[Update: Want an even easier way to calculate reorder points quickly? Check out our dedicated reorder point calculator, ReorderPointFormula.com!]
Are you trying to figure out the reorder point for your items? Well, instead of doing the math yourself, you can just plug some numbers into our reorder point calculator!
The reorder point formula and how to calculate it
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 your lowest stock level before you should place a new order.
Knowing your reorder point is crucial if you’re looking to avoid stockouts or over-stocking. Both of these could cost you big time in the long run.
The formula and calculation for a reorder point work out like this:
(average daily unit sales x the lead time in days) + your safety stock = your reorder point
This formula takes three things into account. The first is how fast the item is selling. The second is how long it takes to get more. And finally, it accounts for the extra stock you should keep on hand, just in case. To illustrate, 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 daily. So, in order to calculate this, you can take the amount 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 selling less than one unit a day is perfectly fine.
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 when you order stock to when it is delivered to you.
To calculate this, look at your past purchase orders and see how long it took for the items to arrive at your door. For example, let’s assume that of your past 10 shipments, 5 took 3 days to arrive (3 days x 5 shipments = 15). The other 5 shipments took 4 days to arrive (4 days x 5 shipments = 20). If you add up all those days and divide them by the number of shipments, you would get your lead time. In this example, you would take 35 and divide it by 10, giving you a lead time of 3.5 days. 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.” For this reason, you should think of this as the minimum amount of stock that you want to be available in your inventory.
You must set this according to what you think is the most ideal. Remember that you should also consider certain things like delivery delays, seasonality, or damage due to inventory transit.
Just like the lead time, look at your past purchase orders and see what factors usually affect the delivery time of your items, and adjust your safety stock accordingly.
Why is the reorder point calculator so valuable?
Undeniably there are a number of reasons why it’s important to know your reorder point for each and every one of your products. Here are just a few reasons why the reorder point calculator is so important:
- Prevents stockouts: Stockouts are a business’s worst enemy. Not only do they result in lost sales, but they also lead to a lot of dissatisfied customers. By using a reorder point calculator, businesses can ensure that they can always meet customer demand.
- Reduces disruptions: If you’re a manufacturer, running out of inventory could potentially cause your operation to come to a screeching halt. For this reason, a reorder point calculator can be helpful to minimize the amount of downtime you experience.
- Optimizes inventory levels: Holding too much inventory ties up capital and increases storage costs. With the use of a reorder point calculator, businesses can ensure they have optimal inventory levels, which will reduce costs and improve their bottom line.
What can I do with a reorder point calculation?
Now that you know the reorder point formula, you can use software to show you exactly when you need to order more. While you might be able to create something yourself using an inventory template, inFlow makes managing your stock much more effortless. inFlow has a Reorder Stock screen that lets you know what you’re running low on and how much to reorder. Have multiple locations? No problem. inFlow has the power to set two different reorder points based on location. This allows your individual locations to have more autonomy when reordering and still enables you to track your inventory company-wide.