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SUBMITTED BY Steve Waters ON Tue, 02/19/2019 - 14:47
By Steve Waters, CEO Backwoods Brewing Co., Carson, WA USA
For most brewery owners, just operating the day to day aspects of the business absorbs all of your time. When you do get a little extra time to spend on figuring out the best way to keep good records and ensure that you’re not making costly errors, it’s easy to feel like there are so many things you could be doing that you’re not sure where to start.
As with anything in life, sometimes you just have to start with what’s “good enough” and then work toward making it great. Brewery inventory is one of those topics that can seem daunting at first, but when you break it into smaller pieces and attack it with the time that you have, you’ll find that improvements can come quickly. The key is to follow the below steps, work through more of them as you have time, and don’t beat yourself up if it’s not perfect – just make it better every time you work on it.
Step 1 – Start counting!
If you paid for something that gets used up in production and it sticks around for longer than a week, go count it and write down what you find. Have too many items to count all at once? Go count your most expensive stuff (i.e. the highest value hops, some of your specialty malts, and easy to count packaging materials). Still too much? Go count half of it and plan to count the rest in a week (pro tip: large companies do this all the time, they just give it the fancier name Cycle Counting; more on that later). You might feel like you have an idea of how much you have in brewing inventory, but you also probably have your mind on dozens of other aspects of your business on any given day. Taking a count and writing it down is a good first step in getting a baseline of inventory that you hold at any given time.
Step 2 – Commit to a counting schedule
Alright, you’ve done the deed. Maybe you’ve even done it a couple of times and you’re starting to get pretty good about it. Most importantly, you are getting a feel for the level of inventory that you keep, and some of the reasons it might fluctuate up or down depending on your production needs. Now it’s time to commit to a schedule so you don’t lose sight of it, and so you can compare it to sales over the same period (later on – don’t worry about that just yet). Monthly is an easy starting point, and coincides well with monthly financial review. Semi-monthly can be helpful too because it gives you a point midway through the month that you can say “There’s a lot of waste of our base malt compared to sales this month. Are the brewers following the right recipe? Can I adjust and come close to budget before the month is out?” As mentioned above, if there are too many materials to count all at once, consider cycle counting. Count a quarter of all of the materials once a week and by the end of the month you’ll have a fairly recent true count of everything on the floor.
Step 3 – Set up a pricing sheet for all raw materials
Once you know what you have on hand, the next step will be assigning dollar amounts to your inventory. Setting up a bible for what each item costs you is good to do early on. Giving everyone who orders product access to this bible will help ensure that it stays up to date. Making someone responsible for keeping these prices updated will be the real silver bullet to making sure it stays up to date and accurate. A production manager can easily fit this into their day, or even a brewer or cellar worker.
Step 4 – Multiply item costs by the counts of materials
This is the part that starts to add real value, because it’s easier to make decisions when you break it down to dollars and cents. By this step you’re able to calculate a snap shot of your costs in raw materials.
Step 5 – Combine raw materials costs and labor for work in process/finished goods
This step can be tougher because there are a lot of moving parts, so don’t get caught up if your method for counting work in process and finished goods isn’t perfect at first. Combine all of the “ingredients” (this would include packaging materials, though not kegs as they are reusable) into a pile. Now that you have dollar figures for each of your materials, simply multiply the quantity used by the cost per unit to arrive at total cost of each item in the recipe, and add it up. You will also want to add labor associated with production into each item, which often varies each time you produce something new, but an estimate or average will work for now.
Notice that we combine work in process and finished goods for our purposes here. The reason for this is because the distinction between the two can be slight, and it means different things to different people. When is beer finished? After fermentation? Once it is kegged? What if the beer is pushed from a full keg to three pony kegs because there is more need for smaller kegs than larger kegs at the moment? Obviously this distinction can get tricky, and it’s up to you to determine where you draw the line and how useful it is for your business to treat this too granularly.