A wise bar operator once told me, “any schmuck can put together a liquor order, but a smart bar manager knows the fine line of ordering enough so they never run out of anything, but never unnecessarily purchase too much inventory and have money tied up in stock that does not sell.”
When I was given this advice, I was managing a bar with approximately $150 to $200K in liquor, draft and bottled beer sales a week. My weekly liquor order would vary from $30 – $50K a week depending on what was going on. It was one of the biggest expenses of the bar. The raw size of the liquor order made it a huge concern for the owners, who wanted to make sure it was done right every week. Every week was challenge to find a balance between making sure stock was always where it needed to be so we never ran out of anything, but also not to over spend. Over spending could have meant thousands of dollars tied up in inventory that the business could have used elsewhere.
Here are four tips I learned along the way:
1. Manage your bar like you own 20 of them – My mentor at the time, was a former operations consultant for a very large chain of restaurants that had become very successful and had locations all over the country. He told me that if I was to over order say, $1,000 a week in inventory – that mistake had the potential to be multiplied over the entire company into a $20,000 mistake. That $20,000 per week could have been better utilized, rather than being tied up in inventory. Big, successful companies have budgets that they must stay in, and prudent operators try to keep their utilization of resources as efficient as possible.
2. Set Inventory Pars and Stick to them – I have found during my time as a consultant that most operators just eyeball inventory stock and order what they need based on this very rough assessment of what the requirements are. This can be a good or bad thing, and usually what I observe is that people that eyeball their liquor order typically get caught in situations where they have to run to the liquor store to buy a bottle they just ran out of, or they end up over ordering, and sitting on stock that just doesn’t get consumed that week. You should have some kind of par set, so if your stock on hand for Vodka for example, is 2 bottles and your par is 8, you know you must order 6. This should be applied to every product in your inventory.
3. Set Pars Based on Historical Usage – There are many different trains of thought as to what the ideal par for inventory orders is. Some people like to set it as a concrete number, like 8 bottles in the example above. Others like to go off usage, and order only what was consumed the week before. Personally, I like to set pars based on two weeks’ worth of usage. I found this to be effective because consumption levels for certain products vary from week to week, depending on who is in your bar. If for example, you know that every week you consume 4 bottles of Vodka, I would set the par at 8. This way you are always prepared for variations in consumption.
4. Review and Adjust Your Pars as the Seasons Change – Every bar has fluctuations in business levels depending on what season it is. And to make sure the inventory evolves with the seasonality, you need to look at them constantly and make adjustments as you go. My bar used to be at its busiest in the Fall and Winter, and was slow during Summer. During the Summer months, I would review the pars and drop each par to adjust to the lower business levels. When Fall came around, I would bump them up to get ready for the busy season. The key is to be proactive and to try and anticipate things before they happen.