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Inventory Par Levels

Saturday, August 10, 2019

How to Calculate Your Inventory Par Levels

Your business's inventory par levels and costs go hand in hand. It can be one of the hardest things to juggle… Having enough inventory to meet demand each week, but also keeping it low, as to avoid stockpiling, waste or Dead Inventory. Keeping track of inventory (and your par levels) is essential to the success of your business. Lower inventory levels help:

  • Reduce Dead Inventory
  • Reduce waste
  • Keep your inventory turnover rate healthy and under control

 

What does par mean for business?

So, what is par for your business? You’ve probably heard the term in golf, but maybe not when referring to inventory levels. Similar concept… Your par level is the minimum amount of inventory needed to meet the demand from your customers while providing a cushion in case of unexpected demand (also called a safety stock). When your inventory hits below your calculated par level, an order should be placed to restock the item. Pars help keep your business running at an optimal level.

 

Calculating Inventory Par Levels

To start calculating your inventory par levels for each item, you’ll need a few things.

  • Delivery schedules for each item
  • Customer demand for each item (sales report)
  • Average inventory

We recommend you calculate an item’s inventory turnover rate first to get a better understanding of its demand (how many days it takes to sell your inventory). Once you’ve gathered an item’s inventory on hand ratio and sales report, you’ll be to gauge how much product is used between each delivery and how fast you go through inventory (turnover).

A general formula for estimating par level is as follows:

  • Par level = (weekly inventory use + Safety stock) / Deliveries per week
Example:
  • (14 cases used weekly + 3 cases (20% safety)) / 2 deliveries per week = 8.5
  • In this example, the par level for this item would be 8.5 cases.

Safety stock levels are different for every item. But in general, a good rule of thumb is to have around 20-30% of weekly invoice use in safety stock. This will allow for unexpected demand. But it’s important to review your sales reports and inventory turnover rate, this will allow you to better estimate and avoid waste, stockpiling or Dead Inventory.

 

When Should Inventory Exceed Par Levels?

There are a few instances that you’ll run into that will require you to hold inventory in excess of your par level. They include:

  • Events and holidays - Both yours and your Suppliers
  • Delivery issues – Natural disasters, weekends, and holiday can cause delays in delivery.

 

Last Word

Understanding your business's par levels will help keep your business running at an optimal level. Using data from purchases (sales report) and inventory levels, you’ll be able to calculate each item par level with better accuracy. If using jInventory, we provide you with everything needed to estimate par levels. You have access to sales, item spend, item cost, cost of goods sold, and so much more.

 

Let jInventory Make Your Inventory Management Hassle-Free

Either fill out the below form to down a FREE Par Level Template or else contact us in order to schedule a demo

 

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