Understanding ROP is critical in maintaining delivery time commitments to your customers. In more formal terms, it’s the specific level of inventory at which you should place a new order to replenish your stock before running out. InFlow Cloud has a Recommended Reorder Point report that examines your sales data and recommends reorder points for your products. It also factors in goods in transit (GIT), which are products that have been ordered from a vendor but haven’t been received yet. If we total those numbers, we get 180 total units sold over the past 90 days. With Sortly, you can adjust your inventory minimums and low stock alerts anytime to keep up with fluctuations.
The reorder point calculation takes into account delivery lead time from suppliers. By keeping track of average delivery lead time, you can identify your most reliable and least reliable suppliers and make more informed procurement decisions. Reorder points help to ensure products and cash flow in the right direction, which one of these would not be a factor in determining the reorder point at the right time. With accurate reorder points for all of your product SKUs, you can meet customer demand in a timely fashion to improve cash flow and avoid the bloated costs of overstock. When the quantity on-hand for Ghost glasses hits 38, Archon Optical knows to place a purchase order for more.
What is the purpose of a reorder point?
Reorder points are a key element in a larger supply chain ecosystem that includes suppliers, manufacturers, and logistics providers. Now that you’re acquainted with the general steps and the formula, let’s go through a detailed example. We’ll take the hypothetical case of an eCommerce business that sells smart home gadgets.
By using the most optimal reorder levels, businesses can keep storage and warehousing costs low to protect profits. Each SKU may have its own demand curve, lead time, and safety stock requirements. One cornerstone of effective inventory management is understanding your reorder point — the precise moment when it’s time to bring in new inventory. The reorder point formula is a strategic tool that can save you time, money, and a whole lot of stress.
Frequently asked questions (FAQ) about ROP
Finally, safety stock is the number of items that companies keep in stock to guard against stockouts that may occur due to sudden shifts in supply and/or demand. If the delivery of an item is delayed or the consumption rate increases rapidly and unpredictably for any reason, the safety stock will cover the shortage of items. With this information readily available, inventory managers can avoid wasting time manually searching through spreadsheets and crunching numbers.
