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Stocks and Flows

Last week, when it was really busy on Martin Luther King day, and we started to run out of certain menu items, I got to thinking about Stocks and Flows. And I don't mean a stock like a chicken stock, har har har. In this case, a stock is a type of number at any given point in time. It's a snapshot. For instance, the total number of bags of coffee in inventory on Thursday. Or there might be three cases of eggs in the walk-in on Friday.

A flow on the other hand, is a number that represents how a number changes for a given period in time. For instance, a restaurant might use 1 four pound bag of coffee per day. Or a restaurant might sell 2.5 bottles of Jack Daniel's per night. A flow is a number that is attached to a time period.

When monitoring a flow, of course the actual size of the flow is important, but what's even more critical is to notice changes in the rate, or in other words, the accelerations and decelerations. In the context of a restaurant inventory, there are two major flows. The rate of consumption of ingredients (cooking and selling the ingredients), and the rate of replenishment of the ingredients (deliveries).

If the goal is never to have any ingredient be zero (86'ed), deliveries must be coming in at at least the same rate at which they are being consumed. For instance, if a restaurant normally uses 1 bag of coffee per day, but then starts using 2 bags of coffee per day, it will run out of coffee about twice as soon as usual. But this is an oversimplification. There are many considerations and complications in this process.

One complication is the delivery time required. Many vendors deliver 6 days per week. So the order on Saturday must be large enough to last through Monday morning. Or a small cheesemaker might only ship on Mondays. Another consideration is the day of the week - most restaurants are busier on Friday, Saturday and Sunday than they are during the week. Is it a holiday weekend? Is it a religious holiday? Another is the prep time for that item. The current stock must last until delivery AND the prep time since even if the potatoes come in at 7am, doesn't necessarily mean they can be ready to serve at 8am.

Another possible gotcha are limitations of storage space. Restaurant refrigerators can either be small rooms (walk-ins) or can be a whole series of smaller ones (reach-ins). While a whole room that's refrigerated might sound large, a busy restaurant can be hamstrung by insufficient walk-in space and/or inefficient use of it. If perishable inventory can't be stored properly, it has to be ordered more often in smaller batches. Or in some cases, it's actually preferable to let something run out rather than have too much of it which goes bad due to spoilage. Waste goes directly to the bottom line, and has a direct impact on profit.

Minimum orders and price breaks are also factors in how much and how often to order. There may be certain advantages to ordering a certain quantity of one item. Either meeting the minimum set by the vendor, or shipping charges, or a higher percentage of discount on an item. Since the profit margins in restaurants are usually quite thin, saving money is always attractive, and has a direct impact on profit.

Another wrinkle may occur when the change in flow is noticed, and the order is placed on time, yet for whatever reason, the vendor can't make the delivery, or can't fulfill the entire order. Depending on how much slack is in the system and how crucial the item is, it might be possible to just cut it close, substitute it with something else, or someone might have to be sent out to get it at a Smart and Final.

One hedge against running out is to set a reserve. Let's say it takes 1 day to get a certain item like espresso beans, and the restaurant uses 2 two-pound bags of espresso a day. As soon as the 2nd to last bag is cut open, it should be ordered. That's probably cutting it too close. Say it's ordered when the 4th to last bag is opened. But being that almost everything at a restaurant is perishable to a degree, the entire staff should always be thinking about using everything on a FIFO basis - First In, First Out. To be rotated properly, when the new coffee is received, the reserve should be used up, new bags put into the reserve.

As much as patterns can be learned and experience accumulated, even when everything is done right, there will always be those times where a table of 10 comes in and all order one kind of steak and the next order isn't coming in for two days. Oh well. Time for plan B - can the delivery be stepped up without a surcharge? Is there another vendor than can deliver tomorrow? He can, but at 5% higher price. Is it worth it? And on and on and on....

Depending on how closely the inflow and outflow is being watched by the management, there may be pressure to keep inventory low. From an accounting standpoint, having smaller inventory is one of the measures of efficiency and makes the numbers more favorable. But what that means is an greater likelyhood of 86'ed items and or replacing ingredients at higher prices when bought locally. Around and around again. There are always tradeoffs!!

While this is not a comprehensive list, these are some of the behind the scenes realities of a restaurant.


I really enjoy your articles and seeing some of the behind the scenes stuff of what goes on in a restaurant Tad.
I linked here from foodie forums.

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