A product’s par level is the minimum amount of a product you can have on hand—until additional product is delivered—to meet the product’s demand, while also maintaining some cushion (also called safety stock) in the case of unanticipated demand.
Two primary things are considered when calculating par level: frequency of product delivery and inventory usage trends. This is where consistently calculating inventory usage comes in handy, because par level uses the average of your past inventory usage numbers.
Par Level Inventory Formula
Here’s the formula for setting a product’s par level:
Par Level = (Average Inventory Usage + Safety Stock) / Number of Deliveries per Time Period.
To calculate and set the par levels for your bar, follow these steps:
Step 1: Look At Your Historical Usage
To accurately set the par level for an item, start by calculating inventory usage of that item over a certain period. For example, in setting the par level for a certain vodka bottle, look at your bar’s past usage and note that you used 400 vodka bottles over a period of 3 months.
Step 2: Calculate Your Average Usage
By dividing the total number of bottles used in a period of time over the number of months, you'll get the number of bottles that your bar uses per month. In our example, 400 vodka bottles divided by 3 months is 133 bottles per month.
Step 3: Factor in Safety Stock
To account for unexpected spikes in demand, keep a little extra stock as a cushion. Best practice is about 25% of your average inventory usage. In our example, that's another 33 bottles.
Step 4: Consider Delivery Frequency
The idea is that the right par level will keep the product in stock until the next delivery arrives. That's why setting par level depends on how frequently you get deliveries and what your inventory turnover looks like. Let's say we get one deliver per week, so 4 per month.
The Formula in Action
Par Level = (Average Inventory Usage + Safety Stock) / Number of Deliveries per Time Period
Par Level = (133 + 33) / 4
Par Level = 41.5
That means your bar always needs 41.5 bottles of vodka on hand in your inventory to meet demand (and unanticipated spikes of demand) in between the placing and receiving of a new order. That ensures you maintain inventory levels that meet demand but you're not sitting on too much unused product, or sitting inventory AKA dead stock.
The Benefits of Setting Par Levels
How long does liquor last? Pretty darn long, if it's unopened. That means that one benefit of setting par levels is that, for some liquors, you'll discover what bottles you don't need more of. You already have a few safe and sound in the back and you know that'll be enough. If you have the right par levels, you'll be able to stock a bar economically.
And there's a second great benefit of setting par levels and only having the liquor you need. It opens the door either staying the course and leaning into the profitability, or experimenting with seasonal cocktails and other popular cocktails that you don't currently offer. Who knows what'll be a smash hit at your bar. It's worth trying everything you can. If you have the freedom to swing, you'll hit more often.
How to Scale Setting Your Par Inventory
This sounds quick and easy when you only have to do it for one bottle, but what happens when your bar carries more than a thousand different bottles of varying liquor bottle sizes? Not only that, but your bar’s par level inventory actually changes more frequently than you think. For example, during Thanksgiving and Christmas, you might find your bar’s usage of every wine bottle increases significantly, while the canned beer usage decreases by 50%. This means you will need to make a lot of adjustments to your par levels. And doing this inventory tracking manually is extremely time-consuming and is prone to mistakes that might result in either overstocking or under-stocking.
Bar inventory management isn’t easy and your time is precious. This is where BinWise Pro comes in to make your job easier. Our bar inventory software allows you to quickly set and adjust the par level inventory for all your bottles, as well as make recommendations based on historical usage. What’s more, BinWise alerts you when your inventory is falling below the par levels and enables you to place orders directly to your distributors right through the platform.
With BinWise Pro as your technology partner, you can completely say goodbye to paper and pen, manual counting, and mistakes. Book a demo!