There is, in retail and hospitality, an enduring uncertainty that hangs over every sales and demand forecast. There’s seasonality to consider. There’s time of day, day of the week, trends, weather, holidays.
The fundamental thing we’re all trying to figure out is this: How many people are coming and what do they want?
Sadly, it’s impossible to say. Great software and smart accountants can get you close. But life is often erratic, and no one can wrestle true randomness into submission.
Happily, there are par levels. Par levels are a best practice in retail and hospitality that 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.
Keep it coming, cosmos, we’ve got par level power.
What is Par Level Inventory: Par Level Definition
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.
Safety Stock Definition
Safety stock refers to the additional inventory kept on-hand to avoid running out of stock. Any time there is any level of uncertainty, safety stock is required. And in the food and beverage industry, there is always some level of traffic and sales uncertainty. By building safety stock into par level calculations, the risk of 86ing items is mitigated.
Managing Inventory Through Par Level Worksheets
Because sales patterns change frequently—think of seasonality, holidays, etc.—par levels change frequently. Setting par inventory levels monthly is ideal, then. Though you can get away with quarterly. In this post we not only explain what par is and how to find it, but we give you the tools to do it. We’ve got a printable PDF par level inventory spreadsheet template and a downloadable par level worksheet calculator.
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.
So let’s figure out how to determine par levels. First we’ll run through the par level inventory formula, then we’ll look at the formula in action.
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.
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
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 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.
Use the Par Level Formula to Determine Par Level
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 (AKA sitting inventory or dead stock).
How to Use Par Levels to Order Strategically
The whole point of setting par levels is to order the most cost-effective amount of inventory from your suppliers. So here’s how to use your par level inventory to order the right amount of stuff.
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
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.
- 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.
Inventory Sheet Template Example
This is what a filled-out version of the above par level worksheet template looks like:
Par Level Worksheet Template Calculator
You can also download our par level worksheet calculator that 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 by filtering and sorting by the supplier column.
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, for some liquors, 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.
Inventory Turnover Rate Formula
A business’s inventory turnover rate is a ratio that shows the number of times inventory is sold during a given time period. The higher the inventory turnover rate, the better. Because that means a demand exists for that business’s product and they’re selling that product quickly.
A healthy inventory turnover rate and optimal par levels go hand-in-hand. With the right par levels, your turnover rate is higher because you don’t have a bunch of dead stock sitting around. You’re turning over more existing inventory because you determined par levels and optimized the amount of inventory you’re holding onto.
The inventory turnover formula is:
Inventory Turnover Rate = COGS ($) / (Starting Inventory ($) + Ending Inventory ($) / 2)
For any given time period, you take the total cost of goods sold (COGS) and divide it by that time period’s average inventory, which is the starting inventory plus the ending inventory divided by two.
Back to the vodka example. You sold 400 bottles over three months. At the beginning of those three months you had 50 bottles in stock. And at the end of those three months you had 45 bottles in stock. Each bottle costs $15 from the supplier.
Inventory Turnover Rate = $6,000 / ($750 + $675 / 2)
Inventory Turnover Rate = $6,000 / $712.50
Inventory Turnover Rate = 8.4
That means the inventory was turned over 8.4 times over the time period. That’s good. A good inventory turnover rate is between 5 and 10. Lower than 5 isn’t ideal. If you’ve set par levels but still have a low inventory turnover rate, you’re likely factoring in too much safety stock or extra par.
Days On Hand Calculation
Days on hand (DOH) provides another look into how effectively a business is using (or holding onto) its inventory. Days on Hand allows us to look at that same three-month period and calculate how many days of inventory were on hand at any given moment.
To calculate Days on hand, divide the amount of days in the period being reviewed by the inventory turnover rate. The average month has 30.4 days in it, so we’ll use 30 days per month.
Days on Hand = Days / Inventory Turnover Rate
Days on Hand = 90 days / 8.4
Days on Hand = 10.7
On any given day over that three-month period, your bar had just under 11 days worth of vodka on hand. This obviously has implications for ordering frequency. If you can visualize your inventory in terms of days on hand, you’ll have a better understanding of how frequently you need to place orders.
How to Calculate Weeks of Supply
Weeks of supply is another metric that helps visualize inventory in terms of time. Weeks of supply calculates how many weeks your current inventory will last based on projected weekly sales.
Let’s say you have 41.5 bottles of vodka. Your par level. Now let’s say you project selling 12 bottles of vodka per week.
Weeks of Supply = Total Inventory / Weekly Units Sold
Weeks of Supply = 41.5 / 12
Weeks of Supply = 3.5
If you’re selling 12 bottles per week and you have a par level inventory of 41.5, you’ll have 3.5 weeks of vodka on hand at any given moment. If you have accurate sales projections, calculating weeks of supply can come in enormously useful when evaluating your par level inventory and liquor inventory control.
When you calculate inventory variance, you’ll get an idea of how much inventory shrinkage your business has. This is important because you’ll have to either factor it in when making your par level calculations, or you’ll have to eradicate it. We recommend the latter.
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.
Bar inventory management isn’t easy and your time is precious. That’s where BinWise Pro comes in. Our bar inventory software allows you to quickly set and adjust the par level inventory for all your bottles based on historical data. 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.
It should also be said that this all applies to any product, not just liquor. Food, dry goods, cleaning materials, anything. So whether doing wine inventory, buying for a cocktail bar, stocking a cleaning closet, or supplying a kitchen, BinWise Pro will do it for you.