One important thing to consider when looking at inventory PAR levels is not just what the price per unit is. An important factor is how long that equipment has been in service. Changes in your manufacturing process are inevitable, and they eventually lead to equipment getting worn out and that equipment being replaced. After reading this article, you will understand why you should not ignore inventory PAR levels.
What does PAR level mean in inventory?
PAR is an acronym for point of acquisition replenishment. The concept was initially introduced in the hospitality industry, but others have adopted it because of its effectiveness.
In the context of inventory, the PAR level is the minimum and maximum amount of items that should be available.
The PAR level is determined by taking the average usage for an object over time and then adding safety stock to that number. For example, if a quantity of 1,000 pieces is sold each week, but you want to make sure you never run out, you should keep your inventory at 1,200 pieces or 20% above the average usage.
When the quantity of an item hits the PAR level, it needs to be reordered. You can set up your inventory system so that a purchase order is automatically created when the PAR level is hit. This will help you avoid being out of stock on items needed for production or sales.
How are PAR levels used in inventory management?
PAR levels are a tool used in inventory management to help a business optimize its operation in the following ways:
- Increase speed
- Decrease waste
- Reduce inventory cost
- Increase profits
- Improve customer service
- Decrease risk
- Eliminate guesswork
- Use staff more efficiently
- Easier for employees to learn
A PAR level system will save you time on the initial setup and implementation, but it will also save you time in your company’s daily operations once implemented. With less time wasted using an archaic method like counting inventory by hand and entering those numbers into a spreadsheet, you’ll have more time to focus on other aspects of the business.
The restaurant industry alone has a 60% food waste problem, with produce being one of the biggest culprits. In addition to lost profits from spoiled food, there are additional costs associated with food waste disposal, such as dumpster rental fees.
Reduced inventory cost
The cost of carrying inventory is another often overlooked expense in a company’s budget. When you have too much stock, you pay extra storage costs (think more enormous warehouses and more employees) and spoilage (think wasted money).
With some help from PAR levels, your restaurant can save money by only ordering what is needed for service.
Improved customer service
If your shelves are empty or there aren’t enough options for customers because you ordered too little or too much of something, this reflects poorly on your business.
Gone are the days of overstocking and overspending on items you don’t need. With a PAR level system in place, you will be able to determine precisely how much you need for each item and order quickly before your stock starts to run out. This means no more wasted money or food!
Are you struggling to forecast sales numbers? With a thorough analysis of your sales data and PAR level system, you can feel confident that every item is being ordered in the right amounts. No more guesswork and no more wasted product!
Use staff more efficiently
Using PAR levels is an inventory method that is easy to train employees on because they can be consistent and easily understood. You don’t want your staff spending time doing inventory when they could be waiting tables. This is a great system to minimize the amount of time spent on merchandise and maximize working time!
Easier for employees to learn
In addition to utilizing your staff more efficiently, the PAR method is easy for them to learn and follow. This means you won’t have any excuses for inaccurate data, and you will be able to rely on your team to report your food inventory levels daily accurately.
What is the difference between a PAR level and a reorder point?
Reorder point inventory is the quantity in stock at which a manager triggers an order to replenish that inventory. For example, if a company has a reorder point of 5 units when the number of units in stock reaches 5 units, the company will place an order for more of that product.
A stock PAR level is a system designed to keep inventory most efficiently. It’s a strategy that ensures that an organization has the right supplies or stock without having too much on hand. Inventory levels are generally determined by the sales or usage history of the product. The reorder point is then set below the product PAR level. The PAR system works best for items with consistent usage patterns and can be adjusted for seasonal peaks in demand.
How do you calculate PAR inventory levels?
To calculate a PAR level, you’ll need to have a couple of pieces of data ready:
- An average price amount for the items being sold. This is the average amount sold per period.
- The number of periods per day.
- The lead time on the item, which is how long it takes the supplier to get the item in once it has been ordered.
Now that you have that data together, you can use it to compute your PAR level using this formula:
(Average meal ticket) x (Meal periods per day) x (Lead time) + Current stock = PAR Level.
A restaurant inventory management system helps you track inventory and calculate your PAR levels. A restaurant PAR level is the ideal amount of stock that you should have on hand at any given time. PAR levels vary from restaurant to restaurant, but most restaurants have a standard PAR level for each item in the refrigerator or pantry. Inventory levels are currently at the minimum allowable level.
The inventory is usually organized by a part number, serial number, lot number, or other unique identifier and can include descriptive information, such as color, size, and type. The inventory PAR levels are the minimum and maximum quantities of each inventory item maintained in storage. The periodic automatic replacement process is used to replenish inventory items where the demand is relatively constant and predictable over time.
Inventory planning is the ongoing process of balancing inventory needs and demands with available resources to ensure a smooth production flow. Inventory management includes planning for the type and amount of inventory to be stocked, monitoring the levels of product on hand, and adjusting these levels as needed to meet customer demand requirements.
An example of calculating PAR levels in inventory
- Calculate the average number of patients per day for the past 2-3 months (or up to a year).
- Multiply this number by the average number of days that an item is used or consumed.
- Add 30% to allow for spikes in customer demand.
How do you use PAR levels when you reorder stock?
You reorder stock using PAR levels right before you start being too low for comfort. But how do you know when a product is low on supply? You must multiply the average unit sales of an item by the lead time of your provider, then add the safety stock to find your reorder point for a particular item.
What’s the best way to manage PAR levels?
PAR levels are super helpful to keep track of your inventory. By determining the lowest amount of a product you can have in stock at any given time and still meet demand, you’ll always know when to restock without accidentally overstocking. The best way to manage PAR levels is by using Rapid Bar!