Want to start setting the reorder point for your items? Well, instead of using your own formula for the calculation, you can plug in some numbers and use our reorder point calculator instead!
The reorder point formula and how it’s calculated
Your reorder point tells you the stock level at which you should place a new purchase order for more stock. In other words, it lets you know the lowest stock level your inventory should reach before you place a new order.
The formula and calculation for a reorder point works work out like this:
(average daily unit sales x the lead time in days) + your safety stock = your reorder point
This formula takes into account how fast the item is selling, how long it takes to get more, and accounts for extra stock you should keep on hand, just in case. We’ll look at each of these variables in a little more detail below:
How do I figure out average daily unit sales?
The average daily unit sales is the quantity of an item you sell every day. You would simply take the quantity of how much the item sells and divide it by a time period.
For example, if you sold 500 basketballs in a month that had 31 days, your average daily unit sales would be 500/31 = 16.12 basketballs a day. You don’t have to round to an even number and it’s perfectly fine if you sell less than one unit a day.
Another example: if you sold 10 basketballs in a 31-day month, your average daily unit sales would be 0.32 basketballs a day.
How do I figure out lead time in days?
The lead time is the amount of time in days that it takes from the time you order stock until the time it is delivered to you.
To calculate this, take a look at your past purchase orders and see how long it took for the items to actually arrive to your door. The lead time doesn’t have to be exact, you just have to base it on your experience.
How do I calculate safety stock?
Safety stock is what you keep on hand for those “just-in-case moments.” This is the minimum amount of stock that you want to be available in your inventory.
You will have to set this according to what you think is the most ideal. Keep in mind that you should also consider certain things like delays in the delivery of your items, seasonality, or damage due to transit of inventory.
Just like the lead time, take a look at your past purchase orders and see what factors usually affect the delivery time of your items, and adjust your safety stock accordingly.
What can I do with a reorder point calculation?
Now that you know the reorder point formula, you can use software to alert you as soon as your stock reaches that level so you can order more. While you might be able to create something yourself using an inventory template, using specific inventory software like inFlow Inventory will make managing your stock much easier.
For example, as soon as your inventory reaches your reorder point level, inFlow will let you know when you’re working with that item. Plus, in a few clicks, you can instantly create a purchase order so you can order more.
Give inFlow Inventory a try by downloading the free edition today!