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Order too late and shelves go empty; order too early and cash sits in the stock room. The reorder point is the quantity that tells you the right moment to order.
Reorder point = average daily sales x lead time in days + safety stock. Lead time is the number of days between placing an order and having the goods on your shelf.
Example: you sell 20 units a day, your supplier takes 7 days and you keep 30 units of safety stock. 20 x 7 + 30 = 170, so you order again when stock falls to 170 units.
Work out a reorder point for every item that:
Up Stock sends a low stock alert to your phone when an item drops below its minimum level, and a purchase order is a few taps away.
It is the stock level at which you place a new order, so that the new stock arrives just before the old stock runs out.
Safety stock is the buffer you keep for surprises. The reorder point includes it: it is the stock you expect to sell while waiting for delivery, plus that buffer.
Whenever sales or lead times change noticeably, and at least every season. Items with holiday peaks need a higher reorder point before the peak.
Divide the units sold over a recent period by the number of days in it. Sales reports in an inventory app give you this without counting by hand.
Buffer stock for late deliveries and busy days
The order size with the lowest total cost
How many times your stock sells through, and days on hand