Take Charge of Your Bottom Line by Understanding the Basics of Inventory Control
To be financially successful, you need to know what inventory you have, what you paid for it and exactly where it is at any point in time. Tracking products throughout your operation doesn’t necessitate buying high-priced software (although a carefully selected automated system can streamline the process). Effective inventory control requires implementing a series of overlapping internal systems that track every product through the inventory cycle. In bookkeeping jargon, it’s referred to as “cradle to grave” accounting. While uncomplicated, the key to the system is ensuring that all of the components are in place and being used properly. While so much of business operations today is computerized, dialing it back to the pencil-on-paper process highlights the must-happen steps that ensure the true control that delivers profits.
The paper trail begins with the purchase order, which records the specifics of each transaction with your distributors. When the delivery arrives, the purchase order provides a means of verifying the legitimacy of the shipment. Deliveries should be scheduled for the same day of each week to best ensure the person responsible for receiving deliveries is present.
Each product in the delivery should be physically inspected for damage and to verify the seals are intact. Only after the delivery is determined to be complete should the invoice be signed, thus formally accepting the merchandise. For security reasons, the delivered products should immediately be stocked in the liquor storeroom.
After the products have been received, the perpetual inventory system is used to track the flow of inventory in and out of the liquor storeroom. In many respects, it’s the lynchpin of the system. At any point in time, the perpetual inventory system will indicate the exact quantity on-hand for every product stocked.
The system works like the register in a checking account. Each product is given its own page in the perpetual book. When products are purchased and stocked on the liquor room shelves, the quantity is added to the running total. When bottles are requisitioned to the bar and taken off the shelves, their numbers are subtracted from the “quantity on-hand” column. The last entry on the perpetual inventory sheet should correspond to the actual amount of product on the liquor room shelf.
The perpetual inventory system also greatly assists in detecting theft. Should the amount of any one product be less than the quantity shown on the perpetual inventory, there are only a few explanations: It could be the result of a math error, or perhaps the product went to the bar without being entered into the perpetual book. If one of these reasons doesn’t resolve the discrepancy, it is likely the bottle was stolen.
The third element of the system, the requisition form, is used to record the transfer of inventory from the storeroom to a specific bar. Bartenders use the requisition form to record what bottles were emptied (a.k.a. breakage) during the course of a shift. Afterward, the manager issues replacement bottles for depleted items and makes note of each transfer in the perpetual inventory system.
To avoid bookkeeping errors, the manager should first make the appropriate entry in the perpetual inventory system before pulling the individual products off the liquor room shelves. The form should allow bartenders to identify the exact product name, size and quantity being requisitioned.
Closing the Circuit
Every brand behind the bar needs to be stocked in sufficient quantity to meet demand. The bar par form indicates how much of each product should be stocked — both open and as backups. Maintaining bar par levels also is effective in preventing theft because any product missing from the shelves or backups can be detected quickly.
Depletion allowance sheets are used to record information regarding items depleted from inventory without a corresponding sale. There are three legitimate ways that can happen: Product can be transferred to another outlet or department, it can be spilled or it can be given out in a complimentary drink. It‘s important to track the cost of inventory depleted as a result of these actions, as it affects the bar’s cost of goods sold or pour cost.
Completing the cycle is the physical inventory form, which is used at the end of each accounting period to record the results of a physical audit. The intent is to determine the dollar value of the inventory on-hand at that point in time.
Physical audits are strictly a management function. No hourly personnel should be involved. Likewise, the results of the physical audit must be as accurate as possible. Managers must be careful not to overlook any products or count some items twice.
Running a bar requires making a significant investment in inventory, as these “liquid assets” can disappear at an alarming rate. In fact, inventory levels change with every flick of the bartenders’ wrists. Protecting that working capital and ensuring that you’re realizing the necessary return on that investment is a function of control. NCB
Keeping up with the latest management technologies isn’t easy. Here’s a look at what’s new with some inventory systems:
✔ AccuBar: Featuring handheld scanners, AccuBar version 4.0 handles inventory, receiving, breakage (empties) and transfers and generates interactive spreadsheet reports immediately. Mobile web support allows execution of management tasks from your mobile PDA. www.accubar.com
✔ Accardis: The Cyclops Skorpio system’s handheld scans bottles; a scale weighs them and transmits information data wirelessly to the scanner. Data can be downloaded to your PC for quick report generation including usage, variances, cost percentages and reordering. A keg scale also is available as well as a device to monitor ounce depletion. www.accardis.com
✔ Alcohol Controls: From its Beverage Inventory Software (involving Excel spreadsheets for inventorying) to its Manual Weighing System (bar scale for weighing bottles), Alcohol Controls Inc. offers a variety of inventory management software. Additionally, the Accu-Weigh Inventory System weighs products using a handheld device and bar code scanner and creates reports. www.AlcoholControls.com
✔ BevInco: Regular on-site audits by a certified auditor using proprietary software, along with inventory control technology, result in in-depth reports that identify sources of shrinkage. The Bevinco representative works with the bar owner and staff to implement control measures and profit enhancement strategies. www.bevinco.com
✔ Clear View Technologies: The BarMaster enables tracking of every ounce and provides easy-to-read reports and management tools. A speed rail sensory system with hidden RFID and weighing technology identifies brand, bottle and location; SaaS software integrates pour activity, POS and event-based video monitoring data, while a mini PC and server connect to all devices, sensors and stations. www.thebarmaster.com
By Joseph DeLuca
Inventory control systems and/or software — whether a “perpetual” inventory through your POS system, a handheld device that takes the place of paper and pen or automated systems that work on depletion counts such as RFI pourers — are not magic. Nothing does your inventory for you. You still have to physically count every item behind the bar and in storage, and then enter invoices and sales to get useful numbers. The elves are not coming to do it for you.
That said, automated systems have been known to lighten the load. These are really nothing more than electronic replacements for pen and paper that are tied to a powerful database that calculates the data into meaningful numbers. Perpetual or depletion-based systems, such as those bundled with POS software or those that use metered pourers, will tell you how much you should have on hand, but they won’t tell you that a bottle of Jim Beam left with the hostess last night. These systems are very useful when used in conjunction with multiple overlap control systems, but they still don’t go down in the basement and count bottles. That is the most time consuming part of inventory control. For this reason, look for automated inventory tools that save time and labor and accurately measure what is actually in stock. Here are some tips on what to look for in a product:
✔ Reduce labor. Conducting a “physical” or “actual” inventory is time consuming. Effective automated systems integrate a handheld device that identifies the product being counted by scanning the UPC code; the count is entered into the device on a point system or through weighing the item. Once you’ve worked your way through each bar and storage area, take the handheld to your PC and upload the data.
✔ Interface. The system should be able to interface with your POS. If your POS can export sale data (most can), you should be able to import it into the system’s database. A really good system also allows you to enter product as it is delivered, thus avoiding manual recording. And finally, you should be able to “transfer” and track products, using the handheld, from storage to bar or storage to offsite catering job.
✔ Accuracy. There is no better way to ensure accuracy than to weigh open product. If you’re going to hold an employee accountable for pouring accuracy, the way you measure your product must be accurate. If I’m looking at the bottle and guessing its contents to the closest 1/10, there is room for error; if I’m off by 1/10, that equates to more than 3 ounces of difference in a liter bottle. Wouldn’t you hate for someone to lose his or her job because you guessed wrong? Whether you use an integrated digital scale or an analog scale, measuring assures accuracy.
✔ Training. Be sure the company provides training and support; there is a learning curve to all systems.
✔ Charges. Carefully investigate charges for support or software upgrades.
✔ Flexibility. Can the system inventory on a daily, weekly or monthly basis? Can it “spot check” bartenders by only recording half a dozen items before their shift, and then check those items at the end of the shift? This is a great way to monitor accuracy, training level and integrity.
✔ Bonus: a recipe feature. Properly used, it should deplete correct ounce amounts when entering your sales data from your POS by item.
Joseph DeLuca runs Beverage Resources, a beverage management consulting firm in Rosewood, Ohio. He can be reached at email@example.com.