How do I calculate the reorder point?
Fishbowl’s free reorder point calculator is based on the following ROP formula:
Where:
- Lead time = the days between issuing a purchase order and receiving the product(s).
- Safety stock = the number of units you keep on hand in case of emergency.
- Unit sales per day = The average number of products you sell daily
For example, let’s assume that for a particular product, you have a lead time of 5 days and a safety stock of 15 units. If you sell an average of 80 units per day, your ROP will be:
ROP = (5 days x 80 units per day) + 15 units
ROP = 400 + 15
ROP = 415 units
To avoid stockouts, you should order new stock when you have 415 units left. Knowing how to find the reorder point, you can quickly determine when you should reorder a specific product.
In this quick guide, learn what ROP is, why it matters, and how to calculate reorder point using Fishbowl’s free reorder point calculator.
The reorder point or ROP is the inventory level at which a company should replenish stock to avoid shortages and stockouts. This level varies depending on factors like demand variability, lead time, safety stock, and supplier reliability. For instance, if a supplier always delivers a product promptly—and sometimes even ahead of time—you’ll have a lower ROP.
Basic stock is the usual quantity of units you keep on hand. Measuring your basic stock will help you determine how much to reorder, but that is a separate discussion from calculating the reorder point.
What is the reorder point and why is it important?
The Reorder Point is the threshold at which you should order more products to prevent shortages while also avoiding overstock. That way bulk ordering would not be a waste of time.
Knowing the ROP benefits established businesses that have been selling products for years and new ones that are just starting.
There are several reasons:
- Avoid stockouts: The correct ROP helps you order stock at the right time to replenish it promptly to avoid stockouts and shortages.
- Optimize inventory levels: Replenishing stock at just the right time helps you maintain an optimal inventory level where you have just enough stock to meet demand without having too much capital tied up.
- Boost cash flow: Minimizing the capital tied up in stock improves your cash flow, giving you money for other important business purposes like expansion.
- Reduce lead times: Having the correct ROP ensures you receive new inventory on time to fulfil customer orders promptly.
Easily calculate reorder point with Fishbowl today
Fishbowl’s reorder point calculator helps you maintain the right inventory levels to meet demand without carrying excess stock. It’s a small part of the advanced inventory management features in Fishbowl Manufacturing and Fishbowl Warehouse. Not only can you use it to automatically update and calculate your optimal ROP overtime without any manual calculations—thereby reducing human error and increasing efficiency—but you can track factors influencing it like sales trends, demand changes, and supplier history. In Fishbowl, the Unit Sales Per Day will also be calculated automatically based on your sales history. With our reorder point calculator, you minimize the risk of extra inventory and have better inventory control. Our software can also help you figure out the optimal reorder point, so you don’t have to keep computing the reorder quantity and reorder level. Your replenishment inventory won’t fall short of customer demand.
Constantly experiencing stock shortages? Unable to meet demand? Need more cash? The reorder point (ROP) can help. Join thousands of businesses that use Fishbowl to simplify their inventory management. Book a demo today.