reorder point calculator

However, it will be a cost burden to the company since you need to have more space in the warehouse for that excess stock and pay a salary to the laborers handling the inventory. Historical data is crucial to calculating the standard deviation of lead time. For example, your vendor may have a lead time in their service level agreement. This order amount works in the case where you haven’t had to use any of your 4-week buffer to deal with sources of variation. However, suppose this company finds that it had to use 3 weeks of its 4-week buffer to deal with a surprise order.

It’s the number of units of a particular item that you hold in to avoid a stockout (completely running out of the product). The formula used to determine your inventory reorder point is relatively simple. So what is the best way to solve stock issues and determine the right time to order stock?

Reorder point calculator

They’re also the best way to implement reorder points in the inventory management system you use for your business. When that stock arrives, our inventory level will rise from 4 weeks worth to 17 weeks worth. When our inventory levels reach 14 weeks worth (10-week lead time + 4 weeks worth of buffer), we will place another order… and the cycle continues. In this scenario, the 14 weeks of inventory level is our reorder point.

Second, identifying and using a reorder point to trigger inventory resupply helps a business operate more efficiently by balancing two competing needs. ShipBob is an order fulfillment solution that features built-in inventory management software, giving you precise control over your inventory. You can check inventory counts at each fulfillment center and set automatic reorder levels, so you are notified when stock is running low.

Benefits of Using the Reorder Point Formula (ROP)

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 efficiency and removes the chance for error, so your business can quickly adjust to changes in market conditions. If yours is a small startup, calculating product reorder points is as simple as setting up an Excel spreadsheet (or a spreadsheet with Google Sheets or Apple Numbers). If you’re looking to bypass all the calculations above, try our below.

reorder point calculator

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