Tight inventory management is crucial to the profitability of any restaurant business, but it’s especially important for multi-outlet businesses, where mistakes and small discrepancies are multiplied many times over.
If you’re uncertain about how much of each item you need to order, purchasing becomes an anxiety-inducing nightmare. But when you have reliable inventory information and PAR levels figured out, you can send purchase orders with confidence.
Effective PAR-level management has the power to take the stress out of purchasing and free up your time to focus on higher-level problems, while also improving customer satisfaction and profitability.
In this post, we’ll explore the surprising benefits of accurate PAR levels, how to calculate them, and for growth-minded restaurateurs, how to automate purchasing according to your PAR levels with Apicbase.
Read on to discover:
- What are inventory PAR levels?
- The benefits of PAR-level calculations
- Four steps to calculate PAR levels for multi-site restaurant businesses
- The formula for calculating inventory PAR levels
- Best practices for PAR-level management
- How to automate ordering to PAR with Apicbase
By the last paragraph, you’ll be ready to set your PAR levels and start reaping the benefits of automated ordering to PAR.
What Are Inventory PAR Levels?
Inventory PAR levels tell you the optimum quantity of each inventory item that should be in stock at each location after the delivery arrives. Standing for ‘Periodic Automatic Replenishment’, the PAR level covers the expected demand plus a cushion in case of unexpected higher demand.
Taking into account the shelf life of ingredients and the delivery frequency, PAR levels help you plan ahead to keep inventory levels optimal.
Using PAR levels to guide your purchasing decisions helps you avoid:
- Overstocking – tying cash up in unnecessary stock that is at risk of passing its best-before date and going to waste.
- Running out of an ingredient – disappointing customers by running out of an item. Or having to rush out to buy replacement stock at a higher price.
For multi-unit restaurant businesses, using PAR levels is crucial to maintain your brand reputation and offer the best customer experience at all locations. It also helps in some more surprising ways that we’ll get into below.
As we discuss in more detail below, factors like lead time, usage rate, customer demand, and safety stock are all important to take into account when determining your PAR levels.
A comprehensive inventory management system helps you get on top of these figures and can even help you determine your PAR levels and use them to automate ordering.
The Benefits of PAR Level Calculations
Getting your PAR levels right has some more obvious and other surprising benefits that you might not have realized. Let’s examine the potential benefits of PAR-level calculations for multi-unit restaurant businesses.
Reduced Waste and Spoilage
There’s a fine balance to be struck between being overstocked and risking running out of an item. Overstocking on perishable ingredients can lead to spoilage and a mountain of food waste, which isn’t good for food safety, the environment, or your profit margins.
By keeping stock levels in check, you can improve cash flow while minimizing the risks of spoilage and food waste.
Improve Customer Satisfaction
There’s nothing worse, as a customer, than turning up and ordering your favourite dish at a restaurant only to be told it’s sold out. It not only disappoints the customer at the time, it also undermines confidence that your restaurant can deliver on its promises in the future.
By always having your key ingredients on hand, you can be confident in fulfilling customer orders and avoid disappointing customers. Which is crucial in building a trusted brand that delights customers and garners long-term loyalty.
Increase Profitability
When you’re running a multi-unit food business, the smallest inefficiencies and unnecessary costs can add up to big problems. Losing just 50c per day to food waste at 1000 outlets adds up to $500 down the drain every single day.
On the flip side, cutting out those errors on every ingredient quickly adds up to massive cost reductions. Efficient inventory management reduces costs and boosts your margins, leading to a higher return on every item sold.
Identify Trends and Opportunities
Successful restaurateurs are always looking for a competitive edge – what they can do today to stay ahead of the competition for the coming years.
Closely monitoring PAR levels helps you spot trends and ordering patterns early. Enabling you to optimize your menu and take advantage of changing customer preferences.
You might notice that your PAR level for chicken breasts is increasing at your busiest location, for example, and realize that customers are ordering more chicken tenders. You can then capitalize on this trend by creating and promoting a chicken tenders special to increase sales at your other stores.
How to Calculate PAR Levels for Multi-Site Restaurant Businesses
Now we know how important PAR levels can be, let’s get into the practical steps to calculate them. This involves gathering some inventory information and culminates in a pretty simple calculation.
Step 1: Determine the Lead Time
Lead time is the time it takes for an order to be delivered after it is placed with a supplier. It’s important to know the lead time for each item to ensure you have enough stock to cover the demand until the next delivery arrives.
For example, if the lead time for your order of bacon is two days, you must ensure you have enough bacon for the next two days when placing your order.
Step 2: Estimate The Usage Rate
A restaurant’s usage rate is the average amount of each inventory item used during a specific time period. To estimate the usage rate, review your sales and inventory data and calculate the average daily or weekly consumption for each item. The usage rate tells you how much stock you need to meet demand in the time period.
For the sake of this example, assume bacon is only used for one dish: the cheese and bacon burger.
Your sales data tells you that you usually sell 40 burgers each day, and that equates to 40 rashers of bacon or 1.6 kg of bacon.
So, a 1.6 kg per day usage rate means you can estimate you will use 3.2 kg of bacon over the next 2 days.
Step 3: Calculate The Safety Stock
Safety stock is your buffer of extra inventory kept on hand to account for unexpected demand or supply chain issues. To calculate safety stock, take into account your supplier reliability, seasonal fluctuations in sales numbers, and the shelf life of ingredients.
Let’s say the shelf life of bacon is 7 days. You need enough in stock to last until the delivery, but not so much that any goes out of date. Given that your supplier is reliable, you’re sure you’ll get the delivery every other day. You estimate that 1 kg of safety stock will cover you even if demand increases.
Step 4: Add Safety Stock to Usage Rate to Determine PAR Level
Combine the usage rate, lead time, and safety stock together to determine the PAR level for each item. Getting this calculation right helps you maintain sufficient stock to meet customer demand while minimizing waste and spoilage.
To complete our bacon example: 3.2 kg of bacon to cover the next two days plus 1 kg of safety stock adds up to a total of 4.2 kg that you want to have on hand.
With this worked out, you can be confident that you will not run out of bacon and that you don’t have too much in stock that you won’t get through in a week.
Also read: How to Add up to 10% to Your Bottom Line in a Few Months – Inventory and Procurement Management for Multi-Unit Restaurants
The Formula for Calculating Restaurant Inventory PAR Levels
Putting all the steps together, here’s the formula for calculating your inventory PAR levels:
PAR Level = (Lead Time x Usage Rate) + Safety Stock.
And here’s the calculation for our bacon example: 4.2 = (2 x 1.6) + 1.
That means you should aim to have 4.2 kg of bacon in stock at all times to meet customer demand. If bacon comes in 2 kg packs, and you have 1 kg in stock already, you know you should order 2 packs to get to your PAR level.
This simple calculation demonstrates how PAR levels work. But in reality, things are more complex, with ingredients being used in multiple dishes in different quantities. An inventory management system is invaluable for taking these complications into account and automating your PAR levels calculations.
Best Practices for PAR-Level Management
We have defined the steps and formula needed to calculate PAR levels. But in reality, there are a lot of factors to take into account, so it can be tricky to get your head around all the details.
Here are the best practices to follow to get the most accurate PAR levels for your business.
1. Regularly Review and Adjust Par Levels
PAR levels are not a one-and-done calculation. As you put them into practice and as conditions change, you need to be ready to adjust your PAR levels accordingly. Monitor your PAR levels, measure food waste, and track any occasions where you ran out of items and then make the necessary changes.
You may also need to change your levels due to changes in supply chain conditions or customer demand. Tracking the adjustments you have made can also reveal trends that you can take advantage of.
2. Automate PAR Level Calculations
Use restaurant inventory management software to track your inventory, sales, and usage and automate the process of calculating your PAR levels. Once all your data is in one system, you can use it to take into account the numerous factors at play, so you don’t have to make the calculations manually.
3. Collaborate with Suppliers
Maintain open communication channels with your suppliers to ensure they can meet your inventory needs and adapt to changes in demand. Building an honest and friendly relationship with your suppliers is a great way to mitigate any issues that come up.
They can let you know in advance if they are unable to make a delivery, for example, which allows you to order from a different supplier. Or they might warn you that an item is likely to increase in price so that you can make changes to your menu ahead of time.
4. Use Technology to Track Inventory
Use inventory software to automatically track inventory as you sell items. This gives you all the data you need to calculate your PAR levels.
The smartest inventory management software that can prepare your purchase orders for you based on your current inventory levels and the PAR levels you have calculated. And even automatically place orders to ensure a constant supply of the right ingredients.
Automate Ordering to PAR with Apicbase
Apicbase offers a powerful solution for automating the ordering process in line with your calculated PAR levels. With Apicbase tracking your inventory levels, you can set up alerts when stock goes below minimum levels, then order to your PAR levels in just a few clicks.
Apicbase can help you maintain optimal stock levels, automate tricky calculations, and reduce the risk of purchasing errors.
Reduce purchasing errors and boost profitability with inventory management software
Calculating and managing PAR levels is a critical aspect of inventory management for multi-site restaurant businesses. By mastering this process, you can reduce waste and spoilage, improve customer satisfaction, and increase profitability.
Getting control of inventory and having accurate sales and inventory data in one system can even help you spot trends and make the most of changing customer preferences.
With accurate PAR levels, you can take the guesswork out of purchasing and avoid costly errors that lead to food going to waste.
Take your business to the next level with inventory management automation from Apicbase.
When your restaurant managers don’t have to spend so much time tracking inventory and purchases, they can feel more confident in their ability to manage inventory effectively.
