FREE Reorder Point Calculator
When your business starts to grow, the first thing that you might face is maintaining optimal stock levels for the products. So, what’s the solution? Calculating the reorder point will help you replenish the product and keep you from ordering excess items in the future. So, how to calculate this reorder point?
The process is super easy, and you can do this using our free reorder point calculator whenever you want. Calculating it requires collecting the data on maximum and average daily usage and the lead time. Now, put the value in the calculator to get the result.
What is a reorder point?
Reorder point (ROP) is the stock level in inventory that allows a company to order more products. In short, it is the point at which the company should reorder products to balance between overstocking and shortage of the item to fulfill customers’ needs.
After reaching that level, either reordering will be placed by software or by the management team. For example, if you sell soft drinks and the reorder point is 20. It means you should reorder soft drinks when you are left with only 20 cans in your stock.
Reorder Point Equation
With our reorder point calculator, you can easily estimate when a company needs to replenish its stocks. But before that, let’s check out the formula first,
You can calculate it in two ways,
- Measuring the reorder point with safety stock
- Measuring the reorder point without safety stock
The reorder point equation with safety stock: Multiply average daily usage (in units) with the delivery lead time and then add the value with the safety stock.
So, the equation is— (Avg. Daily Sales in Units * Delivery Lead Time) + Safety Stock.
The reorder point equation without safety stock: Multiply the daily avg. sales with lead time.
So, the equation is— Daily Avg. sales * Lead Time.
How to use the reorder point calculator?
This calculator plays a vital role in operating inventory management in a company. With this free tool, you can keep track of daily sales, new trends, market demand, inventory level, and other vital factors that can affect the reorder point.
Moreover, by analyzing the recorder point, you can reduce the risk of extra inventory. And will be able to balance it more accurately.
- Using our reorder point calculator is not a big deal, and you don’t have to be good at maths. All you have to do is collect the data on the maximum and avg. daily usage in units, lead time, and safety stocks.
- Now put the values in the respective column in our calculator and click on the calculate button. To calculate different numbers, click on the reset button.
How to calculate the reorder point for inventory?
Balancing product demand and meeting customers’ requirements is necessary to grow any business successfully. Ordering too much or too little can lead the company to face excess carrying costs or out stocking.
So, calculating the reorder point for inventory is crucial to replacing orders and fulfilling the other requirements.
How to calculate
Before measuring the reorder point, you must know a few parameters first.
Avg. Daily sales: It is the avg. number of items a company sells per day.
Safety Stock: Keeping an emergency inventory for a certain number of days.
Safety Stock Formula: (Maximum Daily Usage in Units * Maximum Lead Time in Days) – (Avg. Daily Usage in Units * Avg. Lead Time in Days)
Lead Time: Purchase orders are issued and received within a certain number of days.
Lead time demand: To calculate the lead time demand, just multiply the lead time by the avg. number of items you can sell daily.
So, the formula is— Avg. daily sales (In Units) * Delivery Lead Time.
So, the ROP is— Lead Time Demand + Safety Stock.
Or, the ROP is—(Avg. Daily Sales in Units * Delivery Lead Time) + Safety Stock.
Reorder Point Example Video
Why is Reorder Point important?
The reorder point is essential to maintain the stock requirements. The reorder point is helpful for decision-making and will help regulate the inventory list. That ultimately leads to running the business more practically. So, what is the importance of reorder point?
- Help to maintain a high service level both for internal and external customers.
- Cut down the chances of delays in the supply chain
- Maintain the balance between out stocking or stocking out.
- Optimize the inventory space and cost
- Help you decide on the basis of the practical data instead of your gut feeling.
What is safety stock?
You can call it a safety cushion to run your business peacefully. As the name suggests, it refers to storing excess items so that you can deal with an emergency or don’t have to run out of stock while facing some issue with the supply chain. Businesses always plan for their future sales and also operate inventory management.
But you must know everything will not go well according to the plan. But the safety stock will be there to deal with any kind of situation if the market demand increases for a specific item or you predict something wrong.
What are the components of a reorder point?
The reorder point or the ROP demands proper data input. The ROP will show the actual result you need to know by using the accurate value it gathers. These are,
- The safety stock level
- The consumption rate of the product
- Lead time—means the amount of time it will take to reach the product at the factory.
Demand
To avoid running out before your order arrives, you need to have lead time demand ready. You can calculate this demand by collecting the data on the average number of items you sell per day and delivery lead time and now multiply this value.
Lead time
It is a specific period that you can count from the day you order the stocks until the day you finally receive them. Planning your lead time is vital, as not getting items on time may cause situations like delaying manufacturing, losing sales, or other productivity issues.
Variability
The delivery lead time and demand variability will influence the reorder point. You must know these parameters and variables can change with time. So, you must review this ROP every three to six months.
Reorder Point Calculator FAQs
Below are frequently asked questions regarding Reorder Point Calculator:
Is the eComBusinessHub Reorder Point Calculator Free To Use?
Yes, the eComBusinessHub reorder point calculator is completely free of cost. Just visit the website and enter the value to measure the minimum inventory a company needs to replace products.
What is the optimal reorder point?
The optimal reorder point is the level at which a company needs to check its inventory level to replace that specific inventory stock. It is the minimum stock of a particular product a company keeps so that it can reorder the item when the stock falls below the minimum.
What is the relationship between lead time and reorder point?
Some businesses don’t have safety stocks. And they tend to follow lean inventory practices. In such cases, businesses can calculate the reorder point by lead time with the daily average sales.
How is reorder point calculated from EOQ?
The reorder point is easy to calculate. It is just multiplying the avg. daily usage with the avg. lead time. The reorder point is always higher than the EOQ.
What is the difference between EOQ and reorder points?
EOQ is the measurement of how often inventory items should be added to a business’s inventory to reduce inventory holding costs. With the help of reorder point, you can identify the minimum inventory level, while EOQ helps to determine the order size.
What is the reorder formula?
The formula of ROP is (Avg. Daily Sales in Units * Delivery Lead Time) + Safety Stock.
Is reorder point calculator useful for dropshippers?
No however, it’s useful to know these things if you ever plan to scale into wholesaling!
