A Man and a Dog: the Future of Inventory Management

Automation is the defining industry trend. Pay is rising, good employees are harder to find. Automation is one way of dealing with these challenges. Equipment will do the work:

"The office of the future will have only two employees, a man and a dog. The man will be there to feed the dog. The dog will be there to keep the man from touching the equipment."* (* by Warren Bennis)

The enabling equipment in today's inventory management (I.M.) is a Point Of Sale System, that "talks" to the inventory package, communicates with accounting. The second defining trend is mobility; right next to simplification: order from a mobile terminal without training necessary and the automated system creates the P.O. It "knows" what needs to be ordered.

In theory there are two ways of inventory management (I.M.): Periodic and perpetual. These can be combined with 3 different cost flow assumptions/methods, so -in theory- there are six different methods (2x3). In reality few independent restaurants operate the integrated Point Of Sale and Accounting programs needed to deplete inventory as items are being sold or otherwise consumed (waste, donations, owner / management consumption etc).

Perpetual I. M. - procured items go to inventory which is then reduced by sales - works best in Fast Food where items are pretty much standardized and data collection systems are able to catch modifications and different prep methods (grilled vs. poached etc.).

Periodic I.M. - is easier to manage as items procured go straight to the cost accounts and inventory is adjusted based on frequent counts. It does not require interfaced POS and accounting. But here is the reality: some restaurants 'fly blind' and never count. Practices ranges from just one annual count while others count twice weekly - experts recommend at least weekly counts, as otherwise inconsistencies are harder to rectify. Regardless which method is being applied: there is no IM without frequent counts. But lets go back to trends:

Without recipes and the data behind recipes its impossible to use an inventory application. Ingredient data is needed. Set up, getting all items in, is hugely time consuming. Also most I.M. systems require the operator to issue purchase orders. That complicates everything, from receiving (against a PO) to ordering with POs. Chef's hate it, they rather call or email the vendor and order by phone. In the back office a "triple match" of P.O., delivery note and invoice is needed. That also slows things down. Exceptions are plentiful - many restaurants run excel sheets and monitor only a small number of items.

ANDADO offers a new way: 100% of procurement is registered from vendor invoices and fed into a data-base. Almost as a by-product of invoice handling and payment procurement becomes totally transparent, even to include stuff like toothpicks, straws etc. No P.O.s needed. Every bit of information is handed to accounting automatically and booked (line item detail) to the right COGS account.

Big trend #3 is use of artificial intelligence. It creates POs automatically by reviewing order history, consumption history, revenue product-mix. Users do not have to select the whole list, but can adjust as they see fit.

So trend #4 is simplification. While payroll is up, good people, qualified and meticulous enough for this type of work are harder to find. In Europe where we have thousands of users of Andado's software, the trend is away from perpetual towards periodic I.M. in combination with frequent counts. Perpetual inventory management easily gets to the point where new offerings are designed to need no training at all.

Restaurants and hotels also practice combinations: high cost items - meat, seafood, liquor, wine etc., portion controllable items such as beef patties, bottled beer, as these can be traced easily - all these are set-up as perpetual inventory items. Items that are being tracked like beginning inventory + purchases - ending inventory = used inventory) are treated as periodic items, where the primary goal is to ensure minimum levels are maintained so the restaurant does not run out of product.

Indeed: how much time should you really spend on finding a 5-pounds-of-sugar-shortage?

In case you are considering which method is right for your operation: the importance of recording invoices on a daily basis as most perpetual inventory management systems cannot handle product "you do not own yet" must be mentioned. This is were ANDADO can help, as we offer to get the bills into an accounting system every day - if necessary. We also reduce human handling of bills to a minimum. Please contact us for more information. 480 282 8482, ask for Bernie.