What are par levels?

Answer 1

Par levels are boundary markers in inventory levels that signal replenishment is necessary.

For example:

A pet store sells 2 bags of dog food a day with a variance of 10%, and it takes 3 days for an order to be delivered from a supplier. Statistically speaking, you should go through about 6.6 bags of dog food in those 3 days. That means that at a minimum the pet shop should set its minimum par level at 7, so when there are 7 bags left in stock an order should be placed to replenish the dog food inventory. I would probably go for 8 or 10 just so you don't run out.

If your par levels are set too low, you risk of running out of product if you have a period where you are busier than usual.

If your par levels are set too high, you may have more money invested in stock than is necessary. If coupled with poor rotation practices this can lead to spoilage or damage.

It is good to find a level somewhere in between.