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Par Level Inventory: Par Definition & Formula to Set Par

October 14, 2019
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Scott
Table of Contents
par level analysis from binwise

Uncertainty hangs over every sales and demand forecast.

There’s seasonality to consider. There’s time of day, day of the week, trends, weather, holidays.

Here's what we all want to know:

How many people are coming and what do they want?

Sadly, it’s impossible to say.

Great software and smart accountants get you close. But life is unpredictable. No one can truly wrestle randomness into submission.

Happily, there are par levels. Par levels are a best practice in retail and hospitality. They deeply mitigate the risk of running out of stock. Or of having too much stock, it going bad, and you being out the money.

They’re the best answer we have to the erratic (but lovely) universe.

Par Level Definition: What Are Par Levels?

A product’s par level is the minimum amount of a product you should have on-hand until additional inventory is delivered to meet that product’s demand. While also maintaining safety stock in the case of unanticipated demand.

The right par level amount ensures you don’t run out of the product. And you don’t have too much cash tied up in unused sitting inventory. It’s the sweet spot of owned inventory.

How to Determine Par Levels

Two primary things are considered when calculating par level. Frequency of product delivery and inventory usage trends.

This is where having a bar pos system in place and 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 par value formula:

Par Level = (Average Inventory Usage + Safety Stock) / Number of Deliveries per Time Period.

How to Set Par Levels

To calculate and set the par levels for your bar, follow these five steps:

Step 1: Look At Historical Usage

Start by calculating inventory usage of that item over a certain period.

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 Average Usage

Divide 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.

Use the Par Level Formula

Here's the par value 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 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 (AKA sitting inventory or dead stock).

Bar inventory management ebook

How to Use Par Levels to Order Strategically

Par levels help businesses order the most cost-effective amount of inventory from your suppliers.

Here's how:

You should not order your par level. You should order enough to restock up to your par level. Par level is not order size. The order size should replenish the inventory back up to par level.

Order size = Par Level - Current Inventory

Let’s pick up where we left off. Your example bar’s par level inventory for vodka is 41.5 bottles. Your order size should bring your total bottles of vodka back up to par level. If you’re placing an order for vodka and your current inventory is at 30 bottles, you should order 12 bottles. That’ll bring you back up to par.

Par Level Inventory Sheet Template

Your best bet is managing inventory through par level worksheets. Unless you've got an automated solution, of course.

Here's why:

Sales patterns change frequently—think of seasonality, holidays, etc.—par levels change frequently. Setting par inventory levels monthly is ideal, then. But you can get away with quarterly.

And the easiest way to set par levels is using a par level inventory sheet template. Also called a par level worksheet template.

Below you’ll find two versions of par level inventory sheet template.

One is a downloadable PDF that can be printed out. You’ll find an inventory sheet template example right below it to illustrate how it’s used.

The other is a par level worksheet calculator that will make the calculations for you. It’s a spreadsheet file that can be opened in Google Sheets or Microsoft Excel.

How to Use the Par Level Worksheet Template

Here’s a breakdown of what each column means:

  • Supplier: the vendor you’re purchasing the inventory from
  • Item: What the inventory is
  • Par level: The par level you set using the process outlined above
  • Current inventory: The amount of that item you presently have in stock
  • Extra par: Any known events, private parties, or circumstances which necessitate extra inventory. Inputting “1” in this column means you know you’ll need at least 1 more quantity of the item.y
  • Order amount: The amount you need to order to maintain par level inventory. It’s the par level minus current inventory plus extra par.

Blank Par Level Worksheet Template

Click the below preview to download our printable, blank par level worksheet template.

blank par level worksheet template

Par Sheet Template Example

This is what a filled-out version of the above par level worksheet template looks like:

par level worksheet example

Par Level Worksheet Template Calculator

You can also download our par level worksheet calculator. It calculates the order amount for you (rounded up to the nearest whole number). Just import the .xlsx file into Google Sheets or Microsoft Excel and input par level, current inventory, and extra par.

Conveniently, the par level worksheet calculator can be sorted by column.

That means you can quickly see all the items you need to order from a specific supplier. Just filter and sort by the supplier column.

We’ve also got a wonderful (and free) bar inventory spreadsheet to help with taking inventory in the first place. And pour cost and beer keg tracking resources to take it a step further.

The Benefits of Setting Par Levels

The right par levels empower you to stock a bar economically. And avoid wrapping up buying power in sitting inventory.

How long does liquor last? Pretty darn long, if it's unopened.

That means that one benefit of setting par levels is that you'll discover what bottles you don't need more of. If you already have a few safe and sound in the back, you know that'll be enough.

Par level inventory also helps you avoid 86’ing items. If you’re setting and maintaining par levels, you’ll always have enough on hand for historic demand. Plus some for unseen spikes.

Whether an 86’d item means you reprint menus (which isn’t a problem if you’re using a QR code menu) or disappoint customers.

It’s a hassle all the same.

So how do you know if your par levels are working as intended? You can measure the effectiveness with some useful metrics.

Other Useful Metrics Related to Par Level Inventory

If you’re serious about sharpening up inventory replenishment and turnover, there are a few other helpful metrics to be aware of.

  • Days on hand is how many days worth of inventory a business has at any given moment.
  • Inventory shrinkage. Also called variance. The amount of inventory that slips through the cracks and isn't sold.
Bar inventory software

How to Scale Determining Par Level Inventory

This may sound quick and easy when you only have to do it for one bottle. But what about doing it for thousands of bottles, brands of varying liquor bottle sizes?

Couple that with how frequently traffic and demand change, and manually calculating par level inventory approach full-time-job status. Not to mention it’s error-prone. Because you’re human.

Here's what bar inventory management isn't:

Easy.

That’s where BinWise Pro comes in. Our bar inventory software allows you to quickly set and adjust the par level inventory based on historical data. 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.

It should also be said that this all applies to any product, not just liquor. Food, dry goods, cleaning materials, anything.

So whether it's wine inventory or restocking a kitchen, BinWise Pro will do it for you.