One of the most important but often frustrating parts of running an awesome and effective ecommerce business is inventory management. From balancing supply and demand to keeping careful track of how your order quantity is growing over time and wondering whether you’re about to hit a dry spell or- just as troublesome- an unexpected boom of orders you can’t keep up with, managing your stock is a delicate tightrope walk. Towards the beginning of your ecommerce journey it can feel like you’re perpetually off-balance, always about to tip and fall one way or the other. It can be enough to make you lose sleep at night.
One of the things that’s likely to make you worry are your reorder points, or the minimum level of stock you need to keep before placing an order to your manufacturer or supplier for more product. Reorder point calculation used to involve a lot of tricky math, and oftentimes merchants would hire somebody to work in their business specifically to calculate numbers and dates on their behalf. So how to calculate ROP if we don’t have a dedicated mathematician? Luckily, we live in the 21st century now. We have computers and software that can do all that tricky work for us. But we’re getting ahead of ourselves. First, it might be helpful to define a few terms and let you know the formula for reorder point calculation.
The reorder point definition goes as follows: simply speaking, it’s the minimum level of inventory you should have on hand. If stock happens to dip below that degree, you need to acquire more merchandise, and quickly. This order point is calculated by taking into account the number of customers asking for your products at any given time, and making sure you have enough stock to keep up with demand until you’re able to get your new goods squared away in your warehouse.
Reorder point calculation isn’t as difficult as it used to be before the age of technology. Your SKU manager may very well have the capacity for calculating reorder point numbers built in. If for some reason you don’t have a reorder point calculator on hand, though, here’s the time between orders formula you can use to do it by hand:
Reorder Point = Demand during lead time + Safety stock
It’s that simple. Of course, the trouble can come when figuring out how much demand there is during lead time, and how much safety stock you should have on hand. But let’s say that it takes a month to receive new products from the manufacturer. You may want to take the amount of orders processed during your highest month so far, and then double it or even slightly more. This ensures that your reorder level is sufficient even if there happens to be extra demand, or your new inventory is a bit late.
Any warehouse management system worth its salt will be able to alert you when stock dips below a certain point. And if you’ve got it set up right, and your integrations work smoothly, you might even be able to have it automatically send in a request to your manufacturer or supplier so that you have more goods on the way without even having to lift a finger. If you’re looking for fulfillment partners that offer this kind of service, P2Pseller’s got your back. We believe that data and information is king, and want you to have 24/7 access to the finer points of your business from wherever you happen to be. No matter whether you’re at the office, on the bus, or sitting on the couch at home, you’re able to use our convenient website or app to track inventory levels, customer demand, and how close you are to your reorder point in real time. Register a free account with us today to browse our offerings and see what we can do for you.