What is the purpose of a PAR level in inventory management?

• A. It sets a target price for items.
• B. Measures inventory turnover rate.
• C. Determines wholesale supplier discounts.
• D. The minimum quantity on hand triggering reorder to prevent shortages.

Answer: (D)

A PAR level is the minimum quantity you want to have on hand to cover demand during lead time. It acts as a trigger for replenishment, so you reorder when stock drops to that level to prevent shortages.

Think of it as a safeguard: you estimate how much you’ll use before a new shipment arrives, plus a little extra for variability, and set that as the PAR. When on-hand falls to the PAR, you order enough to bring inventory back up to your target level, keeping operations smooth and avoiding stockouts.

This isn’t about setting prices, measuring how fast you turn inventory, or negotiating supplier discounts—the PAR level’s purpose is to trigger timely replenishment to maintain sufficient stock. For example, if weekly usage is 20 units and lead time is one week, you might set a PAR of 30–40 units so you reorder before you’re out.