Inventory management within a bar entails overseeing the supply of alcoholic beverages, mixers, garnishes, glassware and other essential provisions. Effective inventory control plays a pivotal role in facilitating seamless operations, curtailing unnecessary losses, managing expenditures and upholding a consistent standard of service for customers. Below are some strategies for managing inventory: 

• Establish Par Levels: Once the portfolio range has been established (Horizontal & Vertical range), the next step would be to document the par levels. The par level sets the maximum and minimum quantities of a production, prompting the staff to re-order at the correct time. Minimum quantities are set based on the re-order lead time, minimum order quantity (MOQ) and whether it’s a perishable product. 
• Accurate Receiving: Ensure staff receive incoming stock accurately by checking quantity and quality (based on product specifications). 
• Storage: Store all products in optimal conditions (e.g., in freezer or chiller) and always observe FIFO (First in, First Out) principles to prevent spoilage and ensure freshness. 
• Portion Control: Implement standard recipes and maintain strict controls over serving size (for food) and pouring (for beverage). The use of scales and measures is crucial to maintain consistent costs and a consistent product that meets customer expectations. 
• Audits & Stock Take: Conduct scheduled and impromptu audits (for sales) and stocktakes (for inventory) to identify potential discrepancies. 

To calculate inventory variance, we will require two pieces of information: One, the Amount of Inventory Sold and two, the Actual Inventory Usage over the same period. 

Inventory Variance = Amount of Inventory Sold - Actual Inventory Usage 

In an ideal world, the difference would be zero. However, in the real world, this is highly unlikely so, the smaller the difference, the better. 

To find out the amount of inventory sold, pull the data from your POS system or sales record. For actual inventory usage, the formula is similar to calculating COGS (Cost of Goods Sold) but in quantity. 

Sales records indicate that 20 bottles of Tanqueray were sold in a month  

To calculate Actual Inventory Usage, use Starting Inventory + Purchases – Ending Inventory = (10 bottles + 24 bottles) – 12 bottles = 22 bottles used 

The Inventory Variance is Amount of Inventory Sold – Actual Inventory Usage = 20 – 22 = -2 bottles 

The Inventory Variance % is calculated by (Variance ÷ Usage) x 100 = (-2 ÷ 22) x 100 = 9%* 

Assuming the cost of a bottle of Tanqueray is $45, the loss per month is ($45 x 2) = $90 

Projected loss for per year = $90 x 12 = $1080 

If total purchases amount to $500,000 per year, then projected loss at 9% variance = $45,000!  

*Variance is always expressed in absolute value which means only positive number.

Knowing that there is a variance (and how high it is) is only the first step.  The next is to figure how, where and why it’s happening and take steps to prevent further losses. Usually, variances are caused by some combination of the following reasons: 

1. Theft  
2. Over pour and/or spillage 
3. Unrecorded breakages, spoilage, wrong orders or free drinks 
4. Error in billing / inaccurate keying of orders 

To arrive at the actual usage inventory of your bar you need to perform a physical stocktake (bar inventory) twice over a set period of time (a month, a week or every day).   

While it’s not the most exciting of tasks, it is mission critical. Any difference between the starting inventory (the first time) and the ending inventory (the second time) is used to draw useful conclusions for the operation of your business.   

A guide to a successful stocktake includes: 

1. Plan: Create a detailed outline of the responsibilities, process and timeline. 
2. Choose the Right Time: It will be difficult to conduct an accurate stocktake while the bar is in operation. Pick a time when the bar is closed or very quiet. In some hotels or large establishments, stocktake may be a big affair with all stocks moved to a centralised location and checked in the presence of auditors. 
3. Be consistent: Use the standard measurements for both counts to avoid unwarranted discrepancies (see below for some options). 
4. Be Thorough: Make sure to check all stock, e.g., in fridges, chillers, and storerooms. Keep all storage areas organised and well-lit. 
5. Frequency: Stocktake should take place at regular intervals (daily, weekly, bi-weekly or monthly). Any further apart that monthly will make it difficult to implement corrective actions, if necessary, or trace accountability. Ad hoc inventory is also advisable. 
6. Involve the Right People: Avoid using the normal bar staff to run the stocktake as it creates a conflict of interest. Use trustworthy, detail-oriented and trained personnel to avoid inaccuracies. Consider using third party auditors. 

Knowing that there is a variance (and how high it is) is only the first step.  The next is to figure how, where and why it’s happening and take steps to prevent further losses. Usually, variances are caused by some combination of the following reasons: 

1. Theft  
2. Over pour and/or spillage 
3. Unrecorded breakages, spoilage, wrong orders or free drinks 
4. Error in billing / inaccurate keying of orders 

To arrive at the actual usage inventory of your bar you need to perform a physical stocktake (bar inventory) twice over a set period of time (a month, a week or every day).   

While it’s not the most exciting of tasks, it is mission critical. Any difference between the starting inventory (the first time) and the ending inventory (the second time) is used to draw useful conclusions for the operation of your business.   

A guide to a successful stocktake includes: 

1. Plan: Create a detailed outline of the responsibilities, process and timeline. 
2. Choose the Right Time: It will be difficult to conduct an accurate stocktake while the bar is in operation. Pick a time when the bar is closed or very quiet. In some hotels or large establishments, stocktake may be a big affair with all stocks moved to a centralised location and checked in the presence of auditors. 
3. Be consistent: Use the standard measurements for both counts to avoid unwarranted discrepancies (see below for some options). 
4. Be Thorough: Make sure to check all stock, e.g., in fridges, chillers, and storerooms. Keep all storage areas organised and well-lit. 
5. Frequency: Stocktake should take place at regular intervals (daily, weekly, bi-weekly or monthly). Any further apart that monthly will make it difficult to implement corrective actions, if necessary, or trace accountability. Ad hoc inventory is also advisable. 
6. Involve the Right People: Avoid using the normal bar staff to run the stocktake as it creates a conflict of interest. Use trustworthy, detail-oriented and trained personnel to avoid inaccuracies. Consider using third party auditors. 

Minimising variance (shrinkage) in a bar's inventory is essential for overall financial health and operational efficiency. Practice these five ways to reduce variance in your bar: 

1. Set a limit to acceptable variance (less than 2% is good) 
2. Conduct frequent inventories 
3. Have a purchasing strategy and streamline your portfolio 
4. Implement standard recipes and standard measures 
5. Coach staff to lower variance (accuracies receiving, reduced overpour, spillages, error in order) 

 

Empower your team to keep up with industry trends, learn from the experts and discover invaluable resources for their bar career by encouraging them to sign up to the Diageo Bar Academy for free.