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Inventory Management: Training Manual
Inventory Management: Training Manual
TRAINING MANUAL
Document Name: Date Effective
01 January 2021
Page
INVENTORY MANAGEMENT 1 of 24
Revision
1
DISTRIBUTION LIST
REVISION HISTORY
Table of Contents
WHAT IS INVENTORY MANAGEMENT? ............................................................................................. 3
WHY IS INVENTORY MANAGEMENT IMPORTANT? ....................................................................... 3
TYPES OF INVENTORY .......................................................................................................................... 3
INVENTORY MANAGEMENT TERMS .................................................................................................. 4
UNDERSTANDING THE INVENTORY MANAGEMENT PROCESS ............................................... 8
INVENTORY MANAGEMENT PROCESS ............................................................................................ 9
I. Purchasing....................................................................................................................................... 9
What are Purchase Orders? ................................................................................................................. 9
Inventory Forecasting and Reordering .............................................................................................. 10
Supplier Management.......................................................................................................................... 12
Supplier Management Process Flow ................................................................................................ 12
Benefits of Supplier Management ...................................................................................................... 12
II. Production ..................................................................................................................................... 13
What is a bill of materials? .................................................................................................................. 13
Tracking the production process ........................................................................................................ 13
III. Holding Stock ............................................................................................................................ 13
Reasons for Holding Inventory ........................................................................................................... 13
Essential Inventory Control Methods ................................................................................................ 15
How to organize the Restaurant storage? ........................................................................................ 18
How to organize dry ingredients storage? ........................................................................................ 20
How to organize janitorial and supply storage? ............................................................................... 21
How to organize fridge or freezer? .................................................................................................... 22
Reasons why organization of stocks is important ........................................................................... 24
POLICY ON SENDING AND UPDATING OF REPORTS ................................................................. 24
INVENTORY MONITORING WORKBOOK............................................ Error! Bookmark not defined.
ANNEX 1: INVENTORY CHECKLIST..................................................... Error! Bookmark not defined.
Inventory is one of the most expensive assets of many companies representing as much
as 50% of total invested capital. It is one of the 3 most common reasons for SME
bankruptcy.
TYPES OF INVENTORY
Safety stock – The additional inventory we keep in store to deal with supplier
shortages or surges in demand.
Average Inventory – the average inventory on- hand over a given time period,
calculated by adding Ending Inventory (EI) to Beginning Inventory (BI) and dividing
by two.
Average Inventory Cost – an inventory valuation method that bases its figure on
the average cost of items throughout an accounting period.
Back Order – an order for a product that is currently out of stock, and so cannot
yet be fulfilled for the customer.
Base Kitchen – It’s the kitchen where the food is fully or semi-prepared and then
transferred to multiple outlets. For big franchises, it acts as a connection between
the warehouses and the outlets.
Beginning Inventory (BI) – the value of any unsold, on- hand inventory at the
start of an accounting period.
Cost of Goods Depleted – It is the cost related to the depletion of goods during
a certain period.
Cost of Goods Sold (COGS) – refers to the direct costs of producing the goods
sold by the company. This amount includes the cost of the materials and labor
directly used to create the good. It excludes indirect expenses, such as distribution
costs and sales force costs. Cost of goods sold is also referred to as “cost of sales.”
Economic Order Quantity (EOQ) – is the ideal order quantity a company should
purchase to minimize inventory costs such as holding costs, shortage costs, and
order costs. EOQ refers to how much you should reorder, taking into account
demand and your inventory holding costs.
Ending Inventory (EI) – the value of any unsold, on- hand inventory at the end of
an accounting period.
First- in- first- out (FIFO) – an inventory valuation method that assumes stock
that was purchased first is also the first to be sold.
Food Cost Percentage – this is the percentage of the sale price of the food that
makes up the cost of the ingredients use.
Holding costs – also known as carrying costs; the costs our business incurs to
store and hold stock in a warehouse until it’s sold to the customers.
Inventory count – also known as a stock take, this is the systematic process of
taking a physical count of inventory in order to verify accuracy.
Inventory variant – the variations of a single product that a company may hold in
its inventory. For example, stocking a cheese in various sizes.
Inventory visibility – the ability of a person or business to see exactly where its
inventory is and how it is being used.
Last- in- first- out (LIFO) – an inventory valuation method that assumes the most
recent products added to your inventory are the ones to be sold first.
Lead time – the time it takes a supplier to deliver goods after an order is placed
along with the timeframe for a business’ reordering needs.
Order fulfillment – the complete lifecycle of an order from the point of sale to pick-
and- pack to shipping to customer delivery.
Overselling – taking online orders for a product that turns out to be out of stock
(usually through poor inventory management). Preventing overselling is key to
providing a high- quality experience for online customers.
Reorder point – set inventory quotas that determine when reordering should
occur, taking into account current and future demand as well as lead time.
Safety stock – also known as buffer stock; inventory held in a reserve to guard
against shortages.
Sitting Inventory – This is the amount of product (or the money it’s worth) you
currently have with you in-house. Always ensure that you’re consistent everywhere
in the type of measurement you’re using to indicate this figure.
Supply chain – the complete flow a product or commodity takes from origin to
consumer – including raw materials, to finished goods, wholesalers, warehouses,
and final destination. A retailer might only be directly responsible for certain chunks
of this supply chain, but should still be aware of it in its entirety for the products
they sell.
Third- party logistics (3PL) – refers to the use of an external provider to handle
part or all of warehousing, fulfillment, shipping, or any other inventory- related
operation.
Variance – is the difference between the theoretical usage and the record usage.
Waste – Any food that’s wasted before it’s served to the customers comes under
this category. All restaurants want to avoid the unnecessary loss it creates. It could
include spoiled food or not properly prepared food etc.
Optimizing inventory management is a very important part of cost control, and can have
a powerful impact on supply chain management by affecting cash flow, vendor
management/ strategic sourcing, and relationships with vendors and customers alike.
Inventory Control – a general term for reducing total inventory management costs
while optimizing the company’s ability to meet customer demand and its own goals
for profitability and competitive strength.
Just- In- Time (JIT) – an inventory system that relies on analytics and precision
logistics to ensure materials and goods arrive on demand for immediate
turnaround to customers. JIT is very data- intense, and requires a clear and
complete understanding of factors such as seasonal demand, geographic and
political events that might affect logistics, and customers buying patterns, both in
the short and long term. Done properly, Just- In- Time simplifies inventory by
minimizing the need for available goods and raw materials and reducing lead
times.
FIFO and LIFO – which refers to either first-in, first-out (FIFO) or last- in, first out
(LIFO) valuation methods. FIFO and LIFO are the accounting components of
inventory management systems, detailing the actual value of inventory to the
company’s bottom line.
1. Purchasing – this can mean buying raw materials to turn into products, or buying
products to sell with no assembly required.
2. Production – making the finished product from its constituent parts. Not every
company will get involved in manufacturing – wholesalers, for instance, might skip
this step entirely.
3. Holding Stock – storing raw materials before they’re manufactured (if required),
and finished goods before they’re sold.
4. Sales – getting your stock into customers’ hands, and taking payment.
5. Reporting – businesses need to know how much it is selling, and how much
money it makes on each sale.
I. Purchasing
Inventory management doesn’t begin and end with stock control. Store managers/
company also need to ensure purchasing, production and sales too.
What are Purchase Orders?
Purchase Orders are the documents you use to buy new goods from the supplier. Often,
purchase orders are preceded by a quotation – an estimation of the cost of the goods,
which can be approved using a PO.
Inventory forecasting is the process of determining the inventory levels in future time
periods based on sales projections.
Certain boundaries have to be set in place to give the most accurate outcome:
Forecast period – is a specific amount of time which decides the forecast quantity.
Trend – is an increase or decrease in demand over a certain period of time.
Identifying one such trend makes it easier to project future sales.
Base demand – is simply the starting point for a forecast.
Inventory forecasting uses factors such as sales history and trends, average lead time,
demand, reorder point, and safety stock to predict inventory levels.
Lead time demand = ave. lead time in days x ave. daily sales
Lead time demand is calculated by multiplying average lead time in days with average
daily sales. The average lead time can be calculated from the amount of time the supplier
has taken to deliver the products in the past. Average daily units sold can be derived
from the previous sales data by calculating the average amount of products being sold
on a daily basis.
inform you about market conditions and your customers’ buying patterns so that the store
will never encounter stock outs with popular or fast- selling products.
Forecasting is in turn linked to determining reorder points and order quantities, both of
which are critical to optimizing inventory control.
Reorder Point
Answers the question of when to order. It is the level of inventory which triggers an action
to replenish a certain stock. Yet lead time (the time before the products are delivered has
to be taken into consideration, since instantaneous replenishment of stock levels is not
possible, and that’s where safety stock (extra stock carried to prepare for uncertainties in
demand and supply) comes into play.
The ROP is calculated by multiplying the average daily sales with lead time and adding
the result with safety stock. Basically, there just has to always be enough inventories to
cover the lead time while waiting for new stock to arrive.
Safety stock = (maximum daily sales x maximum lead time in days) – (average
daily sales x average lead time in days)
Safety stock is calculated by multiplying maximum daily usage (which is the maximum
number of units sold in a single day) with the maximum lead time (which is the longest
time it has taken by the supplier to deliver the stock).
Supplier Management
Step 2: Onboarding – the necessary information about the chosen suppliers is then
collected as part of the onboarding process. Internal processes and systems have to be
changed or updated accordingly, while relevant stakeholders are to be informed, so that
the company recognizes the new supplier and can begin trading with them.
Step 4: Collaboration – close collaboration between vendors and suppliers improves the
relationship and commercial value through process and performance advances and
product or service innovation.
Step 5: Evaluation – the final step is used to measure a supplier’s performance and
ensure they meet the terms laid out by the contract, and is based on a number of metrics
including delivery time, price, production, quality and service.
Reduce risk
Reduce costs
Increase efficiency
Minimize price volatility
Consolidation of the supply chain
II. Production
Even our company is not considered as a manufacturer, we still need to do more with our
products than just buying and selling. Tracking and controlling production of inventory at
every stage is imperative to the business. Managers should always know whether their
store has enough raw materials to make a product, enough finished products to match
demand, enough time to meet a new order and more.
What is a bill of materials?
A bill of materials (BOM) is a set of instructions on how to create a specific item. It includes
the materials, products, assemblies, and even packaging that makes up the finished
product. Each BOM will be used in procurement, manufacturing, and more: ensuring that
your business can create a standardized product at a standardized cost.
Tracking the production process
There are several ways to track the inventory as each item moves from component to
finish product. One way is to group the materials as they come into the warehouse/
commissary (batch tracking). Another is to use the serial number on each product in the
system (serial number tracking) or by the use of alternative tracking method, such as
barcodes or RFID.
Avoiding Uncertainties
WIP Inventory – Between the manufacturing operations, within the plant to avoid
shutdown of main units, because of the critical part/ spare is out of stock or the line
has broken down, normally certain amount of Work – in – Progress inventory is
always maintained. In some cases, some of the spares/components may be
produced in batches to achieve the efficiency or it can be produced with little effort
and money. Thus the WIP Inventory is part and parcel of inventory management.
Some of the firms produce large quantities at a time to avoid frequent changes in
the production line. In such cases, not only we have to hold large quantity buy also
must compare holding cost, cost of obsolescence, and cost of capital against the
preparation cost of production. On the other hand, smaller batch size would reduce
inventory holdings; capital locked in inventory but will result in frequent setting or
high set up cost.
Sometimes there may be steep increase in demand. For example during the
holiday seasons, there is sharp rise in demand. It is very much required to hold
higher inventory to meet/explore the opportunity.
Inventory is product that the company already paid for, but when it’s sitting on the shelves
or in a warehouse, it’s not making any money. That’s why effective inventory management
can lead to better cash flow, and increase the bottom line. And while there are many
different inventory management methods to use, the more common inventory
management techniques are listed below.
The first thing a manager should do is establish par levels of products, which are
the minimum amount of product that must be on hand at all times.
The manager should know that it’s time to order more when the stock dips below
the predetermined level, which will vary by product. These levels are based on how
quickly the item sells and how long it takes to get back in stock, and in a perfect
world, you will order the minimum quantity that will get you back above par
— eliminating excess stock while preventing a lack of in-demand product.
While establishing par levels can take a little bit of research and up-front work,
having them set will systemize the process of ordering and help managers make
quicker decisions. Remember that things can change over time, so check your par
levels throughout the year and make any necessary adjustments.
To start calculating your restaurant’s inventory par levels for each ingredient, you’ll
need a few things:
While this is absolutely critical for perishable items to avoid spoilage, it’s also good
practice for non-perishable items. Things like packaging design and features often
change over time, and the last thing is to end up with something obsolete that we
can’t sell.
FIFO often results in a lower cost of goods sold number because older items
generally carry a lower cost than items purchased more recently, due to potential
price increases. With a lower cost of goods sold number, you can have higher
profits.
On the other end of the spectrum, we have last-in, first out (LIFO) which is the
opposite of FIFO. This inventory management method assumes the most recently
acquired product is also the first to be sold, and the most recent pricing is used to
determine the value of the merchandise that has been sold.
While most retailers opt to use the FIFO method, some choose LIFO based on the
assumption that prices are steadily rising. This means the most recently-purchased
inventory will also be the highest cost, which will yield lower profits, and,
subsequently, lower taxable income.
There’s more to having a good relationship with your suppliers than simply making
friendly conversation. It requires clear, proactive communication because being
adaptable is part of successful inventory management. Things can quickly change,
and having the ability to return a slow selling item to make room for a new product,
quickly restock a fast seller, troubleshoot manufacturing issues, or temporarily
expand your storage space depends on how willing your suppliers are to work with
you on solving any potential issues.
Keeping the lines of communication open means they can let you know if a product
is running behind schedule or informing them when you’re expecting an increase
in sales so they can adjust production. If you have a strong relationship with your
suppliers, this can lead to stronger sales.
A (high-value products, low sales frequency): They will require the most
attention because these items have a greater financial impact on your
business. However, they’re harder to forecast because they’re not in high
demand.
C (low-value products, high sales frequency): These products move off the
shelves more quickly and easily, making them easier to predict. Because they
generate sales that are less impactful to your bottom line, they require the
least amount of attention and maintenance.
This method helps you understand which products are sitting on the shelves for too
long. “A” products are the most valuable and should be closely monitored to make
sure you don’t run the risk of over- or understocking. With “C” products, which are
more self-sustainable, make sure they’re making you money and that it’s worth it to
keep selling them. Finally with “B” items simply monitor them to see if there’s the
potential for them to turn into “A” or “C” products.
It’s simply a matter of time before you’re faced with a challenging issue. Whether
it’s having sales spike unexpectedly and you oversell your stock, a product is
unexpectedly discontinued, or the manufacturer runs out of your product and you
have orders to fill — you have to expect that you’ll have some sort of problem to
deal with.
You can mitigate the damage by identifying possible risks and preparing a
contingency plan. Figure out what issues may arise and decide how you’ll react,
what steps can be taken to solve the problem, and if/how other parts of your
business might be impacted.
what’s coming, but that doesn’t mean you can’t try and get as close as possible.
When trying to project future sales, here are a few things that you can consider:
Market trends
Last year’s sales at the same time
Growth rate of the current year
Seasonality
The overall state of the economy
Guaranteed sales from contracts
Planned promotions and ad spend
Evaluate which items in the inventory are most often sold. These items should be
easily accessible. By looking at the inventory from the standpoint of sales volume,
the manager can segment the storage from front to back organizing items based
on volume and frequency. Keeping popular items closest to the dispatch area
shortens the time and energy needed for staff to get the goods.
Using ingredients before they expire can be one of the biggest challenges for your
kitchen, depending on how your storage is organized. To ensure that your food
doesn’t go bad before you can use it, try arranging your stocks by the first in, first
out rule. This rule, also known as “FIFO,” means that every time you get new
supplies in, you place the new products behind your existing stock to make sure
that older items are used first.
When employees go to the storeroom/ supply room to pick up ingredients, they will
retrieve the older stock because it is readily accessible. As a result, you can reduce
food waste in your restaurant. This method of organization may be tedious when
you are stocking a new delivery, but it can save you the money and time involved.
Create a standardized labeling system for all of your stock, so store personnel can
find what they are looking for, even if they are in a rush. To avoid confusion, put
all of your labels either above or below each product on the shelves. Not only do
these labels help the staff members to find things, but they also act as reminders
for what your kitchen needs when you are re-ordering supplies.
To make the most of the restaurant storage space, it is best to find shelving made
from durable materials that can stay sanitary in the storeroom. These units get the
food supplies off of the floor, which is a necessity for following health code, and
they also make your ingredients easier to find.
Once you have selected the proper shelving for your storeroom, it is important to
think about how you will position your supplies. Arrange your ingredients by their
use or type to help your employees easily locate them during busy meal services.
Additionally, keep cleaning and sanitizing supplies away from ingredients that they
could contaminate. Also consider putting valuable equipment and ingredients in a
locked cabinet or separate storeroom that is only accessible to certain employees.
Dry food goods, janitorial supplies and spare equipment parts should not be stored
in the same room due to the risk of cross contamination. Instead, you should store
dry goods, non-perishable items and canned goods together in one space,
and spare equipment parts, cleaning equipment and chemicals should be stored
away from any food or food prep items. We’ll expand on how to do so for each
category later on.
Creating a map or organizational chart of your storage spaces will help you and
your employees know where everything should go. When everyone on your staff
knows where each supply’s proper place is to be, there’s less risk of losing that
item, and you’ll have an easier time cataloging what your actual stock is before
ordering more.
Organizing your dry ingredients storage is incredibly simple when you think about it, but
the general points to keep in mind as you organize this space are:
Heavy equipment and food items/bulk food items should be stored on the lowest
shelf. Make sure the lowest shelf is at least six inches from the floor.
Regularly-used items and ingredients should be stored on shelves that are easy
to access. These types of goods are usually stored on the middle shelves.
Extra stock or small, lightweight food service equipment (like pans, mixing bowls,
and containers) can be stored on the upper-most shelves.
And, as mentioned before, make sure that the dry stock storage room is temperature and
moisture-controlled. Your restaurant’s dry storage room should be kept at 50⁰-70⁰ F with
a 60% or lower humidity level, away from a heat source and natural sunlight.
Similar to organizing your dry storage, your supply and janitorial storage space will be laid
out in much the same way. Please note once again that janitorial/cleaning items should
not be stored with any food or food preparation items. You can store parts, equipment
consumables and cleaning products in the same room, but it’s advised that they be stored
on separate shelving units.
Heavier cleaning equipment and items should be kept on the lowest shelf.
Regularly-used items like cleaning supplies, boxed kitchen equipment
consumables (such as fryer filter paper) and commonly needed spare parts (such
as gaskets) should be stored within reach on the middle shelves.
Lightweight and spare supplies can be stored on top. These include items like
boxes of spare napkins or paper towels, toilet paper rolls and empty spray bottles.
Just like your dry storage room, the supply stockroom should also be temperature-
controlled and away from any heat sources.
Once your refrigeration units are completely clean, it’s time to plug them back in and place
food on the shelves. When placing food back in your commercial fridge, make sure that
you're using proper food placement procedures.
Here is how you should stock your fridge:
By placing raw meat and poultry on the lower shelves, you help prevent any juices and
bacteria from dripping down and contaminating the food below it.
There are also some helpful things you can do to organize your refrigerator and freezer
and make it easier to find what you're looking for:
Add labels to any opened products. Adding labels helps you track the freshness
of your food, so you can dispose of it when it expires.
Use color-coded bins. Using colored bins for different products makes them easy
to differentiate, helping your staff find what they're looking for quickly.
Implement the "First In, First Out" method. First In, First Out, also known as
FIFO, is an inventory management method that ensures that you use the freshest
food first and prevents food from staying in your fridge for too long.
High quality food is not cheap. Your storage plan maintains the integrity of
everything you purchase so that it can be used and doesn’t go to waste.
You avoid those dreaded health code violations by following organization
guidelines. Improperly stored food is one reason your restaurant might be fined or
even shut down.
Utilizing your space effectively increases quality of the food.
Organization in your commercial kitchen creates a smooth operation. When your
staff isn’t wasting time looking around for a specific food in an unorganized
refrigerator, they can get back on the line quicker.
Disorganization in your fridge and freezer makes these units work harder, which
means you’ll need to call for repairs more often when your food isn’t cooling
appropriately.
There is less need for cleanup when shelves are organized. Food will have a place
and things won’t be thrown in wherever it fits.
Clean up is easier when shelves are organized.
Ordering and restocking is easier when everything has a place. You can quickly
see items that you need and won’t be looking for more cases in another place.
The following reports must be updated and uploaded daily in the Google Drive:
o For Divergent POS-
Daily Sales Report
Payment Type Report
Delivery Report
Audit Report
o For Neutron POS-
Session Summary
Delivery Report
DSR Detailed
Hardcopy of reports such as invoices and receipts must be submitted every mid-
month and 1st working day of the following month.
All POS reports must be sent via email and must be updated in the Google Drive
every 1st working day of the following month.
Reports must be sorted and submitted in an orderly manner.
Free meal report and Petty Cash Expenses OR/ Voucher shall be separated from
the Daily Sales Report.
All Official Receipts (OR) of void, discounts and non-cash transactions shall be
signed by the Restaurant Manager.