As any business owner or inventory manager knows, balancing inventory and managing inventory levels effectively can be the backbone of any business. While a company is smaller, managing inventory may be a relatively simple task, but it can quickly become more and more difficult as the business growth along with the customer base.
In this article, we explain the concept of inventory par: that is, the minimum amount of inventory required at hand to satisfy demand while proofing against unexpected spikes in demand. Inventory par is also commonly known as safety stock, and it is a key concept that all business owners should understand and work toward achieving.
What is an inventory par level?
Inventory par refers to a company’s inventory levels in reference to customer demand. Keeping customers satisfied relies on a business’ ability to meet demand.
Imagine, for example, that a regular customer places an order with you for a popular product. If your inventory is well stocked, you will be able to approve the purchase and quickly get the item processed and shipped off to the customer, without any hiccups. The customer leaves you a good review online and continues to return to your business in future.
However, imagine that the same customer places an order for an item that is, on average, not a particularly fast-moving product. Unfortunately, your business is not currently stocking the item because the demand for this product was not factored into the latest inventory order. The customer is left dissatisfied and must source the item from a competitor.
While being understocked like this is clearly not ideal, being overstocked is also not the most effective inventory management strategy. For example, while having an excess amount of stock may prepare you for unexpected spikes in demand, it also puts the business at risk of tying up cash in obsolete stock.
This is where inventory par comes in — where inventory levels are matched to suit customer demand and avoid excess, but also consider unexpected spikes in demand.
How can business owners maintain inventory par levels?
The key to maintaining inventory par levels is tracking stock effectively. While a business’s inventory is relatively small, this can be a simple matter of recording inventory movements on paper. However, as a company begins to expand this can become more and more complicated.
We recommend implementing a cloud-based inventory software and using barcode scanning technology to track information about inventory. This will allow you full oversight of inventory that comes in, and inventory that goes out. You can then use this data to analyse sales history and to make accurate demand forecasts for the future. By doing so, your next inventory order will be fully informed, and you’ll be on track for maintaining inventory par levels.
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.