What is a par level in inventory management?

• A. The maximum allowed purchase price.
• B. The shelf life of an item in days.
• C. The number of suppliers to use.
• D. The minimum quantity of an item that should be on hand before reordering.

Answer: (D)

A par level is the minimum quantity of an item you want to have on hand to ensure you can meet demand and cover the time it takes to restock. When your on-hand inventory drops to this level, you reorder to bring stock back up to the par level. The level is set based on how quickly you use the item (demand rate) and how long it takes to receive a new order (lead time), plus a buffer for variability (safety stock). For example, if you typically use 8 units per day and deliveries take 4 days, you’d want at least 32 units to cover the lead time, plus a small safety stock—say 4 more units—so a par level around 36. This approach helps prevent stockouts while avoiding unnecessary overstock. The other options describe different concepts (cost cap, shelf life, or supplier count) that aren’t about the stock level that triggers reordering.