What Is an Inventory Turn?
How do you know how much food you should have on the shelves before you put yourself into a poor cash position? Today I'm going to answer what’s an inventory turn and why they're so important to understand when you want to take control of your kitchen.
What is an inventory turn? If you fill your shelves completely and empty them and then refill them, that's an inventory turn. Empty your shelves completely and refill your shelves, that's a second inventory
Now, the problem in a restaurant is you can't do that because you have never emptied your shelves completely. Instead of counting it as a product count, it’s a dollar value. If you have an average of $3,000 on the shelves and every time you replace and repurchase $3,000 in product, that's an inventory turn.
Why? Because you have dated products like poultry, meat and dairy items that you may order two or three times a week, and you may have that pickle-bucket-size paprika that a chef long ago ordered to save you money and everybody keeps asking if they need to count it and the answer is yes. It's money. It's your money. You’re never going to empty your shelves because you have things that move quickly and things that move slowly, so you look at an inventory turn as a dollar value.
Here's the basic calculation of food cost:
Beginning inventory plus purchases minus ending gives us use divided by sales equals food cost percentage. If you want to watch a video with a step-by-step lesson on calculating your cost of goods sold/food cost, going through cost of goods sold make sure you watch this video.
Click this week's video above for a visual demonstration of how to calculate an inventory turn.
I want you to run four to six inventory turns in a calendar month. That means you're only going to have enough food on the shelves at any given time to last say three, four days at a time. Now there's a little extra there so that if you take two deliveries from your broadline distributor every single week, you're going to deplete down, but at that point in time when you're at your lowest, you still have a few days’ worth of food on your shelves but you’re not stocked up for a week or a month with items that are going to be lasting forever. You don’t want this because those items are your money, and you cannot pay your bills with inventory. You want cash at hand.
While you want four to six inventory turns in a calendar month for most restaurants, if you're a breakfast place, it's probably six to eight why because eggs take up so much room, and you’re taking a delivery almost daily. In this way, you’re going to turn inventory much faster.
The benefits of having three to inventory turns per week are:
- Cleaner shelves for better health scores.
- Ability to find items very quickly.
- More money in the bank account.
- Lower food cost.
- Pride in your kitchen.
- Quick inventory.
Start with the calculation. You might find a number like two turns per week. The next step is to come up with a strategy of what needs to move. For example, you may have high food cost items in the freezer such as lobster tails or turkey legs for a promotion from three chefs ago. Whatever it is, they’re in the freezer, and they’re a high-dollar value, and you're going to keep counting them and find it impossible to get your turns down. Come up with a strategy about how we're going to sell those products off even if you sell it at cost. Worst case is you have that money back in your bank account and the inventory off your shelves.
Cash is king, so you need to teach your managers to hit a goal or key performance indicator (KPI) the target food cost or pour cost that they have to manage the cash to. If you take the time to manage your inventory, you're on your way to profitability.
Be sure to visit my YouTube channel for more helpful restaurant management video tips.