Kitchen Management 305/321 - Inventory

rainline.gif (2243 bytes)

Rationale

Controlling costs is critical to the success of any food operation.  Our key tool for cost control is the inventory.  Through the use of inventory, we can find our cost of sales and, by comparing this food cost to the budgeted amount, whether or not we are on track.  If not, we need to investigate why not.

 

Learning Outcome

When you complete this module you will be able to...

Explain inventory/stocking principles and the process for taking inventory.

Learning Objectives

Here is what you will be able to do when you complete each step.

  1. Explain why we take inventory
  2. List areas where inventory is taken in food service.
  3. Explain the process for taking physical inventory
  4. Extend inventory.

OBJECTIVE 1

When you complete this objective you will be able to...

Explain why we take inventory

Learning Activity

Complete each of the Activities listed below :

In your notes:

to top of page

OBJECTIVE 2

When you complete this objective you will be able to...

List areas where inventory is taken in food service.

Learning Activity

Complete each of the Activities listed below :

In your notes:

List three (3) areas where inventory is taken in a typical food operation    

Learning Material

Food inventory Inventory of all products used to generate food revenue.  Note: This is cost of goods only.
Beverage or liquor inventory Inventory of all products used to generate liquor revenue.  Again, the cost of goods only.
Capital inventory Inventory of all capital goods: plates and cutlery, pots and small wares, equipment and furniture.

Our focus is on food inventory

to top of page

OBJECTIVE 3

When you complete this objective you will be able to...

Discuss the process for taking physical inventory.

Learning Activity

Complete each of the Activities listed below :

In your notes, answer the following questions:

Discuss the use of inventory forms.
Discuss inventory control procedures.
Discuss stocktaking.

Learning Material

Using blank sheets for taking inventory is not recommended.  It is too easy to miss items or count them in ways inappropriate to calculating their value. The use of an inventory stock-taking sheet is recommended.  While there are many ways to organize the inventory sheets, the most convenient is to arrange them in the same order as products are in storage.  It is useful to list the purchase prices of items on the inventory form in advance of the actual stock-taking.  I found the most effective method was writing the prices from invoices into the blank inventory form at the end of each day.   It only took 10 minutes and the inventory always had the most recent prices for all products.  This process had the additional advantages of providing up-to-date information for recipe costing and making me particularly current with all prices.

The pricing method identified is based on FIFO, the first product purchased is the first product used, therefore all products are valued at the last price paid.   LIFO can be used under certain circumstances the LIFO or earliest price method might be used.  We could use the actual price method, listing more than one price for each item, requiring stamping prices on products as received.  Weighted average pricing can be used as well.  This involves calculating a price for all items based on the price and the number of units at the actual purchase price.  Using the FIFO principle is most common and certainly the easiest to manage.  While some actual value may seem to be lost on some items, value on other items will be higher so things even out overall.

An example of an inventory form would be:

Freezer

ITEM COUNT PRICE EXTEND
Fries   $24.50 / 6 bags  
Crab legs   $27.75 / kg  
Salmon   $ 7.50 / kg  
Peas   $22.75 / 6 bags  
Prawns   $12.95 / kg  
       
       

How we count is reflected in the prices listed.  In the example shown, the count for fries might be 5 cases and 1 bag or 5 1/6 cases.  Alternatively, we could have entered a price per bag in which case we would count 31 bags.  Many operations only take inventory on unbroken cases, opened cases considered to be used.  That is fine too as long as a consistent method is used. 

Fridge

ITEM COUNT PRICE EXTEND
Milk   $15.95 / 20 L  
Lettuce   $13.25 / case  
Salmon   $11.50 / kg  
Chicken Kiev   $ 1.85 each  
       
       


You will notice that the value of the salmon in the fridge ($11.50/kg) is higher than the value of the salmon in the freezer ($7.50).  That is because the salmon in the fridge has been trimmed and the yield percentage has been applied to reflect the Edible Portion cost.  Further, there is no problem with having a product appear in more than one place on the inventory form as it is the value of the product we are concerned with. 

The chicken Kiev is produced in-house and it's value comes from a costed recipe.   Where possible, all mis-en-place items should be reflected in this way.

Who should be involved?

The chef needs to be involved in the counting as he or she is the person ultimately responsible for the food cost.  Generally, inventory will be more accurate if one person counts while another records the values.  As the chef is responsible for the cost, he or she should do the counting.

As a matter of checks and balances, there should be a manager involved in the stock-taking on a regular basis.  This helps to ensure the honesty of all concerned.

How often?

Typically, inventory is taken once per month, on the last day of the month.  If there is a problem with costs, it will be no more than 31 days old.  For tighter controls, inventory may be taken more often.  Many operations are taking inventory once per week.  In that way, problems will be no more than 7 days old before they are identified.  For operations that have problems with high food costs, it is recommended that inventory is taken once per week, at least until the problem is corrected.  However, this will help only if the extension and food cost calculations are done in a timely manner.  If not, the count is so much wasted effort.

to top of page

OBJECTIVE 4

When you complete this objective you will be able to...

Discuss the process for extending physical inventory.

Learning Activity

Complete each of the Activities listed below :

Determine the value of a physical inventory.
Calculate month end (end of period) food costs on exercise page.

Learning Material

Inventory Extensions

Extending an inventory is just like costing a recipe - the amount of each item in stock times it's purchase price is the value of that stock item.  The sum of the values of all stock items is the value of the product in stock.  This value is called    d closing inventory.  The closing inventory for September becomes the opening inventory for October.

ITEM COUNT PRICE EXTEND
Fries 5 1/6 $24.50 / 6 bags $126.67
Crab legs 17.4 $27.75 / kg $482.85
Salmon 12.6 $ 7.50 / kg $ 94.50
Peas 3 5/6 $22.75 / 6 bags $ 87.13
Prawns 6.8 $12.95 / kg $ 88.06
       
       

 

ITEM COUNT PRICE EXTEND
Milk 3 $15.95 / 20 L $ 47.85
Lettuce 2.5 $13.25 / case $ 33.13
Salmon 3.2 $11.50 / kg $ 36.80
Chicken Kiev 33 $ 1.85 each $ 61.05
       
       


Month End Costs

To calculate month end costs, we take the value of what we had at the beginning of the period (opening inventory), add the value of food purchases and subtract the value of the food left over (closing inventory).  This gives us the value of the food used during the period.  Taken as a percentage of food sales, we calculate the food cost percentage.

Simple version:

Food Revenue $100,000.00

+Opening Inventory    $20,000.00
- Closing Inventory     $20,000.00
   Cost of Sales            $40,000.00

FC% = PC = $40,000.00 = 40%
            MP    $100,000.00

Real World version:

Food Revenue             $100,000.00

Opening Inventory

 $20,000.00

+ Purchases

 $40,000.00

- Returns

 $ 1,200.00

+ from bar transfers

 $ 500.00

- kitchen to bar 

$ 750.00

- Closing Inventory

 $20,000.00

Cost of Food Consumed 

$38,550.00

- Staff Meals

 $ 1,100.00

- Ad &Promo

$ 1,750.00

Cost of Sales 

$ 35,700.00

FC% = $ 35,700.00 = 35.70%
            $100,000.00

Returns are unprocessed credit notes.  If a product is returned because of poor quality, obviously it isn't in stock to be counted.  Any outstanding credits are deducted from food cost. 

Internal transfers to and from the bar need to be considered. Product from the bar (wine, brandy etc.) generate food revenue, not liquor revenue and so are added as food purchases.  Likewise, limes, celery etc. sent to the bar generate liquor revenue and are deducted from food cost.

Staff meals represent a benefit to staff and so are labour cost, not food cost.   Likewise, free bar foods during happy hour, and meals comped for whatever reason are advertising and promotional expenses.  If the use of food doesn't generate revenue, it needs to be deducted from the calculations.  Note: acceptable waste is accounted for in menu price calculations through the yield percentages.  Unacceptable waste is not calculated into month end food costs.  While some waste is bound to exist, the chef's job is to minimize avoidable waste.

Do Inventory Calculations

to top of page

LINE

Kitchen Management 305/321
Last Modified May 2009, Garry Wall
Email to: grwall@shaw.ca