Part 2: Taking Inventory…of Taking Inventory
Editor’s Note: This is Part Two in a Two part series of articles on inventory control. Part One can be found by clicking HERE.
If your business is like the businesses of so many independent operators in the beverage industry, it is generating hundreds of thousands of dollars in sales revenue and is purchasing hundreds of thousands of dollars in products you use to generate these revenues. Systems need to be in place to control these two significant components of your financial operations. A reliable and accurate inventory system is a key factor in exercising this control, maximizing profitability and assuring viability going forward.
Unfortunately, many operators manage, record and calculate their inventory haphazardly. Taking inventory is boring and time consuming. Recording and calculating it can be even worse. It is however, a necessary evil…like flossing. You should do it and to get the maximum benefit, you should do it right.
In Part II of this two part series we’ll take a look at choosing a system to control your physical inventory and the policies and procedures necessary to make this system work to your benefit.
Recording and Calculating Your Inventory – Perpetual or Periodic Inventory System
In a perpetual inventory system the calculated or recorded inventory is always the same as the actual physical inventory of product in house. As goods are received, they are added to inventory. As goods are sold they are removed from inventory. In a periodic inventory system the calculated or recorded inventory is only the same as the actual physical inventory of product in house after a periodic physical count has been completed. At all other times, recorded and physical inventory are different.
There are significant benefits to running a perpetual inventory system. Because the record of inventory always matches the amount of product in house, it can be used to reorder. Efficiency audits can be completed conveniently and frequently by comparing sales to changes in inventory for any given period. Both can be completed without consuming valuable time counting bottles.
Unfortunately, successfully employing a perpetual inventory system in your operation can be elusive. Many POS systems include built-in functionality or add-on software to run perpetual inventory. They require that recipes be added for all of the drinks in your system. The software then removes each ingredient from inventory every time a drink is sold. These systems handle consistent sale units like a can of beer or a bottle of wine very well. They don’t like differences between cocktail recipes and the cocktails your bar staff are actually pouring. And they hate it when you sell drinks that aren’t in the system. These variances result in inaccurate recorded inventory and periodic physical counts need to be done to correct the difference. They take a lot of time to set up and maintain – maybe too much to end up with the wrong number.
Periodic inventory systems are simpler to set up and maintain than perpetual systems but don’t provide the same level of accuracy possible and don’t afford you the opportunity for easy audits. However, when employed properly, they can be a very effective tool to assist in the evaluation and management of your operation. The time spent on additional physical counts of product is probably less than the time spent dealing with a perpetual system.
Here are methods and procedures to follow for your periodic inventory system to work best for you.
- Count your physical inventory on a regular basis – At a minimum you should be taking a physical inventory once a month. Ideally, you should be taking inventory more frequently, at least once every two weeks. Inventory is used to calculate your cost of goods for any given period. Comparing your actual beverage cost to a targeted beverage cost can be an effective way to determine if there are problems in your operation.
- If you think you have a problem, inventory more frequently – If you do see a problem between actual and targeted beverage cost, inventory more frequently – weekly, daily or by shift – to help narrow the cause of the problem.
- Keep your storerooms organized – Your count will be more accurate and things will go faster.
- Your inventory sheet should be organized like your storeroom – Again, your count will be more accurate and things will go faster.
- Inventory is a two person job – One person calls and records, the other finds and counts.
- Prices should be updated regularly – At least once a month.
- Train someone else to take inventory – Let someone else in your operation take regular inventory. It’s your prerogative as a manager to delegate lousy jobs. Be advised! You should participate periodically to make sure the person you assigned the job is doing it correctly and not stealing you blind.