Inventory and Forecasting

I mentioned in my previous post that a monthly inventory is nice tool to keep track of costs and help an establishment know where they are in terms of profitability.  One question I keep running into is this: How much inventory do you need to keep on hand? Sure it’s nice to be able to tour the walk-ins and the pantry and rest easy knowing that you won’t be running out of product anytime soon, but as one of my mentors pointed out, you want to have your money in the bank and not on the shelves.

     It’s a struggle to find that perfect balance between too much on the shelves and not enough. It is easier to achieve that balance when you’re working in an establishment that has been around for a while.  At one restaurant I worked at the business forecast was arrived at by going back to the previous year and checking the amount of sales. It was reasoned that the previous years would give a fairly accurate count of the amount of business we could expect. 

At another place I worked the forecast could be obtained simply by checking the coming reservations for the weeks ahead and ordering accordingly. It was a fairly exclusive place and meals were for guests only and so there was really no need to factor in “walk-in” business. Sure the occasional surprise guest may show up but such instances were easily taken care of.

     What about the start up business though? If there are no prior statistics to go by and if the place is open to the public how do you forecast how much you’re going to need on hand? This is an issue that requires a lot of forethought and organization. Having never been through this challenge yet I find myself a little apprehensive in addressing it. Suffice it to say I am no authority on this subject and so what is written here are just some ideas that I’m mulling over on how to successfully negotiate this dilemma. 

     I’m thinking that the logical place to start is with the menu and portion size.  By accurately measuring how much raw product is required to achieve one finished plate you can begin to figure out how much raw product will need to be ordered.

A side note here: while you’re figuring this out it’s a good idea to jot down the pricing for all this. It will definitely help in tracking sales and your PNL down the road.

     The really tricky part is in forecasting what the amount of business will be.  What if you throw your doors open and nothing happens? Then you’re left with a ton of product and nothing to do with it. Hopefully the issue of publicity has already been taken care of and you as the chef just need to worry about making sure you have enough on hand to feed all those eager patrons.

     Setting up the initial revenue forecast should have been done as part of the overall business plan and with this initial forecast one can begin to put together a plan of attack for the uncertainties of opening a new kitchen. In planning for the opening several factors come into play. How many people can be served at one time, how many times do you intend to turn the restaurant in a day i.e. how many covers per day, and what percentage of each menu item will be ordered against the whole menu.

     As you consider these questions it is important to be objective about them.  Capacity seating is a solid statistic but anticipating the rate of turn is more difficult. Take into account your own experiences here. In all the places you’ve worked how many times do you turn tables and what kind of establishment was it?  There is a world of difference in the turn rate between a fine dining and a fast casual establishment.  So a little market research comes in to play here, after all you can’t expect a café here in my small mountain town to perform the same way as a similar establishment in larger towns like Santa Fe or Albuquerque although they may have almost identical menus.

     In planning this figure be optimistic but carefully so. It would be nice to pack the place in the first five minutes and have the restaurant function like a well oiled machine turning the tables every 40 minutes or so. After all isn’t the menu designed to run ten minute ticket times? Ah yes but remember that no matter how talented the staff is, this is a brand new venture and unforeseen items will undoubtedly show up.  What if you sell out of the crab fondue in the first 30 minutes and it takes 45 to prep?(No one wants to start 86’ing items when you have walk-ins full of product but sometimes you have to bite the bullet and do just that until you can find some time to recover.) Seasoned managers find ways of communicating this kind of news so there are no glitches but invariably one gets through causing a slow down.  Take the opening of Sonny’s Café in Chama as an example. The menu is typical New Mexico faire and is extremely quick to prep and deliver. So one would think that the opening would go without a hitch and the turn rate would be reasonably quick.  Well the owners are well known in the community and there was solid local media coverage in the form of a live radio remote and also the special appearance of a professional boxer to help boost the hype.  Doors opened and with in minutes every table was sat with more people waiting to get in. Orders were taken and the result was a kitchen that was inundated with approximately 75 covers at once. The result was a ticket time that escalated to almost 40 minutes thus affecting the overall turn rate.

     As far as estimating how much of each item to prepare for the opening, that is going to take some educated guess work. Unless you are blindly opening a restaurant in a region you have never been to with a menu you constructed in a vacuum, you should have at least some idea regarding regional tastes. Is the town mostly Hispanic and comprised of blue collar workers? Then I wouldn’t expect to sell too many Blue Crab Po’Boys. However it’s a safe bet that a basic taco plate will make a strong showing. 

     So use your knowledge of the area and local market research in your initial percentage guestimation but be prepared for the inevitable wild card. Sometimes something we never thought would be a huge seller ends up being one of the quirky local favorites. One example is the Green Chili Chicken Alfredo at the local steak house down the road. Given the make up of the town and the overall direction of the menu I would not have picked it as one of the big sellers but apparently it is, and I am constantly told by others that when I go eat there I have to get that particular item.  Apparently it’s the bomb.

     So using these basic questions I can begin generating a forecast that will ensure a profitable enterprise.  It is important to keep track of the daily numbers and compile them in a meaningful way so that future forecasting can be used to accurately predict business needs. Without an accurate forecast, I run the risk of product shortages and skyrocketing labor costs.