Are you familiar with the 80-20 rule? Also known as the Pareto Principle, it’s a theory that 20% of your efforts should yield 80% of your results. In business, the 80-20 rule helps identify inputs that have the potential to be the most productive and make them the priority. Once these factors are designated critical to the company’s success, they should be prioritized.
Today, we’re applying the 80-20 rule to taking inventory in your restaurant by using my favorite method: Key Item Inventory. Not only will you save countless hours of time, but you will see a decrease in your food and beverage costs.
WHY WE TAKE INVENTORY
So, why do you take inventory in the first place? Primarily because it balances things out in your restaurant. Let’s look at a fictitious restaurant that wants to calculate their Cost of Goods Sold (CoGS) for January. It should be noted that months don’t always end on the same day of the week. And some days you get a delivery, some days you don’t. Some days you have high sales and some days you don’t. It’s like walking a tightrope.
This particular January ended on a Saturday that had really high sales. As a result, your food costs are artificially low. If the month had ended on a Thursday instead, you might have received a big delivery getting ready for the weekend. The kicker is that you probably didn’t sell any of that food yet, so your food costs or CoGS might be artificially high. Inventory balances all of that out.
APPLYING THE 80-20 RULE TO YOUR RESTAURANT’S INVENTORY
Those that know me, have heard me say that I’m not a proponent of taking inventory. There are several reasons I believe this but mainly it’s because it’s not for everyone. It’s expensive to do right, extremely time consuming (you could be doing 100 other things that help make you money instead), very complex, and like a P&L statement, it gives you data that is already old and not actionable. There are exceptions to this rule, of course. If your restaurant is making $5M a year or you have multiple restaurants each making $5M a year, then inventory is for you. For everybody else, Key Item Inventory.
Think about this for a second before we dive into Key Item Inventory…
If you are experiencing out of control costs and your CoGS is not where you want it, taking inventory is not your magic pill. WARNING: as with life, there are NO magic pills in the restaurant industry. The magic happens when you get your hands dirty, get into the kitchen, get into the bar, and actually manage the inputs—not when you’re taking inventory, which is a measurement of outputs.
This is why I like Key Item Inventory. It follows the 80-20 rule by allowing you to spot check around five to ten items depending how big your restaurant is and what’s important in your restaurant. Generally speaking, this is your shrimp, lobster, steak, or even a few high-volume bottles of liquor, etc.
HOW TO TAKE A KEY ITEM INVENTORY
There are three simple steps to performing a Key Item Inventory properly:
- Count how many of each item exists before a day starts.
- Run a PLU report or a P-Mix report to see how many of those items sold in that shift. Pro Tip: Customize the PLU report or the P-Mix report in your POS to only print the items you track for Key Item Inventory.
- Compare the numbers in Step 1 & Step 2 and see if they match.
It’s really this simple! If you make this process part of your opening day checklist and provide a simple worksheet for completing the Key Item Inventory, your staff won’t feel it burdensome at all. It will just become a quick part of their daily routine.
Here’s a sample Key Item Inventory worksheet that I provide my restaurant clients in our FREE Toolkit:
Not only does this help you cross check sales totals to inventory count on your most expensive items, but it also helps with theft prevention in your kitchen. You’ll be able to track a variance and see how many are missing.
Your next step is to find out where the missing items went. The first place to search is your waste sheet (waste log). If the item is on the waste log, then we know that perhaps the cook overcooked the item (say a steak) and make adjustments in processes. But if you can’t find it on the waste log, then this will alert you that your kitchen staff might be snacking on your steaks or taking them home. It’s also possible your team is giving stuff away without ringing it in.
I have found that by simply measuring a few things and alerting your staff, this will eliminate MOST of your issues. It is not meant to be PERFECT, but who has time for perfect?!
I hope you put this Key Item Inventory report into use in your restaurant. It’s a very simple process that takes about 10 minutes a day in total and produces huge results when you do it daily.
Ryan Gromfin is an author, speaker, chef, restaurateur, and founder of therestaurantboss.com, clickbacon.com, and scalemyrestaurant.com, and author of Make It Happen. He is the most followed restaurant coach in the world helping Restaurant Owners and Operators increase profits, improve operations, and scale and grow their businesses.