Distribution PAR Level Inventory vs Consignment
In previous weeks, I have written about the different invoicing agreements used by distributors with the stores: Scan Based Trading, Consignment, and the traditional DSD invoicing. This week I am going to address another sales practice called PAR Level sales or PAR level inventory. I will explore how it differs from Consignment and why you need PAR Level inventory Software if you adopt this practice.
What is PAR Level inventory?
A PAR level inventory system (Periodic Automatic Replacement) is a model aimed to get the minimum level of inventory you need on hand at a given site, for a specific period of time, in order to satisfy the needs of your clients. When an item level drops below the PAR level, you need to order more of that particular item, or else you may find yourself failing to satisfy your customers. This practice is widely used in restaurants, bars, hospitals, distributors, and businesses of all kinds. I will focus this article on the perspective of the distributor that has agreed with his customers to use PAR Level to invoice and optimize their inventory.
How does the PAR Level inventory model work?
With a PAR level system, you leave products at customer’s facilities or stores and you charge the customer for it, but the product is technically in your hands. It is as if you sell to the store, but the product is in your warehouse. After a certain period of time, defined in the PAR level Agreement, you pay the customer a second visit and count what is left on the shelf. The difference is then transferred from your hands to the store´s hands and considered as an account receivable under the terms defined with the customer. Simultaneously the items sold are replenished and invoiced to the customer.
If the quantity sold is small as compared to the amount on the shelf, it means that you are overstocking the store and credits will soar. On the other side, running out of stock in the store means that you are underselling, and the customer might fail to serve their clients. In order to properly manage this modality, optimize inventory and increase gross profit, you need PAR level inventory software.
Par level vs Consignment
Par level, Consignment, and SBT are similar but very different conceptually. We already explored the difference between Consignment and Scan based Trading in my article “What is Consignment in the DSD and Distribution Industry?” and between Scan Based Tradingand the traditional DSD sales model in “Scan Based Trading (SBT) impact on distributors”. Let’s focus now on the difference between Consignment and Par level inventory.
In both models, the inventory belongs to the customer, shrinkage is the customer’s responsibility, and sales are calculated as the difference between initial and final inventory. But there are two main differences between them:
- The product in a PAR level system is in your hands and not the hands of the store.
- The goal of the PAR level system is to be able to track movements and inventory over time so that you can make sure that you are not leaving too much product at the customer´s site and keep up the demand with the supply.
Below there is a comparison chart.
How can you implement a successful PAR level system?
As a distributor, we already learned that you need Consignment software for a successful implementation. For the same reasons, you will need PAR level inventory software for a PAR level to work. The system should have the following features.
Keep track of PAR Inventory
The system should show everything that is on PAR, displaying the PAR quantity, the units counted, and the units sold. With this information and the history of the store, the sales rep can make the best decision to minimize credits and optimize the PAR inventory.
Set PAR Levels
The system should be able to increase or decrease the PAR level depending on the movement of the product. This process should be done by simply changing the quantity in the PAR level box in your device. You can also add PAR items to an existing customer or create PAR items for a new PAR customer.
Invoicing and credits
While the sales rep is updating the PAR item information, the system has been making an invoice with the reposition of items sold or crediting the items you decided to decrease. The system must allow collecting signatures for invoices, collecting payments, and printing the final invoice, using a thermal printer. All this information is sent to the back office.
Updating truck inventory
The quantities replenished and the credits taken are automatically reflected in the inventory on the truck, so that you may know exactly the truck inventory. This information allows you to optimize the planning of each truckload by the day of the week.
I hope this article has been helpful. I will continue to publish information related to Warehouse Management, distribution practices, and general economy. If you are interested in this article or want to learn more about Laceup Solutions, register to keep you updated on future articles.
You can watch how PAR level software works in this video.