How to Calculate Par Level in a Restaurant
Here at MarketMan, we always stress the importance of proper food and beverage inventory management in a restaurant's back-of-house operations. That's because poor ordering decisions lead to your hard-earned money going down the drain.
Keeping accurate inventory empowers you to make wise ordering decisions, ensures you're purchasing the correct amount of stock, and helps you identify where you may be losing inventory, such as instances of over pouring or over portioning.
While taking accurate beverage and food inventory can completely revamp your restaurant's finances and turn wasted costs into increased profits, you must combine these practices with PAR levels.
In this article, you will learn:
- The definition of par level inventory
- The benefits of calculating inventory par levels
- How to calculate par levels with MarketMan
- When inventory should exceed par levels
What is Par Level Inventory?
Periodic Automatic Replacement (PAR) is a process that calculates the minimum (and most favorable) level of any inventory items that should be stored on-hand at your restaurant at all times. Keeping optimal par levels ensures you don't run out of essential items and prevents excess stock, which leads to waste.
Once your restaurant finds its proper PAR level, you'll be able to ensure you can meet your regular demand while providing a cushion of "safety stock" in case you have an unexpected influx of customers. When your inventory dips below your optimal par level, you should place a new order to restock the item.
The Benefits of Calculating Restaurant Par Levels
1. Order the Right Number of Ingredients, at the Right Time
Calculating par levels takes the guesswork out of figuring out optimal order amounts. With MarketMan, you can set up par alerts so you can automatically reorder ingredients whenever you’re running low.
2. Reduces Food Spoilage
Every ingredient in your inventory has a fixed-shelf life until they go bad or expire. If your inventory levels are low, you're more likely to use up all the items before this happens.
3. Save Money
Calculating par levels leads to more accurate ordering, which means you’re less likely to rush to order costly items last minute from your suppliers. With automated and precise ordering using MarketMan, you’ll have consistent expenses with fewer cost fluctuations.
How to Calculate Restaurant Inventory Par Levels
To begin calculating your restaurant's inventory par levels for each food item you keep on hand, you'll need a few critical pieces of information.
- Your restaurant's average inventory ratio
- Delivery schedules for each food item
- Numbers on the customer demand for each item (via a sales report)
We suggest calculating an item's inventory turnover ratio to understand its demand. Inventory turnover ratio is an efficiency metric that compares the amount of product a restaurant has on hand (called inventory) to the amount it sells. In other words, inventory turnover measures the number of times the restaurant sold out its inventory in a specific period.
Here are helpful formulas you can use:
Calculate Average Inventory for a Time Period
(Beginning Inventory + Ending Inventory) / 2 = Average Inventory
Calculate Inventory Turnover Ratio
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory
Once you've collected the item's inventory on hand ratio and your sales report data, you'll be able to determine how much product is used between each delivery and how quickly you use up inventory.
A general formula for measuring your par level is here:
Par level = (Weekly Inventory Use + Safety Stock) / Deliveries Per Week
Here's an example:
(14 cases of red wine used weekly + 3 cases (20% safety)) / 2 deliveries per week = 8.5
So, the par level for this specific item would be 8.5 cases of red wine.
Safety stock levels vary for different ingredients you'll keep on hand. But generally, it's acceptable to have around 20-30% of weekly invoice use dedicated to safety stock, which allows for unexpected demand. So, if a large party books a table at the last minute, you'll be able to keep the wine flowing!
It's essential to review your inventory turnover rate and sales reports when figuring out your ideal par levels, so you can make the best estimations possible while avoiding food waste or stockpiling.
Calculating Restaurant Inventory Par Levels on MarketMan
Calculating your par levels is easy with the help of restaurant management software. MarketMan will calculate your needed quantities for ordering, based on your on-hand inventory value and the pars you set for your account, per item.
To use it, you should set the par levels for your items first. The easiest way to do this is on the ordering screen, on the web.
HOW TO USE "FILL TO PAR" - Step by Step
- Go to "Orders" > "Place orders"
Then select a supplier or category
- Click on "Actions" > "Fill to par"
You'll be prompted to approve overriding of any existing order drafts.
If you want to be a bit more advanced you can also fill to par for a specific item by clicking the blue arrow. Once you fill to par you will see the arrows change to green check marks designating the order is filled correctly.
- When you fill to par it automatically fills in the on hand. It will suggest what to order by taking the par level and subtracting the on hand from that.
An order will be suggested for you, for this supplier.
You can change the details and quantities of the order on the cart draft, by clicking the item name.
- Repeat for other suppliers / categories as needed.
HOW TO USE "FILL TO PAR" on the MarketMan app
- Go to "Orders" and select the supplier you want to order from. Then, click on the blue plus button to fill to par.
- Check the draft order in the cart, change it as needed, and send.
- Repeat for other suppliers as needed.
When Should Inventory Exceed Par Levels?
Some special instances will require you to hold excess inventory above your par level. They include:
- Events and holidays – Like an Easter brunch, a Fourth of July barbecue, or a Christmas Eve service
- Delivery issues – Holidays, weekends, natural disasters, pandemics, and supply chain issues can cause delays in deliveries. Restaurants may have to carry excess inventory in these situations.