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How to Determine Reorder Points

Determining reorder points is the process of identifying when a product needs to be reordered based on stock levels, sales trends, and other factors. This helps retailers ensure that they have the right amount of inventory on hand to meet customer demand and prevent stockouts.

There are a few different methods that can be used to determine reorder points:

1. Fixed reorder point
This method involves setting a fixed reorder point based on the average lead time and the average daily demand for a product. This is a simple method that can be used for products with consistent demand.

2. Variable reorder point
This method involves setting a reorder point that varies depending on the product and the seasonality of demand. This method can be used for products with variable demand.

3. Safety stock
This method involves calculating a safety stock level, which is the amount of inventory that should be kept on hand to cover unexpected increases in demand or delays in the supply chain.

4. ABC analysis
This method involves classifying products into different categories based on their importance to the business, and then setting reorder points accordingly.

5. Reorder point formula
Reorder point = (Lead time x Demand) + safety stock

Once reorder points are determined, retailers can then use this information to plan their inventory and purchasing decisions. This can help them avoid stockouts and overstocking, which can be costly and negatively impact customer satisfaction.

Assisty applies this concept to create Replenishment Reports that allow you to plan your purchasing better.

Updated on: 19/01/2023

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