The Optimal Amoun

OPTIMAL INVENTORY LEVEL

Years ago, few hospitality operators concerned themselves with inventory concepts. When the industry was smaller, less complex and competitive, and inventory costs were minor, the occasional overbuy or stockout was a forgivable offense. Today, such a casual attitude is rare. Ordering is no longer haphazard. The emphasis now is on holding the optimal inventory; that is, management seeks to determine the amount of inventory that will adequately serve the operation without having to suffer the costs of
excess inventory. A principal objective of inventory management is to maintain only the necessary amount of food, beverages, and nonfood supplies to serve guests without running out of anything, but not to have so much inventory that occasional spoilage and other storage costs result.1 We also need to develop a cost-effective ordering procedure; for example, a
buyer does not want to spend an excessive amount of time, money, and effort to order merchandise because this will increase the hospitality operation’s cost of doing business.

These objectives are more easily recited than achieved. Quite commonly, an individual manager may not know the exact value of inventory that should be on hand. Over the years, hospitality operators have tried to devise ways of computing as accurately as possible the ideal amount of inventory that should be maintained to conduct business effectively and efficiently. Nonetheless, a major portion of the inventory management
efforts that are carried out in our industry still rely heavily on rules of thumb. For instance, as mentioned in Chapter 7, many practitioners rely on a percentage of sales to guide their inventory management decisions. Recall that this percentage-of-sales concept suggests, for instance, that a full-service restaurant operation requires an inventory of food, beverage, and nonfood supplies to be equal to about 1 percent of annual sales volume...