We see the word par in aspects of daily life and in the business world. The word par is derived from the stock exchange and it indicated that a financial stock may be above or below its normal or ‘par’ figure. In golf, par is used to highlight the number of strokes a golfer should be able to play to complete an individual hole. Each hole has a par standard and there is an overall par for the entire golf course as well. Par is the standard to which golfers aspire to reach when they play. So when people say “par for the course” they are referring to something normal or expected in any given circumstance.
Par levels in your warehouse
Interestingly, par is also applied to inventory management. Par represents a level of inventory stock that is normal to have on hand to prepare you for any given circumstance. When you maintain a par level of stock, you are able to maintain the minimum amount of stock to fulfil orders and manage normal shifts in demand. If your inventory stock levels go below the determined par level, this is a sign that more inventory stock is needed.
Why are par levels important?
If you track par levels in real time, you’ll be able to see which stocks are depleting faster than others and which items are in less demand. It will prompt proactive orders to replenish stock so you don’t run out. If you don’t maintain par levels, you might find yourself in a situation where you cannot fulfil customer orders.
The par level is ideal for maintaining a healthy balance of inventory stock. In theory, it should allow you to cope with some excess demand, but not leave you with an overwhelming surplus of dead stock at the end of a season. For instance, if you kept the par level of inflatable pool toys steady throughout the summer season, your inventory stock should be able to keep up with demand. Not only will it encourage you to keep healthy levels during summer, but this seasonal par level should switch and taper down in response to cooler months ahead. This means you won’t be stuck with an excess supply of pool toys as you head into winter.
Determining par levels
The concept of par levels is helpful for warehouse managers and business owners. However, how do you actually determine a healthy par level? There are a range of factors that go into the calculation to determine what the level is for each inventory stock item in the warehouse: previous sales history, demand predictions, seasonal trends and weather patterns, shipping times, import regulations, and supply chain logistics all play a key role in determining par levels.
- Classify your inventory; consider using ABC, FSN, or SDE classification methods
- Look back on what products sold consistently well over a period of time. Use those baselines to help you create par levels for the year ahead
- Prepare yourself for major weather events and delays in shipping if your supply chain is connected to overseas locations
- Lastly, use real-time inventory software to track what’s going on and adjust your par levels as needed
Article by Melanie Chan in collaboration with our team of Unleashed Software inventory and business specialists. Melanie has been writing about inventory management for the past three years. When not writing about inventory management, you can find her eating her way through Auckland.