield can impact the accuracy of your purchasing decisions and lead to inaccurate inventory levels and food costs. In contrast, building the trim yield into your recipes means it’s accounted for and you have a more accurate idea of what you actually use.
5. Follow Food Storage Best Practices
The first thing to do is ensure you’re doing the basics of food storage correctly. This is easier said than done, especially across multiple locations. But it’s vital to lay the foundations of food inventory storage best practice with solid processes and extensive training.
Here are some inventory best practices to minimize spoilage and maintain order:
- Rotate Stock –– A first-in-first-out (FIFO) rotation policy, where new deliveries are stored behind or underneath older stock, ensures ingredients aren’t left rotting at the back of a shelf.
- Check Deliveries Carefully –– Ensure your team has enough time to check deliveries for defects and completeness before signing off on the purchase.
- Track Fridge and Freezer Temperatures –– Record fridge and freezer temperatures throughout the day to get ahead of any costly breakdowns. Digital temperature monitors can automate this process and alert you if temperatures go out of the desired range.
- Label Ingredients Properly –– All ingredients should be labeled with key information according to your local and national food regulations. Typically, at least the date received or prepared, use-by date, and item name are clearly displayed on the outside of the packaging.
6. Curb Theft and Track Missing Food
The sad truth is that theft is one cause of high food inventory variance. It can be as innocent as a staff member taking home an item that can’t be sold. Or it can be more devious.
But with proper processes in place, you can make theft a lot less likely. If you’re tracking inventory carefully, for example, staff will be less inclined to steal because it’s more likely to be noticed.
An open and honest culture can help. Encourage staff to note any items that can’t be sold which they are taking home or using for staff meals. That way, you track the food that can’t be sold, give your team a small perk, and incentivize them to be honest about what they’re taking.
7. Centralize Your Food Data with a Single Source of Truth
Traditionally, recipes might be stored in a binder, food costing calculated using delivery receipts and spreadsheets, and purchasing decisions made by counting stock on the shelves and estimating the next week’s sales.
With this approach, decisions would be based on information from different sources or from educated guesses. If anything changed, like a recipe’s instructions or a supplier’s prices, that would be updated manually on every spreadsheet and printed recipe.
This tedious process can be avoided with a single source of truth for recipe and inventory data.
When all your recipe information, real-time prices from vendors, and sales data from your POS system are stored digitally, you can save time and improve efficiency by automating repetitive processes.
A smart system can:
- Perform automatic real-time food inventory variance calculations
- Generate production plans automatically based on sales forecasts
- Automatically generate purchase orders based on predicted demand
With a single source of truth for your food data, you can make better, more informed purchasing decisions based on what you have in stock and what you are likely to sell. Suddenly, your inventory management becomes a key driver of better efficiency and profitability.
Drive Business Growth with Effective Inventory Management
Successful food inventory management comes down to how you manage your data.
When your processes are aligned with accurate data, you can get your recipes, purchasing, inventory, and production all working in sync. The smartest software can automate calculations to give you real-time insights on vital metrics like food inventory variance.
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