How to Figure Out Your Inventory Par Levels

Michelle Jaco11/23/2019

The Challenge

Your food costs and restaurant's inventory Par Levels are directly dependent on each other.

As a restaurant owner, it is a challenge trying to control everything that goes on in your establishment

You need to make sure that you have enough inventory items on-hand to meet consumer demand every week, while also avoiding over-ordering, as you do not want to lose out on wastage or stockpiling.

Monitoring your inventory and its Par Levels is the key to a successful and profitable restaurant.

Lower levels have the following advantages for your restaurant
1. Reduces Food Spoilage
Every item in your inventory has a fixed shelf-life. When this period goes by, they start to get rotten or they get expired. If your inventory levels are low, you are bound to go through all the items without food getting spoiled or expired.

2. Reduces Food Wastage
When the inventory levels are low, all ingredients in your inventory are utilized fully and that ensures that no food gets wasted during the week.

3. Keeps Your Inventory Turnover Rate Under Control
A healthy inventory turnover rate is what keeps your inventory stable and in check. Having lower inventory levels helps you maintain a steady inventory turnover rate which means that your restaurant is doing good and you are not wasting any money on unnecessary food items or ingredients.

What are Restaurant Inventory Par Levels?

So, what does par mean for a restaurant?

You have probably heard about pars in golf but maybe not so much in terms of restaurant inventory levels.

Both concepts are similar. A restaurant's inventory Par Level is the minimum amount of any ingredient you expect to be present in your inventory at any given time.

It is also the minimum amount of ingredients that meet the demand in your restaurant while also having a little extra stock in case an unexpected demand occurs (also known as safety stock).

You should always set realistic Par Levels for your restaurant's inventory in order to save money and avoid food wastage. Whenever your inventory falls below these levels, you should place an order to restock that particular item. Par Levels help you keep your inventory in order and assists you in running your restaurant smoothly.

How to Calculate Your Restaurant Inventory Par Levels

In order to calculate your Par Levels for every ingredient in your inventory, you will need to find a few things about your restaurant first, such as

What are the delivery schedules for every item in your inventory?
What is the customer demand for every item in your inventory? (This can be found out from your sales reports)
What is your average inventory?
What is the inventory turnover rate for each item?

We recommend finding the inventory turnover rate because it gives you an accurate idea of any item's demand in your restaurant (how much time it takes you to sell that item completely).

Although everyone has their own way of calculating Par Levels, there is a general formula you can use which is as follows

Inventory Par Level = (Amount of inventory used each week + safety stock) / Number of deliveries each week

Let's suppose you go through 20 cases of beer every week in your restaurant and you get 2 deliveries in a week. We assume 4 cases as a safety stock which comes out to be 20% of the normal stock. The Par Level for beer in your restaurant is calculated as follows

(20 cases + 4 cases)/2 = 12 cases

So, the Par Level for beer in your restaurant for this example would be 12 cases. That is the minimum amount of cases that should always be present in your inventory at any given time.

Every food item has different levels of safety stock but as a general rule of thumb, 20% - 30% of weekly use can be identified as a safety stock. This factor allows for any unexpected demand during the week. In order to get a precise estimate, you should review your inventory turnover rate and sales reports to avoid stockpiling or food wastage.

The question sometimes arises, When can inventory exceed the set Par Levels?

There are some instances where it is totally normal (even sometimes recommended) to have your inventory in excess of the set Par Levels. These instances are

Holidays, festivals, and events Thanksgiving, Fourth of July, Valentine's Day, Easter, Christmas, etc.
Delivery issues you will have to carry your inventory in excess when there is some natural disaster, holiday, or weekends. In the case of these events, you need to prepare well ahead because there will be some issues in delivery of food items.

Your restaurant will run way more smoothly if you keep up with your inventory Par Levels. You should always use data from useful reports like sales and inventory levels to calculate and figure out Par Levels accurately.

To assist with your inventory management, you can utilize specialized software applications, which generates detailed reports on inventory usage and sales, which would help you in setting Par Levels for every ingredient in your inventory.