2. 9
The Optimal Amount

3. You Should Be Able To:
Calculate the correct order quantities and order times using the par stock, Levinson, and theoretical methods.
Determine the optimal inventory level.
Explain the benefits and problems of using only the theoretical method for determining inventory levels.

4. Optimal Inventory Level
A principle objective of inventory management is maintain only the necessary amount of products to serve guests without running out of anything, but not to have so much that the products suffer from spoilage or incur other storage costs.
Changed Title to reflect section in book, EGM

5. Correct Order Size
Par Stock Approach – the maximum amount of a product you want to have on-hand; order just enough to bring the stock to par
Levinson Approach – takes into account forecasted sales, portion sizes and yield percentages planning an order
Theoretical Approach – takes into account storage costs, carrying costs and ordering costs when planning purchases
Added Graphic, EGM

6. Par Stock Approach PAR STOCK:
The maximum amount of a product you want to have on hand. When reordering the product you want to buy just enough to bring you up to par.

7. Par Stock Approach (cont.)
Most small operations utilize this model
Utilized when buyer accepts ordering procedures and delivery schedules of seller
Method: Decide on order amount needed to bring product stock level up to par
Account for banquets, safety stock, and stock needed between order and delivery time
Reevaluate par stock levels often

8. Par Stock Approach (cont.)
For Example,
Your restaurant determines it needs a par stock of five 10 pound bags of pinto beans. On your regular inventory day you see you have 2.5 bags left. How many do you need to order?
Par Stock = 5 bags of 10 pounds
Inventory = 2.5 bags of 10 pounds
Order Amount = Par Stock – Inventory or
5 bags – 2.5 bags or
3 bags

9. Par Stock Approach (cont.)
Just Remember,
Estimate your inventory by delivery day
Constantly reevaluate your Par Stock Levels
Approach works for set menus/constant usage
Does not consider banquets
Consider a Safety Stock amount
Back up stock to never run out

10. Levinson Approach Levinson Approach:
Determination of appropriate ordering sizes by taking forecasted sales, portion sizes, and yield percentages into consideration

11. Levinson Approach (cont.)
Accept suppliers’ ordering procedures and delivery schedules
Determine best time to order (dairy products may be ordered daily)
Method: Forecast the amount of product that will be needed between deliveries
Calculate order size
Adjust for stock on hand, etc.
Revise often

12. Levinson Approach (cont.)
Based on historical data
Forecast expected number of guests
Forecast orders of specific menu items based on popularity index
Determine raw pounds of each ingredient needed for projected sales
Calculate portion factor
Calculate portion divider

13. Levinson Approach (cont.)
Portion Factor – 16 divided by the number of ounces needed for one serving
Portion Divider – an item’s portion factor multiplied by the edible yield percentage
Edible Yield Percentage – servable weight i.e., a menu item divided by its original weight, multiplied by 100

14. Levinson Approach (cont.)
For Example,
You have booked an upcoming dinner for 300 people. Your starch will be a 4 ounce serving of scalloped potatoes. Typically, potatoes have a 75% yield when cooking in this form.
Portion Factor = 16 ounces / 4 ounces = 4.00
Portion Divider = 4.00 x 0.75 (yield) = 3.00
Order Size = 300 people / 3.00 = 100 lbs

15. Levinson Approach (cont.)
Just Remember
Portion Factor can vary based on unit size
Pounds, Liters, Each, Grams
You may need to compute the number of pounds further to determine packaging needs
36 lbs per case would be LBS / 36 = # of cases
Create historical data for better forecasting
Utilize your POS system!

16. Correct Order Size
Some establishments can also use a combination of the Par Stock and Levinson Approaches.
For example, a hotel with a restaurant that stays constant and a banquet room may use the Par Stock approach for the restaurant and the Levinson approach for the banquet. When adding the two orders together would ensure proper purchasing to handle all customers.
Added Graphic, EGM

17. Theoretical Approach Theoretical Approach:
An approach to ordering which considers the inventory value and the costs associated with that inventory.

18. Theoretical Approach (cont.)
Utilized in large and multi-unit foodservice operations
A mathematical model for determining the optimal order amount
Weighs total annual cost of storage and purchases against order size
Considers Storage and Ordering Costs

19. Theoretical Approach (cont.)
Storage costs / Carrying costs
Expenses such as insurance, security, and spoilage associated with holding inventory in storage.
Ordering costs
The amount of money spent to order, receive, and store products as well as administer those functions.

20. Theoretical Approach (cont.)
Capital Cost
The money tied up in your inventory and the inability to earn a return.
Opportunity Cost
What you give up when making a decision to do something else.

21. Theoretical Approach (cont.)

22. Theoretical Approach (cont.)
Just Remember
Most use a computer generated model to calculate the figures
Sometimes quantities are not feasible due to storage space or cost to purchase

23. Correct Order Time
The order time that minimizes the ordering costs, inventory storage costs, and stockout costs.

24. Correct Order Time FACTORS
Safety Stock
Reorder Point (ROP)
Product Usage Pattern
Lead Time
Just-in-time (JIT) Inventory Management
Stockout Costs

25. Problems with Theoretical Approach
Usage rates vary from day to day
Storage and ordering costs vary
Stockout costs are difficult to assess
Buyer Qualifications – delivery / quantity
Too Many Items to Calculate

26. Problems with Theoretical Approach (cont.)
As we buy from supplier, the supplier buys from a source or other supplier
Items get discontinued
Assumes adequate storage facilities
Assumes products will be used before spoiling

27. Benefits of Theoretical Approach
Factual numbers
Costs vary with Order Size
Computers help with calculating to minimize time and paperwork
Large operations and multi-units benefit greatly