How to Calculate Reorder Points Ecommerce Inventory 3PL Tips

If you have at least one procurement cycle and one sales cycle worth of data. Integrate a professional route planner to remove the hassle of manual route planning and human errors that may cause delivery delays or failures. For example, if you sell and deliver how to calculate reorder points 10 t-shirts on average, but during weekends, you can sell as many as 15 t-shirts. Let’s understand the concept of reorder point and how to implement it in your business operations. Visit your local website for products & services specific to your country.

• Knowing this, you can fine-tune your reorder point to better match your sales pattern, ensuring that new stock arrives just in time to replace items that are selling out.
• For starters, your finance team will be pleased to see your overall inventory turnover improve and inventory levels drop, releasing working capital to be used elsewhere in the business.
• Average delivery lead time is the average time it takes for a shipment to arrive from when the order was placed.
• Each SKU’s reorder point is part of the puzzle that helps managers determine which items are selling well, and which are underperforming.
• We also provide solutions to ensure the formula works effectively for your operation.
• Average delivery lead time is the time it usually takes for product shipments to arrive.

When your inventory levels reach that reorder point, you must automate purchasing order generation and processing or ask your managers to handle the process manually. For starters, your finance team will be pleased to see your overall inventory turnover improve and inventory levels drop, releasing working capital to be used elsewhere in the business. Unfortunately, many stock ordering systems only offer basic functionality to support. Most allow you to enter a reorder level and a reorder quantity manually and then alert you when an order needs placing. This means that all your replenishment calculations need to be done manually using complicated and time-consuming spreadsheets.

How to calculate a reorder point

Having an adequate safety stock level means you’re covered when those unexpected scenarios pop up. It gets factored into your reorder point to make sure you’re always prepared. The lead time is a critical element in calculating your reorder point because it helps you predict when your new stock will arrive. If your lead time data is off, you risk either overstocking or ending up with empty shelves. You might think that keeping track of when to reorder stock is a no-brainer you can do off the top of your head. But inventory management is a juggling act, and knowing your reorder point (ROP) is like having an extra set of hands to keep all those balls in the air.

Whatever the size of your business, proper inventory management can be expensive to ignore. It also means more cash tied up in the cost of the inventory itself, making your finances less liquid. Finally, some inventory will depreciate in value over time, be it perishable foods or trendy clothing.

Inventory Reorder Point Excel Template

Once the reorder point is met, some point-of-sale systems will alert you that the item is low on stock, and automatically fill a purchase order form for that item. Uncovering the reorder point for a product can be done using a very simple formula. Let’s take a closer look at each component of the reorder point formula. If you run a shoe store, for example, you may have different reorder points for different sizes of shoes, depending on how quickly they sell.

• That’s why it’s not just about knowing how to calculate these points but also understanding the factors that influence them, such as safety stock levels, lead time, and customer demand.
• To calculate a reorder point with safety stock, multiply the daily average usage by the lead time and add the amount of safety stock you keep.
• While it’s doable to handle these calculations manually, it can be a task as your inventory scales up.
• Now all you need to do is subtract the maximum value from the average value.
• The number you get for safety stock represents the amount of a certain item you can keep on hand in a given period to safeguard against stock-outs, based on previous sales.
• Because there is only one day a week when an order can be placed, and we cannot be sure that our stock will always sell at the same rate, we need to be prepared.