Inventory management, the backbone of cost control in the hospitality industry, is a process requiring tight controls and a detailed information set. Most operators agree it is a process that demands software. Objectives of an inventory management system for the hospitality industry typically include reducing the amount of inventory retained onhand, controlling shrinkage, accounting for costs and, of course — managing an adequate supply of products. For large clubs and resorts, an inventory management system can help centralize your stock information and help track your retail and food and beverage inventory at the point of sale. Your inventory management preference may be perpetual or physical. Software solutions exist to support either one.

Counting beans: The database

To track quantities on-hand, you need to begin with an inventory database, a key component of any inventory management software solution. Some packages come equipped with a pre-defined database of hundreds — or even thousands — of common items. This can be a definite advantage. Many users find the most cumbersome and resource-intensive aspect of implementing an inventory management system is the time it takes to build a database.

The downside, though, is that no matter how good the database is, you will need to customize it to your operation. Of particular concern are the variations in pack size and issue unit. For example, one vendor's toilet paper rolls may be in packages of 24, whereas another vendor may package them by 30. If you start with a built-in database, the ultimate accuracy of your system depends on how well you adjust figures to your own needs. Some software packages may come with a separate conversion program that allows you to easily convert and equalize vendor packaging units and produce comparison reports.

In your system, you also may need to switch back and forth between vendors and pack specifications. Maybe one week vendor A is out of toilet paper, so you have to buy from Vendor B. Talk with your software supplier to determine how you can switch from one to another without forfeiting accuracy. In some systems, users set up multiple inventory items to represent multiple pack specifications. In others, all inventory is entered by vendor, and purveyor contracts with pricing and packaging information are tracked by the software and accessed to produce purchase orders.

Also consider how easily you can accommodate the actual issue units you use. Bulk items are particularly challenging. To maintain control, you may need to track items such as general-inventory bulk soap down to the unit or restaurant-inventory bulk flour down to the ounce. Portions of units, such as partially used items, also can be tough to track. Some operators withdraw the entire item from inventory, rather than trying to track the remainder.

For robust control, it is often worthwhile to break your operation down into distinct operating units or cost centers. For example, you may want to manage the gift shop and the restaurant as separate cost centers. If you are managing hotel supplies that are not sold to the public, such as cleaner, toilet paper and soaps, through the system, you can list those as a separate cost center as well. And indeed, if you manage multiple locations, you need to track each cost center distinctly — and probably aggregate the data when it comes time to do financial reporting and purchasing.

Updating the count

Two general methods for maintaining a current count include perpetual and physical inventory systems. Perpetual requires less labor. Punching in stock as "received" adds it to the inventory records. Software uses calculations based on forecast and production schedules to develop inventory issue lists. Staff pulls items from storage based on these lists, and product is automatically subtracted from on-hand values. Complications arise when real people do not follow lists accurately, or when inventory has to be replaced and shrinkage occurs due to things such as spilt cleaner, damaged merchandise, dropped food, theft or other accidental loss. Thus, even a perpetual inventory system requires control over access to storage areas, as well as a periodic physical inventory count.

In a physical inventory system, you have to follow a routine of counting what's on-hand and entering it into the system. Most inventory applications allow you to print a list for each storage area — ideally organized by the actual sequence you use to store products. Nevertheless, counting and keying in data is cumbersome and error-prone.

Technologies that can help include bar coding and PDA (Personal Digital Assistant) interfaces. In a bar coding system, you may swipe bar codes on actual products or just generate a one-time bar code for each product you carry, and place that on the shelf in storage. A user swipes the bar code then keys in a quantity. In the newer PDA interfaces, you use a handheld computer such as a Palm Pilot device. You load it with your inventory list by synchronizing it with your PC. Carrying the PDA through the storage areas, you follow a list on the miniature screen, and key in numbers. Afterwards, you hot-synch the PDA again by placing it in a cradle connected to your PC, and transfer the data to your PC-based system. PDAs are inexpensive, but you do need software from your inventory software supplier to connect the two.

What next?

To make all this effort worth-while, you need tools to turn your counts into information. One approach is to establish par levels for each inventory item, have the software compare actual with par and generate an order guide or some other reminder to make a purchase. Par levels also can be adjusted to meet seasonal and date sensitive demands, so when the summer comes and there is a greater demand for sunglasses and salads, operators are automatically reminded to increase their stock. This works particularly well for a system that runs in conjunction with a procurement system. Says Steve King, East Coast regional sales manager for Abacus 21, software provider for clubs, resorts and others in the hospitality industry, "the software suggests that you reorder when (the inventory) gets to a minimum level. It prints out a report that says 'these things are suggested for reorder,' and you can approve or disapprove and produce a purchase order if you want." The purchase order would then run through the procurement software and automatically update the inventory management system.

Mining your data

Optimal mileage from your inventory management system comes from creating and using the right reports. Don't bother to print anything you can't actually use to control costs. Instead, hone in on what you really need to know:

Which products do you use the most — and what quantities do you use per year? (This can help you refine your bid process and better negotiate with suppliers.)

What discrepancies exist between actual use/sales and inventory figures? (This information can help you track shrinkage to the day and location.) How does the inventory usage of each cost center (in dollars) compare with sales ? (This can help you identify shrinkage problems, and/or a need to re-examine your pricing.)

What products did you run out of frequently? (This is critical information with hefty impact on service. It can signal a need to adjust par levels, or pad your forecast.)

In all, an inventory management system still requires basic people-centered controls: Start with exact product specifications, insist on accuracy, conduct thorough and precise check-ins at the receiving dock, rotate inventory and keep price data up-to-date. These practices, combined with today's software tools, can put you in charge of your inventory budget.

HTA
Copyright © 2001 Cynterpubs
ISSN 1520-975X

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