The Food and Beverage Industry depends on good stock management more than almost any other – with issues around shelf-life, seasonality, and traceability all making Inventory Control a challenge. In this guide to Inventory Control in the Food and Beverage Industry we cover:
- Key benefits of Cloud Inventory Control Software for Food and Beverage
- How to Manage a Beverage Inventory
- Inventory Control Challenges in the Food and Beverage Industry
- Seasonal Inventory Control in the Food and Beverage Industry
- Lean Inventory Management for Food Manufacturers
The food industry is one of the most challenging for manufacturers when it comes to optimising their inventory control. The sheer complexity of having to manage such a variety of perishable components and ensure that customer service targets are consistently met means that powerful food inventory software is essential. Many large food and beverage organizations rely on incredibly sophisticated, resource sapping and expensive ERP (Enterprise Resource Planning) systems to meet their requirements. However, small to mid-sized food manufacturers are under no obligation to make the same sizeable investment of working capital and resources in setting up an integrated inventory control software solution for their business.
The benefits of food inventory software
The right inventory management system is key to fostering greater efficiency, productivity and profitability for businesses. Food manufacturers, in particular, can limit or eradicate unnecessary losses as a result of inventory mismanagement. It can also promote faster, more efficient growth that is geared toward helping the business scale.
1. It’s highly customisable
One of the most significant advantages of implementing a cloud based SaaS (Software as a Service) inventory management solution is the highly customisable nature of the software. The ability to refine and modify critical components of an inventory management system to better integrate and align with the business’s unique supply chain is advantageous in many ways.
With the right inventory management software at their disposal, procurement managers are better able to integrate their data with their suppliers. This ensures that lead times are kept to a minimum and the lines of communication are open, clear and free of misinterpretation. This leads to a marked decrease in under or over supply of inventory and when dealing with perishables can lead to significant savings as a result of less wastage or delays in production due to inventory being out of stock.
2. Traceability – The importance of visibility of the supply chain
When dealing with short shelf-life produce, it is vital that inventory managers have the ability to track, trace and account for each item of inventory at any time. Visibility into the supply chain is exactly what an effective inventory management software solution is tasked to achieve.
Total visibility into the movement of each item of inventory through the supply chain creates a ripple effect which generates greater efficiency and efficacy along every node – from demand forecasting, through purchasing, manufacturing, distribution and sales.
Being able to locate each item of inventory in real-time leads to a significant reduction in loss as a result of mismanaged, misplaced and mishandled inventory.
Inventory can be kept at optimal levels thereby insulating the business against the risk of overstock and under stock issues. These issues include: obsolescence, tied-up cash flow, missed sales due to stock-outs and off-target forecasting and purchasing.
3. Automation = efficiency = boosted profitability
A smart inventory management solution is able to leverage the power of automation to further enhance the efficiency of procurement, production, distribution and sales. Without the capability to track, trace and account for inventory from source to sale, process managers have no dependable and accurate way to enforce FIFO (First In First Out) inventory protocol.
Food manufacturers, in particular, need to ensure that loss as a result of wastage is either eliminated altogether or kept within the lowest manageable margin. The way to do this is to set up the flow of inventory from purchasing, storage, production and distribution in such a way that goods most susceptible to wastage are used up first.
This is where the customizable nature of inventory software becomes a major plus to the business. The task of automating which items are used up first is easily achieved, as is the ability to set up automated re-order points that alert purchasing managers when inventory is approaching above or below optimal levels.
A final advantage for food manufacturers is being able to mitigate against the likelihood of a product recall, and in the event that a recall does become necessary, the ability to execute the recall as effectively and efficiently as possible.
Total visibility into the supply chain means that the team tasked with carrying out the product recall can quickly and easily identify which product is in need of recall, where it is in the supply chain, and to whom the products have been sold to.
The ramifications of a poorly managed product recall can be devastating to a food manufacturer. The ability to track, trace and account for inventory in real-time affords businesses the advantage of containing the threat quickly and planning and acting strategically.
4. Scale and evolve for growth
Greater operational efficiency and productivity inevitably leads to business growth and success. It seems almost counter-intuitive, but success can cripple a business that is unprepared.
One of the greatest challenges new and emerging successful businesses face is the ability to scale effectively. Fixed or static inventory management systems can dramatically impede a business’ ability to transition to the next level of profitably.
Forward-thinking businesses understand this and know that one of the most vital components of their inventory management software must be the ability to adapt and evolve ahead of the needs and requirements of the business as it scales.
How to Manage A Beverage Inventory
Every warehouse is different and every company’s inventory is unique. Some inventory is perishable and other inventory has an indefinite shelf life. If you are in the beverage industry, there are a variety of ways to manage your inventory effectively.
Benefitting from a great inventory management system
Keeping tabs on your stock is an important part of running an efficient beverage warehouse. The beverage industry can be a constantly changing market. If you run a pub, there may be different types of seasonal beers coming through your shelves regularly. With high stock turnover rates and changing products, it is imperative to properly manage your inventory.
The benefits of effectively managing your beverage inventory are endless. Accurate tracking can help you plan re-ordering and recognise when stocks are low. Tracking is not only good for knowing tangible stock levels, but for financial purposes as well. With good inventory management you can identify where and how your inventory dollars are being utilised. In addition, you can analyse the cash value of stock, which is helpful for accounting and budgeting purposes. Tracking can also provide information on customer trends and help you with forecasting and future buying.
What’s the best for your business?
So what type of inventory management system is best for the beverage industry? Smaller facilities like bars and restaurants will want different systems than big beverage establishments.
Online inventory management software can facilitate keeping track of beverage stock. Like any system, it comes with pros and cons. Online inventory management provides a wide scope of tools to automate the stock taking process. For example, with barcodes and barcode scanners, beverages can be traced from the minute they enter the warehouse to the time they make it into the hands of the customer.
The online inventory management system keeps an electronic record of everything that is happening with the beverages. It can identify if stock is missing and provides real-time, up-to-date information of inventory levels. Online inventory management systems work well when you have stable menus and you are consistently ordering similar beverages. There is initial start-up time required as information needs to be entered into the system for each product, so if your products change constantly, it will take more time to enter information about each product. For bigger establishments, automated systems are more favourable as a result. In smaller and boutique outlets, that have a constant change in drink varieties, other options may make more sense.
If a completely automated system is not preferred, stock taking can be done by hand and should be done regularly throughout the year. However, some processes need to remain streamlined. Inventory worksheets should have consistent measurements and staff need to be trained. Try to do the stock take out of peak operating hours. Stock moves frequently during busy working hours and you don’t want to count items twice.
Honesty is a big topic when it comes to inventory. There is always human error that comes with a stock take, but there is also human dishonesty. Unfortunately, some employees might try to take advantage of this by under-reporting and removing product for their own benefit. They can fudge the numbers and it can end up costing the business a significant amount of money. Using staff to count inventory in departments they are not normally in charge of is one way to mitigate this problem. Supervision and security cameras are other options if you feel it is necessary.
Beverage inventory should be accounted for on a regular basis and conducted in a manner that suits your business best.
Inventory Control Challenges in the Food and Beverage Industry
Effective inventory control is difficult in any enterprise, but especially so for the food and beverage (F&B) industry due to factors such as the limited shelf life of products, food safety compliance requirements and managing the complexities of recipe control.
The ability to determine and manage expiry dates is indispensable because of the limited shelf life F&B products have. It is essential that staff know when a product or the ingredients in that product need to be consumed by.
In addition to the obvious challenges of overstocking, spoilage and waste, F&B inventory is also predisposed to cross-contamination. In recent years with more consumers reporting allergies to certain food ingredients, cross-contamination gained significant attention and foods being handled, packed and stored in proximity to allergens is a frequent cause of product recall.
More importantly, F&B inventory is susceptible to the dangers of foodborne pathogens when not handled and stored hygienically or correctly. Foodborne bacteria and viruses can have drastic consequences for consumers and cause major damage to a company and its reputation.
How can inventory management software alleviate these problems?
Track and trace throughout the supply chain
The track and trace functionality of these systems allows food manufacturers and restaurant managers to track all ingredients back through the supply chain. This is especially useful in the event of a product recall, batch and serial number tracking make it easier for businesses to locate the stock in question.
A single source of truth
Recipe inventory control, ingredient quantity and costing comes in different formats and units of measure in F&B operations. An inventory management software can be the single point of truth for business operations. It can ensure that as an item in your business is sold, your stock levels reduce accordingly, and as stock is purchased your stock levels increase.
Determine true costs
Few tasks are more important in a restaurant business than performing physical inventory counts. By knowing the exact quantity and value of on-hand stock and the real usage of each stock item, managers can more accurately determine their restaurant’s food cost.
Managing food and beverage inventory can be complex, but they are controllable with the right business management solutions.
Seasonal Inventory Control in the Food and Beverage Industry
Inventory control can be difficult at any time. It becomes even more challenging when you’re a food manufacturer preparing for busy holiday seasons. Especially when not all seasons are equal, the length of which can vary from a weekend to weeks-long summer breaks. Show-days, festivals and even a grand final weekend can influence spikes in consumer demand of certain goods.
Processed food industries also face growing competition from international imports and a need to constantly innovate to remain competitive. Food manufacturers are progressively adopting new product development strategies to target specific holidays.
For this strategy to be successful however, food production processes need to easily adapt to each new product and be capable of seamlessly transitioning from one seasonal item to another.
Food trends and fads can be fickle and short-lived, the flavour in favour now, can be different to last month and different again the following month. We all know limited time offers are a successful tactic to drive consumer demand, therefore it’s reasonable to expect this tactic can be equally beneficial to holiday periods.
Limited time offers can effectively reduce the risk of food manufacturers overproducing perishable goods which can prove costly to a company’s overall profitability.
New product development should always be consistent with customer feedback and market research for it to achieve a holiday win. Food manufacturers can choose to invest in R&D to develop innovative new tastes and flavours or identify existing products they can easily adapt and transform into a lucrative new product offering.
There are many variables that motivate consumer purchasing behaviour and even the weather can play a part in influencing the types of food consumers will demand. Switching is a routine consequence of changes to normal temperatures. Depending on your product range it may be pertinent to consider historical weather records as part of your data analysis, before producing inventory stock for holiday weekends.
Adjusting inventory control to change
The challenges of producing sufficient inventory stock to meet demand on seasonal products is an issue that impacts manufacturers but also suppliers and distributors. Therefore, good supplier relationships and a flexible supply chain are crucial during peak holiday demand.
Adjustments to manufacturing inventory can also be unrealistic on a large sale and may increase pressure on the supply chain. They are better situated to an effectively integrated supply chain with a coordinated approach that standardises how seasonal products are identified.
Digital resources like food manufacturing software can help the industry effectively manage the seasonality challenges of inventory control. Critical success factors for optimising supply chain efficiencies include the ability to deal with surges in demand, expedite the re-order process, handle high volumes and ensure timely deliveries that benefit the entire supply chain.
Food manufacturers can be better equipped to survive the effects of holiday seasons by harnessing food manufacturing software systems, manufacturers can improve inventory control processes, from ordering inventory stock through to production and distribution.
Predicting which food trend will become the most popular in any given holiday season is not an exact science. However, the better the understanding a company has of demand planning and forecasting, the more profitable the business will be during peak seasons.
The right food manufacturing software can assist demand planning by providing sales information and historical data that improves forecast accuracy for both existing and new product offerings. Food manufacturing software can also be integrated with purchase order management systems to deliver a rapid re-order process.
Manufacturers who develop long-term strategies, improved data-gathering processes and technological proficiency will adapt more successfully to holiday season variances.
No margin for error using inventory control software
SaaS inventory control software solutions are tailored to ensure that updates and improved functionality for the individual requirements of their customers are carried out without disruption to the manufacturer. In an industry where every second counts and every item of inventory has a use by and sell by date, the margin for error when implementing a powerful inventory control software solution is simply non-existent.
Lean Inventory Management for Food Manufacturers
Lean inventory management has taken off in the last five years, shifting from a widely recognised approach in the industrial goods sector to a staple of inventory management practitioners in almost every industry. Food manufacturers have initially shown relatively little interest in slimming down their inventory. Despite some initial reluctance, many food manufacturers are increasingly questioning the reason for holding inventory in large quantities, and realising that a lean approach enables them to do more with less.
What is lean inventory management?
At a high level, lean approaches are generally about increasing customer value while eliminating or reducing waste. A very lean organisation would deliver very high customer value with near minimal waste. That said, lean inventory is a relative concept, so a business that is focussed on doing more with less is likely to be a lean business.
Although lean manufacturing is primarily understood to mean holding very limited inventory, truly implementing a lean philosophy is wider than simply reducing your business’ margins of safety stock. Lean manufacturing is typically described in terms of four key principles: pull, one piece flow, pulse and zero defects.
Pull: No Reason for Holding Inventory
Pull implies that, in the ideal lean business, customer demand should pull products through the production process. Ordering or manufacturing inventory should only be in response to actual, realised customer demand. This approach implies that maintaining a margin of safety stocks is not a good reason for holding inventory. This is particularly relevant in the food and beverage sector, particularly where inventory often has a relatively short shelf life.
For example, a speciality yoghurt producer might use milk and milk fats in the production process. As fresh primary products, these materials have a very short shelf life and cannot be stored in inventory for extended periods of time. Traditionally, these businesses would have estimated demand ahead of time and ordered milk products to arrive within a certain window of production. Under this approach, very accurate forecasting is needed to avoid stockouts and waste and, in reality, some level of waste is inevitable.
By ‘pulling’ yoghurt through the production process, a lean producer will need to order inventory just in time to arrive for each step of the production process (possibly with a small safety margin). This reduces the volume of milk products that might be left unused if customer orders slow down temporarily or, for example, if a mechanical issue or power outage shuts down production for a day.
One Piece Flow
One piece flow implies that a business continually operates each production process, moving each product through the production process in one smooth movement. In contrast, a business that is not lean may carry out a production stage for an entire batch of products before moving on to the next stage.
Whether one piece flow is a realistic goal in your business will depend on the type of product you manufacture. One piece flow aligns naturally with a typical food manufacturing process as ingredients move through stages of the production process relatively rapidly, and the total time from raw materials to finished product can be just minutes or hours long. For example, there is no sensible reason for holding inventory from each stage of the production process in bulk. For food safety reasons, milk must be quickly pasteurised and then moved to the next stage of production.
Pulse is commonly known by the German word takt, a reference to the baton that an orchestra conductor uses to set the tempo of live performance. Pulse can also be thought of as the speed or ‘heartbeat’ of the business. Takt time is a valuable metric in assessing how efficiently your business is operating; if customers are currently ordering 720 cartons of berry gelato per day and your workers are working an eight hour day, your business should aim for a takt time of approximately 1.5 cartons per minute in order to complete 720 cartons per day. Lean inventory requires a business to be able to scale takt to meet customer demand. When demand is low, takt can be low, however, as demand picks up, a lean business should be capable of operating efficiently and increasing production speed.
As lean inventory is all about reducing waste and maximising customer value, lean businesses typically invest in reducing the occurrence of defects (the cost of which must be passed on to consumers). This is particularly important in the context of food products; for customers to be confident that your product is a healthy snack, they must be confident that it meets food safety standards. As in any business, mistakes happen – the key to operating a lean business is to prevent any defective products making it to the customer, and to invest in preventing those mistakes from being repeated.
Can food manufacturers adopt lean practices?
Food manufacturers are ultimately quite similar to industrial manufacturers; they pull raw materials through multiple stages of production to produce a value-added product. In this process there is potential for waste. Lean businesses can take advantage of this by doing more with less, thereby setting their product apart from the competition.
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.