This post was originally published on Orderly.
If someone came into your restaurant and took cash out of the drawer, would you take action?
Of course. That’s your money!
Well, if you’re still using a spreadsheets instead of inventory management software, you’re actually stealing from yourself.
“What’s the problem with spreadsheets?” you ask.
After all, spreadsheets are the primary way most restaurants run their businesses... from shift scheduling, to reservations, to accounting and everything in between... including inventory.
You grab a paper spreadsheet to take your count. Then you type all that information into a spreadsheet on a computer. You look up prices to enter into that same spreadsheet. And you calculate COGS with a... you guessed it... spreadsheet.
So what's wrong with this picture?
A lot, actually. The ones that are costing you the most are inefficiency and inaccuracy.
One study found that the overall error rate on spreadsheets was an incredible 947%. This means that there were more individual errors than there were actual formulas in the sheet itself.
Errors of this magnitude waste time, and wasted time is wasted money…basically, you might as well have taken some twenties from the cash drawer.
We don’t have a vendetta against spreadsheets.
Spreadsheets can be helpful when used for the right purposes… for things like keeping a list of employee uniform sizes or something similarly unconnected to the financial well-being of your restaurant.
But unless you’re a fan of inefficiency, spreadsheets aren’t a solution for inventory software… and if that stat above isn’t enough, here are five reasons why you really can’t afford to keep using them.
#1 They Have Errors... Which Often Go Unnoticed
Spreadsheets are notoriously error prone.
Anyone who has ever manually entered a formula into a spreadsheet has probably witnessed these errors firsthand. You type the formula in and review your columns, finding that your numbers don’t look quite right.
So you review your formula again and see that you missed a pesky dot or… some annoying though equally important… dash.
And one mistake can cause a ripple effect.
If one of those formulas has an error…or an accidental keystroke introduces an error… you suddenly see errors exploding across the spreadsheet.
Why? Because one cell of the spreadsheet may determine what’s in others.
The interconnection of cells also means that the error you see isn’t necessarily the root cause.
It’s kind of like when you pull one peach from the bottom of a perfect pyramid in the produce department and the rest come tumbling down.
And an inventory system that’s riddled with errors is perhaps even worse than having no system at all.
You’ve got a lot riding on the reliability of your inventory control process, so it’s critical you get it right. One sure-fire way to reduce the overall accuracy of your inventory is to depend on a system that’s entirely manual… like an Excel spreadsheet.
Seeing all those neat rows and columns of numbers may make you feel like you have a firm handle on things… but if that information is wrong—it’s lulling you into a false sense of security.
People can and will fudge numbers.
After all, it’s human nature to makes mistakes. Sometimes these errors happen accidentally due to rushing or inattention.
But at other times… it’s intentional.
In fact, a whopping 75% of all inventory shrinkage is the result of theft.
Two quick backroom clicks on a spreadsheet… and you just donated $50 in steaks that’ll be served up fresh—and free—at the backyard barbecue of that “trusted worker” you put in charge of inventory.
Ultimately, when you consider all of the headaches these errors can cause, it becomes clear pretty quickly that it’s not effective to use spreadsheets as inventory software.
#2 They're a Time Suck
You’ve got time to type in row after row of numbers, right?
Oh, and time to double-check every entry for errors when you’re finished?
Manual maintenance of a spreadsheet will… take… hours. And that’s time you don’t have.
So you’ve decided you’ll just assign someone else to enter the data. Problem solved?
Eh… not so much.
Remember the big-picture goal? It’s to save money (i.e. not steal from yourself) and increase profits.
Even if you’ve designated someone as the “inventory control manager,” paying for another employee’s time to complete the slow, inefficient process of manual spreadsheet entry isn’t in line with that goal.
The key to success is ultimately working smarter—not harder. And that means trading in your manual inventory practices for a painless, systematized and more automated approach.
#3 They Require a Lot of Legwork
There’s no denying that a spreadsheet is a definite step up from those food-spattered paper inventory sheets of the past.
But spreadsheets don’t create themselves.
By default, in fact, a spreadsheet is blank.
Creating an inventory spreadsheet that’s ready to do everything you need it to takes a massive amount of planning, work and complex formula writing.
And the legwork doesn’t end after the initial spreadsheet setup. Each time you add a new product to your regular inventory cycle, you’ll need to add it to your spreadsheet.
Vendor send you a new pricing sheet?
Or perhaps you’ve discontinued a few menu items?
Delete rows 63, 85 and 124; update cells AA4, B9 and U77 of Sheet1 and remember to adjust Sheet3 accordingly… or something like that.
Have you decided after the fact that you’d like to see your inventory by vendor or by menu category? Get ready to adjust a dozen or so existing formulas. And you’d better be a wiz at pivot tables.
Each and every change represents another possibility for introducing error (repeat Problem #1 above). And now, you’ve got to find time to make those changes and troubleshoot those errors (repeat Problem #2 above).
Wouldn’t it be great if you had an inventory management solution that auto calculated and updated in seconds, without all the hassle?
Stay tuned… there is.
#4 They Aren't Easy to Share
“Come on team, gather round. Let’s gaze in delight at this spreadsheet.”
Yeah… probably not gonna happen.
It’s hard to derive much meaning from an endless grid of figures. So where spreadsheets are involved, it’s safe to say that employees will disengage from the conversation pretty quickly.
You need your employees to be knowledgeable about and committed to inventory. If they aren’t, they won’t do their part in working to reduce food waste and prevent theft.
They need to understand that restaurant inventory data matters to them, not just to you… otherwise they’ll never snuggle up to a screenful of seemingly meaningless figures.
What if you have employees at more than one location and you want to discuss a spreadsheet or two from your workbook?
It’s difficult to make this kind of sharing happen in real time.
And that inability to collaborate or share is yet another roadblock to getting the full buy-in you need to make your inventory review efforts a success.
#5 They Don't Show You COGS
If you want to drive your restaurant to success, you need to keep up-to-date on your Costs of Goods Sold (COGS).
Just in case you’ve forgotten, that’s the figure that tells you the value (for restaurants, that’s usually your purchase price) of merchandise and materials used to generate sales over a period of time. By comparing your COGS to your revenue during that time, you can accurately determine your profit margin on sales.
Well, if you’ve ever used a spreadsheet for inventory management, you’ve probably noticed something: COGS is rarely reported.
And COGS is just one of the critical figures spreadsheets typically don’t give you.
What about your usage report?
Or your days on hand?
Nope? Looks like we’re 0-for-3 so far.
Sure, you could program some more formulas into your spreadsheet to give you these important figures (or maybe ask Google for an “inventory management spreadsheet template”…although even the best of these still don’t give you COGS).
But given the complexity of that calculation for COGS alone… not to mention the others… doing so would be difficult at best for anyone who doesn’t dream in numbers.
The formula chain to figure COGS is a bit complex:
Beginning Inventory + Purchases = Total Available
Total Available – Ending Inventory = Product Used
Product Used / Sales = Cost of Goods Sold (COGS) %
So yeah… ready to write those formulas into your spreadsheet? And remember: One error in any step means the figure you get is wrong.
What’s more, you don’t just need these figures monthly or even biweekly. You need them in real time.
Think your customers are willing to wait a week or more on their favorite dishes because no one realized you’d reached re-order point (ROP) with a key ingredient… and now you’re completely out?
Without real-time numbers like these, it’s bound to happen.
You make important decisions about your restaurant’s future every day—and those decisions should be based on data.
Not only does that data need to be accurate and current, it needs to be readily accessible if you’re going to monitor trends. (And your accountant will thank you.)
In all points, if you’re still using spreadsheets, you’re flat out of luck.