What are inventory reorder points and how do I calculate them?

What are inventory reorder points and how do I calculate them?

Inventory reorder points are the levels of inventory at which new stock should be ordered to avoid stockouts. To calculate them, you can use the formula: Reorder Point = (Average Daily Usage x Lead Time) + Safety Stock.

Can you explain the terms 'lead time' and 'safety stock'?

Sure! 'Lead time' is the time it takes from placing an order until it is received. 'Safety stock' is extra inventory kept to prevent stockouts due to demand variability.

How do I determine the average daily usage?

To determine average daily usage, divide the total usage over a specific period by the number of days in that period. For example, if you sold 300 units in 30 days, your average daily usage would be 10 units.

What if my sales fluctuate a lot?

If your sales fluctuate, consider using a higher safety stock level to accommodate variability. You might also analyze historical sales data to better predict future usage.