The easiest method in my opinion for setting Z reference is to set it the same as Z home. Assuming you have home switches AND a repeatable home position. This way every time you home the machine it sets Z reference to that position. Set parameter 3 to 2 for this. I don’t know if this is the preferred way for a mill as I’m a router user so what do I know?
Keith did a great video on this subject, you can find it here:
This of course won’t fix your mechanical Z axis issues and until that’s fixed nothing will be repeatable.