Inventory Reorder Point Calculator

Inventory Reorder Point Calculator User Guide

This tool is designed to help you calculate the reorder point for products in your inventory.

After inputting your sales and inventory data it will tell you how much stock to reorder and when you should place the order by.

What is the reorder point formula?

The reorder point formula is a way to decide when it’s time to order more inventory so you don’t run out.

Here’s how it works:

Reorder Point Formula = Lead Time Demand + Safety Stock

• Lead Time Demand: This is how many units you sell during the time it takes to get new stock. For example, if it takes 50 days for new stock to arrive after you place an order and you sell 10 units each day, your lead time demand is 500 units (because 50 days x 10 units/day = 500 units).
• Safety Stock: This is extra ‘buffer’ stock you keep just in case something unexpected happens like you sell more than usual or there’s a delay in getting new stock.

So, if your lead time demand is 500 units and your safety stock is 30 days, your reorder point is when your inventory hits 800 units (30 days safety stock = 300 units at 10 units/day).

This means when your inventory gets down to 800 units, it’s time to order more.

This formula helps make sure you have enough inventory to sell until the new stock comes in, plus a little extra just in case. It’s like a safety net to help you avoid running out of stuff to sell!

Of course, you also need to consider your existing inventory levels, but that’s where this reorder point calculator tool will help.

Why is the reorder point formula important?

Understanding your reorder point is a crucial factor in successful inventory management.

It helps with:

• Stock Levels: By knowing your reorder point you can find a healthy balance between having too much inventory and too little.
• Efficiency: Holding too much inventory ties up crucial capital in a physical product business. Maintaining a healthy stock level allows your business to use the capital available in the most efficient way possible.
• Profitability: Overstocking inventory can negatively impact profits due to increased storage fees and an over-reliance on discounted sales, while understocking can result in missed opportunities for increased average order values and negatively impact organic ranking on platforms like Amazon.

Want a detailed guide on how to use this reorder point calculator? Let’s look at each key step.

Step 1: Adding inventory info

Start by adding information about the inventory you want to calculate a reorder point for.

1. Unit Cost

Enter the price you pay to have one unit of the product manufactured. Don’t include shipping costs or taxes.

2. 30 Day Sales

Enter the total number of units you have sold of this product in the last 30 days across all channels.

To find this on Shopify, go to Analytics and sort by the last 30 days.

To find this on Amazon, go to Reports > Business Reports > Detail page sales and traffic by child item.

This helps calculate your 30-day velocity and therefore the size of order you should place to meet customer demand and avoid stocking out.

3. Lead Time

Finally, add your lead time in days.

This should be the total time expected between placing an order with your supplier and having the stock available to sell.

This is vital for forecasting your optimal reorder point.

Step 2: Adding current inventory levels

Next, it’s time to add information about the stock you’re currently holding.

The optimal reorder point formula we use takes into account the stock level you are carrying in order to provide the most accurate forecast possible.

Add the number of units you currently have:

• At Amazon: Stock that is being stored at an Amazon fulfillment center.
• At Your 3PL(s): Stock that is being stored at a 3PL warehouse or your own warehouse.
• En Route: Stock that is either in production or on its way to you already.

Step 3: Determining inventory coverage

The third and final section in the reorder point calculator asks for your desired inventory coverage.

This is the number of days worth of inventory you’d like to order.

Some businesses prefer to order several months’ worth of inventory at a time to maximize the economies of scale, whereas others prefer to order smaller quantities on a regular schedule to keep inventory trickling in at a good pace.

Use the slider to select the best fit for your business, and the calculator will then be able to advise on the best order quantity for you.

Step 4: Understanding your results

Once you’ve entered all the required data you’ll be presented with a range of results:

• 30-Day Velocity: The average number of units this product has sold each day over the last 30-day period.
• Lead Time Demand: How many units you sell during the time it takes to get new stock. For example, if it takes 50 days for new stock to arrive after you place an order and you sell 10 units each day, your lead time demand is 500 units (because 50 days x 10 units/day = 500 units).
• Inventory Runway: How many days’ worth of inventory you have remaining at current sales volumes. This does not include safety stock, so if you are factoring safety stock in then this would add an extra buffer beyond this figure.
• Suggested Order Quantity: The size of order the tool recommends you place based on the data you have entered.
• Suggested Order Timeframe: A recommendation on when you should place your order based on current stock levels, sales volumes, and lead time.
• Cost Of Order: The total cost of the suggested order quantity based on your unit cost and broken down by a relatively standard payment term of 30% deposit (pre-production) and a 70% balance once production is completed.

Frequently Asked Questions