Effective inventory management is crucial for the success of retail, wholesale, and e-commerce businesses. One key strategy for achieving optimal inventory control is implementing PAR levels, which helps businesses maintain the right stock levels to meet customer demand without carrying excess inventory.
In this blog, we’ll explain what PAR levels are, why they’re important, and how to calculate them.
What is PAR Level in Inventory Management?
Periodic Automatic Replenishment (PAR) is an inventory control system that determines the optimal stock level a business should maintain to meet demand efficiently. Instead of representing the minimum amount of a product to keep in stock, the PAR level indicates the ideal amount of inventory that should be on hand after each restocking cycle.
PAR levels help businesses avoid stockouts while preventing excess inventory that ties up capital and storage space. When stock is replenished, the goal is to reach the PAR level, ensuring inventory is always at the right amount to meet expected demand. However, PAR levels are not fixed and may fluctuate based on seasonal trends, holidays, promotional events, or even daily demand patterns.
Why is PAR Level Important?
Properly managing PAR levels is key to effective inventory control. When businesses set and monitor PAR levels effectively, they can avoid common inventory challenges and maintain a healthy inventory turnover rate.
Preventing Stockouts and Reduces Overstocking
Maintaining PAR levels ensures businesses have enough stock to meet demand while avoiding excess inventory. This helps prevent stockouts, reduces the risk of lost sales, and minimizes storage costs by avoiding overstocking.
Improving Cash Flow Management
Excess inventory can limit a business’s ability to invest in new products or growth opportunities. By maintaining optimal stock levels, businesses can allocate resources more effectively, ensuring better cash flow and financial flexibility.
Enhancing Supply Chain Efficiency
Well-defined PAR levels improve coordination with suppliers and help streamline the replenishment process. Businesses can schedule orders more effectively, avoid last-minute rushes, and reduce disruptions in the supply chain.
Which Industries Use PAR Levels?
PAR levels are used across a variety of industries to ensure smooth operations. While they are especially important in sectors dealing with perishable items, PAR levels also play a key role in retail, healthcare, manufacturing, and other industries. Here’s how different industries apply PAR-level management:
- Retail: Clothing stores, supermarkets, and electronics retailers use PAR levels to ensure high-demand items are always available. For example, a grocery store may set PAR levels for fresh produce and dairy products to maintain stock between deliveries. By tracking sales trends and adjusting PAR levels accordingly, retailers can reduce waste and prevent overstocking.
- Restaurants: Restaurant PAR levels help manage food inventory by ensuring essential ingredients are always available while minimizing waste. A restaurant might set a PAR level for burger patties based on weekly sales and supplier delivery schedules. Restaurant management teams use PAR levels to optimize ordering, control costs, and avoid stockouts.
- Hospitality: Hotels and resorts use PAR levels to manage essential supplies like linens, toiletries, and cleaning products. Since demand can fluctuate based on occupancy rates and seasonal trends, hotels adjust their PAR levels accordingly to prevent shortages while avoiding excessive storage of unused items.
- Healthcare: Hospitals, clinics, and pharmacies use PAR levels to ensure they have a steady supply of medical equipment, medications, and protective gear. Because healthcare facilities cannot afford to run out of critical supplies, they often set higher safety stock levels within their PAR calculations to account for unexpected surges in demand.
- E-commerce and Warehousing: Online retailers and fulfillment centers track PAR levels to manage stock across multiple locations. E-commerce businesses must balance rapid order fulfillment with maintaining efficient storage space, making automated PAR level tracking essential for smooth operations.
- Manufacturing: Factories and production facilities use PAR levels to maintain a steady supply of raw materials and essential components. If a manufacturing plant requires 500 units of a specific part per week, it will set a PAR level that ensures it never runs out before the next shipment arrives. This prevents production delays, maintains workflow efficiency, and reduces excess inventory costs.
How to Calculate PAR Level
To maintain optimal stock levels, businesses need a reliable method for determining when to reorder inventory. There are two common approaches to calculating PAR levels, depending on how frequently a business receives deliveries and monitors stock usage.
Approach 1: Using Daily Sales and Lead Time
This method is ideal for businesses with slower-moving inventory and longer lead times. It calculates the ideal stock level based on average usage (or average daily sales), supplier lead time, and safety stock to ensure that inventory is available when needed without overstocking. This PAR level formula is:
- PAR Level = (Average Daily Sales × Lead Time) + Safety Stock
Here’s how to determine each component:
- Calculate Average Daily Sales: Review past sales data to find the typical number of units sold per day.
- Identify Supplier Lead Time: Determine how many days it takes for a supplier to deliver new stock.
- Include Safety Stock: Add extra units to prevent stockouts due to sudden demand spikes or supplier delays.
Example Calculation
A furniture store sells a few large items per day, such as sofas, dining tables, or wardrobes. These items don’t sell as quickly as smaller consumer goods, and the store receives only one delivery per month from their suppliers. Due to the large lead time, the store needs to carefully plan its stock levels for the upcoming month based on average daily sales.
- Average Daily Sales: 2 sofas per day
- Lead Time: 30 days for the supplier to deliver new stock
- Safety Stock: 5 sofas
The store calculates the PAR level using the formula:
- PAR Level = (2×30)+5 = 65 sofas
This means the store needs 65 sofas in stock after each restocking cycle to meet customer demand and cover the 30 days of lead time.
Approach 2: Using Weekly Inventory Usage and Deliveries
This method is ideal for businesses that receive regular deliveries and deal with fast-moving or perishable goods. The second approach calculates the ideal PAR level based on weekly inventory usage and the frequency of deliveries. This PAR level formula is:
- PAR Level = (Weekly Inventory Use + Safety Stock) / Deliveries Per Week
Here’s how to determine each component:
- Find Weekly Inventory Usage: Calculate the average inventory usage per week.
- Factor in Safety Stock: Add extra stock to cover unexpected demand or supply delays.
- Divide by the Number of Deliveries Per Week: Helps ensure each order replenishes inventory efficiently.
Example Calculation
For a restaurant that deals with perishable items, such as fresh ingredients, having a steady flow of inventory is crucial to avoid spoilage and ensure that food is always available for customers. The second approach ensures that the restaurant receives regular deliveries and can set their PAR level based on weekly inventory usage.
- Weekly Inventory Usage: 100 bottles of cooking oil
- Safety Stock: 20 bottles
- Number of Deliveries per Week: 2 deliveries
The restaurant calculates the PAR level using the formula:
- PAR Level = (100+20)/2 = 60 bottles
This means the restaurant should aim to have 60 bottles of cooking oil in stock after each restocking cycle, ensuring they have enough inventory to meet customer demand without overstocking.
Which Method Should You Use?
The best approach to calculating PAR levels depends on your business’s specific needs. If your business deals with slower-moving inventory or has longer lead times, such as furniture stores or wholesale suppliers, the first approach works best.
On the other hand, if your business handles fast-moving products or perishable goods, such as a grocery store, restaurant, or fast food chain, the second approach is more suitable.
Should Your Inventory Be Higher Than PAR Level?
The PAR level represents the ideal stock level after replenishment to meet expected demand efficiently. However, there are situations where businesses may need to hold more inventory than their set PAR level. Seasonal demand spikes, promotions, or supplier delays might justify keeping additional stock. The key is to monitor sales trends and adjust inventory levels accordingly to prevent waste and storage inefficiencies.
What Is the Difference Between Reorder Point and PAR Level?
While both reorder point and PAR level help maintain optimal inventory, the way PAR level is calculated differs from the reorder point.
The reorder point is based on the minimum stock level needed to avoid running out of inventory. This method triggers replenishment when stock levels fall below a certain threshold, without relying on specific delivery dates or schedules.
PAR level, on the other hand, defines the ideal stock level to maintain after each restocking cycle. It works best when there is a consistent delivery frequency, ensuring that businesses have enough stock on hand to meet demand without overstocking.
Is PAR Level the Same as Order Amount?
The order amount is the quantity needed to replenish stock to meet the PAR level. When placing an order, businesses first check how much inventory they currently have, then order only enough to bring stock back up to the PAR level.
Best Practices for Managing PAR Levels
Setting PAR levels is just the first step in maintaining an efficient inventory system. To keep stock levels aligned with business needs, it is important to regularly monitor and adjust them. Here are some best practices to help manage PAR levels effectively:
Review and Adjust PAR Levels Regularly
Sales patterns, seasonality, and supplier reliability can change over time. Reviewing PAR levels periodically ensures that stock levels remain accurate and reflect current demand. For example, businesses selling seasonal products may need to increase PAR levels before peak periods and reduce them during slower months.
Use Inventory Management Software
Manually tracking PAR levels can be time-consuming and prone to errors. Inventory management software can automate the process by monitoring stock levels in real time. This reduces the risk of stockouts and helps businesses make data-driven decisions about replenishment.
Monitor Supplier Performance
Reliable suppliers play a key role in maintaining optimal stock levels. Keeping track of supplier lead times, delays, and fulfillment accuracy helps businesses identify potential risks and make necessary adjustments. If a supplier frequently delivers late, increasing safety stock or finding alternative suppliers may be necessary to avoid inventory shortages.
Incorporate Demand Forecasting
Predicting future sales trends through demand forecasting helps businesses set more accurate PAR levels. By analyzing historical data, market trends, and customer demand patterns, businesses can anticipate peak periods and adjust stock levels accordingly.
How Brightpearl Helps with PAR Level Inventory Management
Maintaining optimal inventory levels can be a complex task, especially when done manually. Brightpearl streamlines the process by automating inventory tracking and replenishment based on your ideal PAR levels. Key features include:
- Automated stock replenishment: As your next delivery approaches, Brightpearl can adjust the order quantities to match your target PAR level, ensuring your stock is always aligned with your ideal inventory levels.
- Real-time analytics and demand forecasting: With real-time insights into sales trends and stock levels, businesses can adjust their PAR levels based on data-driven forecasting, ensuring inventory is always at the right level to meet customer demand.
- Multi-location and multi-channel optimization: Brightpearl provides seamless inventory management across multiple locations, warehouses, retail stores, and e-commerce platforms. This helps businesses maintain consistent stock levels across channels, ensuring efficient operations at every point.
By leveraging Brightpearl, businesses can eliminate manual tracking, optimize stock levels based on PAR calculations, and improve inventory efficiency to keep operations running smoothly.
Enhance Inventory Efficiency with the Right PAR Levels
Effectively managing PAR levels is crucial for maintaining a balanced inventory that meets demand while minimizing waste. By adjusting stock levels based on sales trends, demand forecasting, and leveraging the right tools, businesses can optimize their operations and stay agile in the face of changing market conditions.
A data-driven approach to inventory management ensures smoother operations, better supplier coordination, and increased profitability. With Brightpearl, businesses can automate PAR level tracking, optimize stock replenishment, and gain real-time insights to make smarter inventory decisions.
Ready to take control of your inventory? Book a free demo with Brightpearl today and see how automated inventory management can transform your business.
