How to Calculate Reorder Point

According to Wikipedia, a reorder point defines when to order, not how much to order. In other words, the reorder point informs you about the lowest stock level that your inventory should reach before you place a new order.

The appropriate reorder point is defined by the delivery time stock, which is the inventory that you need during the lead time, and the safety stock, which is the minimum inventory level acting as a protection against inventory shortages.

For more information regarding the reorder point and safety stock, see Reorder Point vs. Safety Stock: What’s the Difference? Meanwhile, in this post we’ll focus on the reorder point formula and how to calculate it.

So, here’s the reorder point calculation formula:

(Average Daily Unit Issues x Delivery Lead Time) + Safety Stock

Let’s take a closer look at each of these variables.

Average Daily Unit Issues

Average daily unit issues refer to the quantity of an item sold per day. You can define this variable by dividing the number of items sold during a month by the number of days in this month. For example, if you sold 650 T-shirts in January, your average daily unit issues would be 650/30 = 21.6 T-shirts a day. Please note that it’s not necessary to round to an even number.

Delivery Lead Time

Lead time is the amount of time in days that it takes from the time you order the stock until the time it arrives. You can derive this amount from your past replenishment orders, and it can be an approximate number. For example, it can be 7 days.

Safety Stock

Safety stock is a minimum amount of stock that you want to keep in your inventory, and you should define it yourself, considering such factors as delivery delays, seasonal demand, or damaged items. You can research your past replenishment orders to find out these factors. For example, it can be 30 items.

As a result, the calculation can be as follows:

(21.6 x 7) + 30 = 151.2

It means that your reorder point equals 151.2.

Wirh Delivrd inventory management software, you can easily set up both the safety stock and reorder point for your orders, so that the system can warn you when you reach these amounts.
For more information, see Reorder Point vs. Safety Stock: What’s the Difference?twitteryoutube

Delivrd: Reorder Point vs. Safety Stock

Reorder Point vs. Safety Stock: What’s the Difference?

The concepts of reorder point and safety stock may be confused in Delivrd, so we’d like to explain the difference in this article.

Reorder Point vs. Safety Stock

Imagine that you work for a company that prints on T-shirts, and you have a supplier from which you regularly order “blank” T-shirts of different colors. Black and white medium-sized T-shirts are high sellers, as most people prefer their corporate logos, rock band names, or just funny pictures to be printed on black or white tees.
Let’s take a white medium-sized T-shirt as an example. Let’s suppose that you have 10 boxes of white medium-sized T-shirts in stock, with 100 tees per box, and would like to reorder them from your supplier when you have 5 boxes (500 tees) left. So, how to achieve this during inventory management in Delivrd?

  1. Click Products & Inventory > Products to view a list of your products. To learn how to create and import new product records, see Delivrd User Documentation.
  2. To the left of the needed product name, click Actions > Edit.
  3. On the General tab, in the UOM (Unit of Measure) drop-down list, select Box.
  4. In the Reorder Point field, enter 5.
  5. Click Save.

blog_01_reorderpoint

As a result, you will get low inventory warnings when your inventory of white medium-sized T-shirts reaches 5 boxes. You can still take the T-shirts from the warehouse, but it’s a bad practice, which may result in reaching the safety stock limit.
Safety stock acts as a safety belt for your inventory. Issuing stock when it goes below safety stock levels is a poor inventory management practice and should be avoided whenever possible.
So, let’s suppose that you want to be alerted when their number reaches 2 boxes (200 T-shirts). In Delivrd, do the following:

  1. Click Products & Inventory > Products to view a list of your products. To learn how to create new products, see Delivrd User Documentation.
  2. To the left of the needed product name, click Actions > Edit.
  3. Click the Logistics tab.
  4. In the Safety Stock field, enter 2.
  5. Click Save.

blog_01_reorderpoint

As a result, the inventory of white medium-sized T-shirts will no longer be issued when it reaches 2 boxes, and the inventory amounts will be marked with red for all transactions until you make a replenishment order. And, when you reach the reorder point, the inventory amounts will be marked with yellow. Here’s how it looks in Delivrd:

inventory-list-rp

And here’s how it’s reflected in transaction history:

transaction-history-rp

However, it’s up to you decide what to do when you reach the safety stock level. In case of reaching the reorder point, it’s clear that you need to reorder inventory by using the replenishment (purchase) order in Delivrd.

But in case of reaching the safety stock, you can either stop all issues or fulfill customer orders until the stock level is zero. You can use the safety stock only as a measure of accurate inventory management, as the stock should never get below the safety stock level.

An accurate reorder point means that you never get lower than your safety stock level, but a good safety stock level means that your quantity never hits zero while people are still willing to purchase the product.
Note: The figures in the example above are very approximate. Of course, you should make thorough calculations, estimations, and forecasts to determine the exact figures for reorder point and safety stock.

Calculating the Reorder Point

And now let’s involve some math and see how to calculate the reorder point. Please note that it’s possible to make such calculations only when you have a stable sales/purchase cycle. As for the reorder point, it’s calculated for each product individually. So, here’s the reorder point formula:

(Average Daily Unit Issues x Delivery Lead Time) + Safety Stock

where average daily unit sales means the average number of product units that are sold per day, and the average delivery lead time is a time period that is typically required for a specific product to arrive.

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Customized Categories in Delivrd

Note: For up-to-date guides on using Delivrd, please refer to official Delivrd documentation.

In order to make Delivrd the best inventory management and order fulfillment software, we drive our product development from our user’s feedback. And your voice was clear: you need the ability to create your own product categories. And now it’s here!

Product Categories:

To create product categories, go to the ‘Products’ page, and from the Actions menu, select ‘Maintain Categories’:

maintain categories

From here, add, edit or delete the categories according to your requirements:

new product category button

New product category name

Once you create categories, you can assign them to products – either by updating existing products or when creating new ones:

Categorize Products

You can also search for products by category from the Products page:

Search product by category

 

We look forward to getting more feedback from you. Vote in our polls (look at the right bar of this page), or use the Feedback page (again, look right for the green button or click here) to let us know what we should improve in Delivrd.twitteryoutube

Importing Products Into Delivrd

Note: For up-to-date guides on using Delivrd, please refer to official Delivrd documentation.

This how-to guide will explain how you can import new products into Delivrd, the free online inventory management and order fulfillment solution.

When you first start using Delivrd, before you can start processing orders (inbound and outbound),  you first need create new products. You can create new products manually, but if you have many products, it’s a lot easier to import products from a text file.

Also, you might already have all your products data available in another system (perhaps your shopping cart app has some product information). You might be able to export your product data from that application and then import it into Delivrd.

In order to import product data, you need to create a CSV file with all product information. Each product will have its information in a separate line in the CSV file.

Here’s how the data in the file might look like:

import_products

Structure of the import file

The import file must have the structure explained below. If the structure is not exactly as explained here, Delivrd will not be able to create the products correctly.

File structure:

Line no.1 – this is a header line, meaning – it does not contain any product data, but rather the name of each field in the import file. This line is not imported into Delivrd, and its purpose is to make it easier to understand the content of the imported data.

As in any CSV file, each field must be separated by a comma (,) sign

Lines no. 2,3,4 etc. – these are the lines which contain the actual product data. Each line must have all data fields(currently, a total of 21 fields). Some fields can be empty, while other fields are mandatory and must contain a valid value.

Here’s a table that describes the fields that should be in the import file, and some of their characteristics.

Product Import File Strcuture

 

Field Name Field Description Field Data Type Field Length Example value Remarks Mandatory?
LineNumber Number of product line Number 2 1,2,3 Yes
Name Product short name Text 30 Digital LCD Kitchen Buzzer Yes
Description Product long description Text 255 Ultrathin Credit Card Sized Digital LCD Kitchen Buzzer Timer with Magnetic Mount Yes
Group Product group from list of product groups Text 255 Consumer Electronics From list of available groups Yes
Weight Net weight of product Number with decimals 8 0.52 Yes
Width Width of product Number with decimals 8 2.3 No
Height Height of product Number with decimals 8 1.33 No
Depth Depth of product Number with decimals 8 3.8 No
Barcode Barcode number of product Number Usually 12 or 13 digits 7290103120641 No
BarcodeSys Barcode system Text 3-4 EAN
UPC
ISBN
No
SKU Products SKU Text or Numbers 255 148529 Must be unique Yes
PackMaterial Product id of packaging material Number 255 35 Yes
PackingInstructions Packing instructions for this product Text 1028 "Product should be packed in a white box and shipping label should be applied on the left side of the box" No
PaackgingMaterial Is this product a packaging material? 0 or 1 1 0 - not a packaging material
1- is a packaging material
No
Bin Bin number used for storing this product Number 10 103
209
No
Value The value of the product Number with decimals 8 15.26 Yes
SafetyStock Safety stock levels Number with decimals 8 12 Yes
ImageURL URL of product's image Text 1028 http://images.com/thispimages.jpg Yes
PageURL URL of product's page Text 1028 http://mywebsite/product1.html No
Color Color of product Text 255 Blue No
Size Size of product Text 255 XL
42
No

Download Sample Product File

The best way to understand how a products import file should look like, is to just click the link below – sample file will be downloaded. You can use it as a template to create your own products import file.

Products Import File

Video demo – importing products from CSV file into Delivrd

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Create Replenishment Order – Example

Note: For up-to-date guides on using Delivrd, please refer to official Delivrd documentation.

In our last tutorial, we explained how you create replenishment (purchase) orders in Delivrd. We will now walk-through an example of a real replenishment order I created to order some products I sell on eBay.

I use various suppliers to source my products, but my favorite one is VolumeRate (from now on, referred as VR-VolumeRate). Products are not sold cheap there, but VR is a very reliable supplier, and more importantly, he ships his products well-packed, all products are labelled with both SKU number and a serial number barcode. And that’s awesome, because I don’t have to label each piece I buy. Here’s an example of those labels:

iphone_leather_case

When we will walk-through receiving shipped products from a supplier, I will explain why these labels are so great, and actually worth the extra $$ I pay VR.

But first thing first, we need to create a new replenishment order. In the example to follow, I purchased 2 products: Glossy screen guards for iPhone 4 and protective back-cover for iPhone 5, totaling 45 pieces.

Here’s how the order details look on VR’s website:

vr_OrderDetail

Important things to notice are the Order # , in the top left corner of the screenshot, and the SKU numbers.

I will use VR Order # as reference order number in Delivrd, and any time I will need to lookup that order I will use the Order # as a search term.

SKU’s, as you might have notices so far, are very important in Delivrd,as they are used to uniquely identify products. When I created the two products in the order, I’ve used the SKU’s that VR uses. I could have basically used any unique number for an SKU, but since VR already manages SKUs, and even labels products with those SKUs, it makes sense to use VR’s.

This is the header information of this order, from the view replenishment order page:

Delivrd_repl_order

The order # (230) is the order number that Delivrd has assigned to this order. The reference order number is VR’s order number. Total shipping costs for this order were $12.21. I estimated that the products would arrive mid-April, but that was just a guess.

The order lines for this order, and the total for this order, including shipping costs, are as follows:

Delivrd_reporder_lines

Once the order have been created, you can change any details you want, including removing/adding new lines.

After all order lines have been added and changes completed, the replenishment order should be reviewed and released.

You can review the order in the view order page or in the edit order page, and release it by clicking on ‘Release’ from the Actions menu, in the top right-hand side of the page:

release_repord

What happens next is, I usually wait a couple of days until VR ships the products. When that happens, I get a tracking number from VR. I then create an inbound shipment, to keep track of the order’s shipment.

 

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