When to purchase using reorder points
Purchasing is one of the most critical and challenging tasks in any retail organization. You want to make customers happy by stocking the products that match their demand while meeting your company’s financial targets. To accomplish this, many companies employ a reorder points to assist them on reordering products.
There are two big questions a purchasing department faces at any given moment:
- When should you reorder more inventory?
- How many units should you order?
If you over-purchase, then you’ll have inventory taking up real estate in your warehouse and tying precious dollars that could be have reinvested elsewhere. If you purchase too little, then you’ll miss sales opportunities by stocking out and frustrating customers in the process
Recognizing this persistent struggle for purchasing, Finale has an advanced reordering capability to assist by notifying when to create a purchase order and recommend how many units to purchase.
To bring stock levels up above the reorder thresholds, a company can create reorders for all products in the state of needing reorder. Products may be purchased from different suppliers, so the reorder process often involves making reorders from all of the suppliers relevant to the products in the needing reorder state.
A reorder itself is just a purchase order with values filled in for the supplier and for the items and order quantities. If you want to adjust the order quantities, you can simply change the numbers in the order. The idea of the reorder process is to give you the default quantities to reorder in an automated process that you don’t have to think about.
Reorder points calculations
There are two reordering method calculation companies uses to calculate the reorder points.
A. Min / Max Inventory Ordering Method:
This is the simplest method of inventory control reordering and is easy to set-up with two static inputs. The “Min” value represents a stock level that triggers a reorder and the “Max” value represents a new targeted stock level following the reorder.
This reordering method is ideal when product sales are predictable and for customers who want a simple configuration to assist with reordering.
B. Inventory Reordering Based on Sales Velocity (Historical Sales)
Instead of having a static reorder level, some inventory management software will calculate the reordering threshold based on sales velocity and user defined fields (supplier lead time, desired safety stock, and expected sales growth) —to make smarter, faster purchasing decisions.
This is ideal for customers who have product sales that are more unpredictable based on seasonality, new product launch, or other factors and who want something more powerful and dynamic than static min / max thresholds to assist them with reordering.
Reorder points are used heavily in retail and restaurants, and other businesses that do frequent stock takes and orders to keep stock levels at a steady state on a daily or weekly basis.
Example from Finale Inventory
Here is a video showing reorder points and reorders in Finale Inventory.