[et_pb_section fb_built=”1″ admin_label=”section” _builder_version=”4.16″ global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_row admin_label=”row” _builder_version=”4.16″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”auto” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||” theme_builder_area=”post_content”][et_pb_text ul_item_indent=”30px” admin_label=”Text” _builder_version=”4.22.2″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” global_colors_info=”{}” theme_builder_area=”post_content”]In this article, you will learn how to effectively manage your business’s inventory using reorder points (ROP), transforming guesswork into data-backed decisions. You will understand what reorder points are, how to calculate them, and their critical role in warehouse operations, inventory management, and overall business efficiency.<\/p>\n
Key Takeaways:<\/strong><\/p>\n How do you know when to order more inventory?<\/p>\n In the early days of your business, you probably used your instincts. Once every two weeks, you\u2019d eyeball your stock, guess what you\u2019d run out of in the next few days, and put in an order.<\/p>\n <\/p>\n As your business gets busier and your responsibilities grow, running on instinct is not scalable. Your operations and product master data<\/a> become more complex, and things start to slide.<\/p>\n For instance, you may come in one Monday morning only to realize you\u2019re out of a key product. Customer orders are pouring in and you remember your supplier has a lead time of one week. In the meantime, all you can do is hope your customers will be patient or eat the cost of lost business.<\/p>\n In another scenario, you may notice that every week you\u2019re overflowing with one set of products that become damaged or spoiled while consistently running out of another that you need to do stock replenishment<\/a>.<\/p>\n So, how do growing businesses prevent this from happening?<\/p>\n By setting reorder points(also known as reorder level) based on historical data.<\/p>\n The definition of reorder point is the point at which you send a purchase order to your supplier or manufacturer.<\/p>\n Your gut doesn\u2019t determine your reorder level or reorder level. Your historical data and lead times do. This approach ensures your business maintains healthy inventory levels at all times.<\/p>\n Another important feature of reorder points is that they are unique to every SKU<\/a>. A common mistake business owners make is reordering everything <\/i>at the same time, even though different products move at different rates. This strategy means that some products are ordered too often while other products aren\u2019t ordered enough.<\/p>\n In this post, we\u2019ll cover:<\/p>\n Now that we know what a reorder point is and why it\u2019s important, how do you actually determine what level of inventory should trigger a new order?<\/p>\n You can start by using the reorder point calculation formula:<\/p>\n Reorder point formula = Average daily usage * lead time<\/strong><\/p>\n Let\u2019s assume that your business sells computer keyboards.<\/p>\n Your average daily usage is the average amount of keyboards you sell every day. You can find this number by adding up your daily orders and dividing it by the number of days in the period. For instance, if you add up thirty days of orders and get 300, you would divide it by 30.<\/p>\n So your average daily usage would be 10.\u00a0<\/strong><\/p>\n Your lead time is the amount of time it takes a supplier to send the keyboards from the moment they receive a purchase order.<\/a> Let\u2019s assume for the purpose of this example that it takes your supplier 5 days, at the most, to deliver new keyboards.<\/p>\n So your lead time would be 5.\u00a0<\/strong><\/p>\n One you have this information, you simply multiply the two numbers together.<\/p>\n Your reorder point would be 50.\u00a0<\/strong><\/p>\n In other words, each time your stock hits 50 keyboards, you would send a purchase order to your keyboards supplier.<\/p>\n Businesses using reorder point calculator spreadsheets can find their reorder points in Excel by using the formula above in the spreadsheet holding their inventory data.<\/p>\n That said, this is not good business practice. For a growing warehouse or distribution center, managing inventory data in spreadsheets introduces challenges around version control, data analysis, and real-time inventory data<\/a> retrieval.<\/p>\n A more reliable approach uses technology, like warehouse management software<\/a> or inventory management software<\/a>, to help identify and track inventory reorder points and place new orders with suppliers.Remember, there is a difference between a product\u2019s reorder point and reorder quantity. Your inventory reorder point indicates when <\/i>to order more stock. Your reorder quantity is how much <\/i>additional stock you wish to order.<\/p>\n Warehouses and distribution centers focused on growth, efficiency, and scalability use warehouse management systems (WMS) and inventory management systems instead of Excel spreadsheets. These systems automate manual processes that are prone to human error or oversight. Ordering inventory is one example of an important process that can be automated with the right software.<\/p>\n For instance, reorder points are only useful when businesses act upon them. If your business knows the reorder point of keyboards is 50, but there\u2019s no mechanism to alert workers when there are only 50 left, you\u2019re back to square one: frantically calling your supplier when you realize you\u2019re out of stock.<\/p>\n This is one of the main problems with calculating in reorder point calculator Excel spreadsheets. Someone has to export up-to-date data before the reorder point can be calculated. This is a step that will likely be overlooked when the warehouse is busy and, of course, busy periods are when businesses need inventory oversight the most.<\/p>\n On the other hand, a WMS can send a notification to a supervisor or manager to let them know that a specific product has hit its reorder level. Furthermore, warehouse managers can program their software to automatically send a purchase order to suppliers when a product hits the reorder level, bypassing the notification and approval process.<\/p>\n [\/et_pb_text][\/et_pb_column][\/et_pb_row][et_pb_row _builder_version=”4.22.2″ _module_preset=”default” width=”auto” custom_margin=”15px|auto|15px|auto|false|false” custom_css_main_element=”.hbspt-form .legal-consent-container a {|| color: white !important;||}” locked=”off” global_colors_info=”{}” global_module=”26788″ theme_builder_area=”post_content”][et_pb_column type=”4_4″ _builder_version=”4.22.2″ _module_preset=”default” use_background_color_gradient=”on” background_color_gradient_stops=”#481a96 0%|#200741 100%” custom_padding=”15px|35px|15px|35px|true|true” border_radii=”on|10px|10px|10px|10px” global_colors_info=”{}” theme_builder_area=”post_content”][et_pb_text _builder_version=”4.22.2″ _module_preset=”default” header_3_text_color=”#ffffff” header_3_font_size=”30px” header_3_font_size_tablet=”30px” header_3_font_size_phone=”20px” header_3_font_size_last_edited=”on|phone” global_colors_info=”{}” theme_builder_area=”post_content”]<\/p>\n [\/et_pb_text][et_pb_code _builder_version=”4.22.2″ _module_preset=”default” text_orientation=”center” global_colors_info=”{}” theme_builder_area=”post_content”]\n
Inventory Reorder Points (ROP): What They Are & How They Help<\/h2>\n
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How Do You Calculate the Reorder Point Formula of a Product?<\/h2>\n
How Reorder Points Fit Into a Warehouse\u2019s Major Business Systems<\/h2>\n
Request a free demo to learn more about Logiwa WMS.<\/h3>\n