A PAR level is the amount of stock you should always have on hand to operate your restaurant inventory at optimal level. PAR Levels ensure you always have enough stock of a particular ingredient to not experience shortages, and not miss out on sales.
But how is a PAR Level calculated, and what factors affect it ?
This article dives into what a PAR level is, how it affects the profitability of your restaurant business, and how to calculate it using a real-life example.
Table of Contents
The PAR Level, short for “Periodic Automatic Replacement Level,” represents the ideal stock quantity of a given ingredient that a restaurant should maintain at all times to operate its inventory at optimal performance. It’s the metric that ensures you never run out of essential items, yet avoids having excess stock, which can lead to waste.
The PAR level of an item combines the quantity in stock plus the quantity ordered. For example, if the PAR level for ketchup is 10 bottles, but you only have 3 in stock, then the order quantity will be 7.
By finding the right Par Level, your restaurant can consistently meet regular demand, with a buffer of safety stock for unexpected surges in customer demand. Setting a Par Level level requires a proactive approach, where you need to consider the shelf life of your ingredients, the frequency of your deliveries, and the way in which you manage your stock.
A PAR level system is especially important for multi-branch restaurant businesses, where maintaining consistent Par Levels across all locations is crucial to maintain brand reputation and a consistent customer experience.
Setting up Par Levels across your business can lead to several benefits that affect your bottom line and cost savings:
Calculating a PAR Level requires a deep understanding of your menu, customer demands, and seasonality trends. Several metrics need to be known, such as the lead time, the average daily usage, and the safety stock. Having an accurate PAR level ensures a smooth operation, avoids stockouts, and reduces storage costs. Let’s dive into a real-life example to understand how to calculate PAR levels.
Imagine you run a coffee shop. One of your most popular items is a specialty coffee blend. To ensure you never run out, you need to calculate the PAR level for this coffee blend.
Step 1: Determine Average Daily Usage (ADU)
Let’s say you reviewed your sales data for the past month (30 days) and found that you used 300 kg of the coffee blend.
This coffee shop uses 3 kg of its special coffee blend a day.
Step 2: Determine Lead Time
The lead time is the time it takes to deliver each of your items. The lead time is key to know in order to accurately forecast how long in advance you will need to order your items in order to have them on PAR on any given day, especially during popular days.
Let’s say that the coffee beans will take 5 days to arrive given they’re imported from an exotic destination.
Step 3: Estimate The Safety Stock
The safety stock accounts for the additional amount of stock you need in case of sudden increased demand.
The safety stock can be calculated using the following formula :
Suppose the maximum amount of coffee beans you’ve ever used in a day is 4 kg, and the maximum lead time experienced was 7 days. The safety stock would be :
Step 4: Calculate PAR Level
Now, apply these figures to the PAR level formula :
In this example, the PAR Level for the specialty coffee blend at the coffee shop is 22 kg.
This means you should always have at least 22 kg of this coffee blend in stock to meet customer demand and account for any delays in delivery.
Calculating the PAR level is essential for efficient inventory management, ensuring customer satisfaction, and minimizing unnecessary costs. It’s a balance between having enough stock to meet demand and not tying up too much capital in inventory.
1- Periodic Review and Adjustment
We previously mentioned that a PAR level varies based on the seasons, your suppliers, and your customers. This is why it is key to regularly review your PAR levels and ensure your inventory is running at optimal levels.
2- Use Technology for Precision
In the era of digital transformation, employing technology like an inventory management system can greatly enhance the precision and ease of maintaining Par Level Inventory. These systems offer real-time data analysis and can automate the tracking of Lead Time, Usage Rate, and Safety Stock, making the process of maintaining Par Levels more efficient and less prone to human error.
3- Build Relationships With Suppliers
Your PAR level is calculated based on lead times and delivery consistency. These are factors that only your suppliers control. It is therefore key to build trusting relationships with your suppliers to ensure you have a regular incoming stream of products.
Supy, an innovative inventory management tool, revolutionizes the way restaurants handle their inventory, especially when it comes to implementing and maintaining PAR Level systems.
With its advanced analytics and user-friendly interface, Supy streamlines the process of calculating Par Levels, taking into account factors like lead time, usage rates, and safety stock. This technology aids restaurants in making data-driven decisions, ensuring they have the right amount of stock at the right time, thereby minimizing waste and maximizing profitability. Integrating Supy into your restaurant’s inventory management strategy can be a game-changer for maintaining efficiency and enhancing customer experience.