Inventory-turnover analysis can tell you whether food is being used at an appropriate rate and, just as important, whether some of it may be "walking" out the door.

Even before the now-popular inventory-management practices such as "zero inventory" and "just in time" became the standard in most manufacturing settings, some food-service managers were relying on inventory-turnover analysis as a valuable asset-management tool. The cyclical menus and the large number of food offerings of on-site food-service operations (e.g., business and industry, health care, and education

settings) make inventory-turnover analysis particularly valuable to on-site managers.(1) This is especially true now, given many on-site operations' relatively complex menu cycles as compared to those used not too many years ago.

In simple terms, inventory turnover is the cycle of using and replacing goods. Quantitatively, inventory turnover can be measured by dividing the dollar cost of food used during a period by the dollar value of the average inventory on hand during the same period. Inventory turnover provides a measure of how long food remains in inventory. Inventory-turnover analysis is a measure of kitchen efficiency and, perhaps of greatest importance, is a tool that can help an operation to optimize its product-handling efforts. This is not to say that there is an ideal minimum or maximum ratio. Rather, proper analysis and the resulting operational changes should allow managers to maintain an optimum cycle of inventory turnover for their specific operations.

Inventory-turnover analysis is important because the manner in which inventory is managed translates directly into an operation's profitability. Inventory is a current asset that provides no return on investment until it is prepared and sold. Excess inventory, then, is a non-performing asset. To underscore this, one estimate suggested that every dollar of inventory represents at least 25 cents per year in terms of expenses related to financing, handling, storage, and insurance.(2)

Excess inventory can negatively affect profits in other ways. As every food-service manager knows, one of the difficulties in dealing with food is its highly portable feature. In other words, too much inventory provides opportunities for theft. Furthermore, unnecessarily large inventories result in inordinate waste and increased labor costs owing to the need to rotate and handle the food. Inflated soft costs such as utility expenses associated with refrigerators and freezers can also result from overstocked inventories.

Too little inventory, on the other hand, results in menu items that can not be offered - what those in the manufacturing sector call "stock-outs." In turn, customer expectations are not met and the entire service experience is diminished. Or worse, inappropriate recipe substitutions are made that can result in low-quality products, thereby diminishing customers' confidence in product consistency.