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What Is the Reorder Point Formula & Reorder Point Calculator

In other words, it tells you when to place an order so you won’t run out of stock. InFlow and our advertising partners use tracking to provide personalised offers to give you the full experience. This includes sending you “Targeted Messages on 3rd Party Advertising Platforms” as described in the Privacy Notice. If you don’t accept this tracking, you may still see inFlow advertisements on other platforms at random.

Knowing the reorder point per item is key for efficient inventory management. It optimizes holding costs, prevents stockouts, avoids overstocking, and reduces lost sales by ensuring that stock levels are at an optimal point at any given time to meet customer demand. In essence, it’s time to reorder stock when your current inventory equals the total number of items you expected to sell during a standard lead time from the supplier plus the safety stock. When learning https://www.bookstime.com/ results, you must first calculate lead time demand and safety stock. If you aren’t sure how to calculate safety stock, we have you covered. How often you recalculate safety stock levels is also a function of how easy it is for you to get the historical data needed.

How to Calculate Reorder Point

A reorder point is a fairly straightforward concept, but successful implementation requires paying attention to nuance and details about the business, suppliers and customers. Here are a few strategies that will help you turn theory into practice. When inventory reaches the level specified by the ROP, that means it’s time to act.

Setting a reorder point helps you optimize your inventory, replenish your stock of individual items at the right time, and meet your market demand without going out of stock. Companies that operate ‘just in time’ or ‘Lean inventory management’ will often adopt this shortened formula. To calculate your safety stock figure, identify the maximum number of products you could potentially sell in a single day.

Warehouse Management

Once you’ve found how many pieces of this product you sell in a usual day , multiply it by your lead time to find your lead time demand. If reorder points don’t automatically trigger a purchase order, warehouses can no longer take advantage of this cost-saving strategy since the warehouse closest to a customer may be out of stock.

Consider reevaluating your marketing, advertising, and analytics. Not only can it help automate your reorder process, but it will ensure the numbers you base your strategy on are more accurate. Software also improves your how to calculate reorder point efficiency and removes the chance for error, so your business can quickly adjust to changes in market conditions. But this comes at a risk – if any of your formulas are wrong, so will your reorder point calculations.