Podcast Summary: RESTAURANT STRATEGY Episode: Two Ways Inventory Can Save You BIG Money (ENCORE)
Host: Chip Klose
Release Date: January 13, 2025

Introduction to Inventory Management

In this enlightening episode of Restaurant Strategy, Chip Klose dives deep into the often-overlooked aspect of restaurant operations: inventory management. Emphasizing that inventory is not just a routine task but a pivotal factor in enhancing profitability, Chip sets the stage by declaring, “[Inventory] is a necessary evil. And please, please, please don't turn off the podcast just yet. I'm going to make it painless. Simple, Straightforward.” ([00:00])

The Dual Purpose of Taking Inventory

Chip outlines the two primary reasons for conducting inventory in restaurants:

1. Accurate Cost of Goods Sold (COGS) Calculation
2. Efficient Ordering to Minimize Waste and Theft

1. Accurate Cost of Goods Sold (COGS) Calculation

Chip explains that understanding COGS is crucial for measuring profitability. He states, “A P and L statement shows us how much revenue is generated in a given period and what it cost us to generate that revenue” ([09:45]). By taking monthly inventories, restaurants can determine the beginning and ending inventory, allowing for precise COGS calculations. This accuracy aids in maintaining a profitable month-to-month operation, rather than relying solely on annual figures which can be skewed by seasonality.

Key Points:

• Conduct inventory on the first of every month to establish accurate starting and ending inventory figures.
• Recognize that unsold inventory represents unrealized revenue, emphasizing the importance of keeping inventory levels as low as possible to reduce tied-up capital.
• Chip advises, “If you're not taking inventory, you need to be taking inventory,” underscoring its fundamental role in financial health.

2. Efficient Ordering to Minimize Waste and Theft

The second reason for inventory management focuses on operational efficiency. Chip shares his experience from fine dining establishments, where frequent inventory checks are essential due to the high cost of ingredients. He mentions, “Fine dining oftentimes would take inventory of proteins and produce numerous times throughout the week because the product they would bring in was so expensive that they couldn't risk Having anything go bad” ([27:30]).

Key Points:

• Regular inventory checks help prevent theft, limit waste, and control spoilage.
• Implementing tight ordering systems and maintaining accurate par levels ensures that restaurants only order what they need, reducing excess stock.
• Chip emphasizes teamwork in inventory management: “Many hands make light work,” suggesting a collaborative approach to streamline the process ([35:00]).

Practical Implementation Strategies

Chip provides actionable strategies to implement effective inventory management:

• Assign Specific Roles: Delegate inventory tasks to team members specialized in different areas, such as proteins, produce, dairy, and beverages. For example, “One person does the proteins, one person does the produce, one person does the dairy...” ([35:30]).

• Use Technology: While not explicitly detailed in the content portion, integrating technology can aid in maintaining accurate records and forecasting needs based on sales data and trends.

• Regular Training: Educate staff on the importance of inventory management and proper recording techniques to ensure consistency and accuracy.

• Adapt Frequency Based on Needs: Depending on the restaurant's inventory turnover and product perishability, adjust the frequency of inventory checks. Chip advises starting with more frequent checks and scaling back once inventory control is achieved ([42:00]).

Insights and Best Practices

Chip shares valuable insights drawn from his extensive experience:

• Inventory as Revenue: Viewing inventory as money on the shelves reinforces the importance of minimizing excess stock to free up capital.

• P&L Statement as a Tool: Leveraging the Profit and Loss statement to monitor COGS helps restaurants stay on top of their financial performance, ensuring each period is profitable.

• Proactive Management: Regular inventory checks and accurate COGS calculations enable proactive decision-making, allowing restaurants to adjust operations promptly to maintain profitability.

Conclusion and Final Recommendations

Chip wraps up the episode by reiterating the importance of inventory management in achieving consistent profitability. He encourages listeners to start implementing monthly inventories immediately and, if applicable, increase the frequency of checks for high-value or perishable items until the system is under control.

Final Quote: “If you are not doing inventory, the very first kind you need to do is a monthly inventory simply so you can get a really accurate cost of goods sold number on your P and L. That's your P and L is your gut check. That's your report card to tell how you are doing.” ([50:00])

Chip concludes by inviting listeners to reach out for further guidance and to take advantage of additional resources available through his platforms.

Key Takeaways

• Inventory Management is Crucial: It directly impacts the financial health and profitability of a restaurant.

• Monthly Inventories for COGS: Establish accurate financial metrics to monitor profitability.

• Frequent Checks to Reduce Waste: Regular inventory helps minimize theft, waste, and spoilage, ensuring efficient operations.

• Team Collaboration: Assigning specific roles and involving the entire team makes inventory management more manageable and accurate.

By adhering to these strategies, restaurant owners can unlock significant cost savings and drive their businesses toward a consistent 20% return, as envisioned by Chip Klose.