Inventory Forecasting: You Can't Manage If You Don't Measure

Last week I kicked off a series of articles on controlling food costs.

I had the opportunity to work for one of the most respected CEO's in the restaurant industry who mastered the art of controlling costs. He was always saying, "You can't manage what you don't measure". It is an old management adage that is accurate today. Unless you measure something, you don't know if it is getting better or worse. You can't manage for improvement if you don't measure to see what is getting better and what isn't.

With inventory, you need to manage the uncertainties, the constraints, and complexities on a continuous basis. By doing this you will improve your inventory forecasting ability and accurately set inventory targets and pars.

The first thing to measure is your usage. Keep it simple and just look at a week and see how much you started with, add what was delivered, and then subtract what you have left. That's how much you use in a week. (Next week we'll talk about ways to dig a little deeper into what you should be using vs. what you are using.)

Now that we know how much we use, we can start to look at how much we need. One of the problems is the repetitive orders of the same products; you have undoubtedly asked yourself at what stock level you need to replenish your inventory. The goal is to reduce inventory levels without affecting you guests. The three main factors to consider when forecasting:

* The Lead Time - how long does it take for my delivery to come once it's ordered?
* Reorder Point - what's the level of inventory for each item, when I know I should order more?
* The Reorder Amount - how much should I get?

If you don't have a background in forecasting don't worry you can still learn to forecast. Keep track of the important factors, such as special events or the weather, holidays, advertising specials, etc. You need to track these by the day of week. Any special events in your surrounding area could impact business and should be noted.

The next step involves analyzing the variances. Highlight very low variances and very high variances. You want to improve the overall performance. Identify weaknesses and make adjustments in future forecasts. Try to imitate accurate forecasts. Find out what you did right on low variance predictions.

The key to building strong forecasts is a creating and keeping strong records, reviewing these records, which will enable you to improve your forecast. I never said this is going to be easy but don't stop, keep the process going and you will reap the rewards.

There are many tools available to help you forecast inventory, they can be as simple as an Excel spreadsheet or more sophisticated software solutions that master the art of inventory forecasting and ordering. You need to ask yourself which solution works best for you. But remember, the better tool will enable you to ensure you have enough product on hand at all times while reducing your inventory costs.

--from WhenToManage's Restaurant Biz Blog