If you operate a business that sells inventory, then you have many important decisions to make. One of those decisions is when you should order more supplier stock. It doesn't matter whether you manage a major superstore or own a small boutique, every business wants to stock enough inventory to operate without overstocking or understocking.
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Reorder Point Calculator
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What Is the Reorder Point?
When you stock an item in demand, every purchase reduces your inventory levels. The inventory reorder point is the formula that allows you to reorder stock at the correct time. Having a system in place to deal with your reorder point can reduce costs, but it can also remove the stress from ordering inventory.
You need to order fresh stock before you run out of stock, but if it is too early you will increase holding costs. If it is too late, you run the risk of stockouts, which may send your customers to the competition.
How do you know when it is time? Safety stock is stocked to give you time to place new purchase orders. You can work out your safety stock levels by multiplying your average daily usage and lead time in days.
Average lead time gives you a good indication as to how long you will need to wait for new stock because you need a sufficient amount of stock to meet customer demand in the meantime. Safety stock provides you with a buffer in case of supply chain issues, depending on the number of days it takes to receive stock.
Read More: What is Reorder Point?
How To Calculate The Reorder Point
You can calculate the reorder point for your business by using the reorder point formula.
Lead time demand + Safety Stock Level = Reorder Level
If you struggle with calculating the reorder point, or want to speed up your calculations use the reorder point calculator above.
How To Use The Reorder Point Calculator
Using the reorder point calculator to calculate the reorder point is the simplest and most effective way to know the amount of inventory to order and when.
The calculator is simple to use. You first need to know your lead time demand and your safety stock level. Then simply input them into the form to calculate the reorder point. Be sure you use accurate figures, otherwise, your result will be skewed.
How QuickBooks can help
Managing your inventory is crucial to running a successful business, and you can make that easier with inventory management software. It removes the guesswork and manual calculations from the process to improve your bottom line. Visit our pricing page to get started with a 30-day free trial on inventory management software.
You can also visit our free tools and templates hub to find more free assets that can help you run and grow your business.
