Restaurant Inventory Management - Getting The Basics Right

Keeping track of inventory is important. Optimally utilizing the raw materials would help your restaurant manage its resources better, keep the costs down, and become operationally lean.

But how do you go about it? How do restaurants highlight and keep track of the best and worst selling items? Is it done manually or can it be automated and made real-time? This brings us to a very important question: how do restaurants go about their inventory management? But first off - let’s cover some important inventory terminologies.

Some common inventory terminologies

These are the common inventory terms and processes you should be aware of and definitely keep a regular check on:

Cost of Goods Sold (COGS)

Cost of Goods Sold (COGS) is the cost of creating the food that would be sold to the guests. To calculate the COGS, you would need to keep a record of inventory levels at the beginning and end of a specified period. You would also have to take into account any additional inventory purchases.

The formula for calculating the Cost of Goods Sold (COGS) = Opening Inventory + Purchased Inventory – Final Inventory


Variance can be defined as the difference between the theoretical and the recorded usage. For example, if you sell 1000 USD worth of food but your inventory says that 1200 USD worth has been spent. Then the variance would be 1200-1000= 200 USD is your variance. Restaurants on an average see a 2-5% variance of usage.

Food Cost Percentage

The Food Cost Percentage can be defined as the percentage of the selling price of your food that makes up the cost of all the ingredients used. The ideal food cost percentage suggested for restaurants is between 28%-35%. It is important for restaurants to maintain this number considering that there are constant fluctuations from the supply side of the ingredients.

Base Kitchen

The kitchen is where the food is prepared and then transferred to multiple outlets. For big franchise brands, it acts as the link between the warehouses and the outlets.

Sitting Inventory

Sitting inventory is the amount of product you currently have with you in-house. You should always ensure that you are consistent everywhere in the type of measurement you use to indicate this figure.


Any food that is wasted before it is served to the customers comes under the waste category. All restaurants need to avoid the unnecessary losses that they create. This could include spoiled or badly cooked food, etc.

Cost of Goods Depleted

It is the cost that is related to the depletion of goods during a given period.

How do you keep track of your inventory?

Inventory management involves tracking of both raw and processed goods to plan out purchasing, understanding food costs, and avoiding any wastage of material.

While some restaurants still use the old-school pen and paper method, a host of digital methods have also been introduced.

The two most recognized methods of restaurant inventory management are:

  • Spreadsheets - better known as par inventory sheets.
  • Automated restaurant inventory management (using software).

Par Inventory Sheets

Restaurant managers set a defined level of how much of an item (inventory) they want in-house. This is also known as the par level.

The par inventory sheets assist in guiding restaurant managers/owners on what and how much should be ordered, based on what’s sitting in the inventory already. It also helps in the identification of an event in which you might be requiring additional inventory or any items that are being wasted due to under-utilization.

Automated Inventory Management System (using POS)

The Par method of tracking inventory is a great way to get started with inventory management. It is however, strongly advised that an automated system is used, one that ties up with your restaurant POS system, to automate the entire inventory management.

An automated inventory management system helps track the material usage by matching the following:

  1. Orders entered into your restaurant POS system
  2. Recipes entered into your inventory management software.

At any point of time, owners or managers can have a look at their inventory system and have the reports generated. This helps in the identification of material usage. What is left, and what would be needed in the coming days.

How do you go about calculating food inventory?

The most ideal method of inventory management is the shelf to sheet/system method

This is how it is done:

  1. Check what is a part of your storage
  2. Have it matched with your inventory system. That way, every single item on every shelf is double-checked.
  3. Account and factor any ‘write-in’ item. These are the items that are there on your shelves but are missing out on the system.

Restaurant inventory management software - Helping you automate your workflow.

A restaurant inventory software helps in bringing together all the working parts of your inventory – be it raw materials, vendors, recipe and even taxation, under one system. Here are all the parts explained:

Material and recipe management

This part helps in the management of materials, setting par levels, and declaring the recipes for finished and processed items.

Vendor and tax management

This includes the declaration of multiple vendors and what you are procuring from whom. Additionally, some software also helps declare tax.

Multiple outlet management

When you are running multiple outlets or base kitchens, having software that helps you manage the opening, closing stocks, and transfers in between is essentially important to avoid any mistakes.

Audit and waste tracking

Inventory software connects with your POS system and updates real-time. Many systems offer the audit facility and manual reconciliation feature in case you wish to update something from your end.

How the inventory is managed affects the other processes at your restaurant, from serving the customers to revenue generation.

It’s now time to get tracking!

Want to keep reading?

Restaurant POS Checklist: How to Choose a Restaurant POS System

Adding a POS to your establishment will expand what you and your staff can offer your diners.
View Article

Top 10 Benefits of Using Restaurant POS Software

In this article, we'll explore the top 10 benefits of using restaurant POS software in your business.
View Article

Restaurant Inventory Management - Getting The Basics Right

Optimally utilizing the raw materials would help your restaurant manage its resources better, keep the costs down, and become operationally lean.
View Article


Leading the Way to a Better Future for Maintenance and Reliability

Your asset and equipment data doesn't belong in a silo. UpKeep makes it simple to see where everything stands, all in one place. That means less guesswork and more time to focus on what matters.

Capterra Shortlist 2021
IDC CMMS Leader 2021
[Review Badge] GetApp CMMS 2022 (Dark)
[Review Badge] Gartner Peer Insights (Dark)
G2 Leader