How can you determine reorder points to avoid stockouts?

Conducting a consumption trend analysis will play a great deal in setting reorder points and taking into account respective lead times for products.

Also market situation & present demand/forecast from market sources. Wrong situation may caused you dearly either overstock or under / out of stock.

If there was one answer, I would be a millionaire. ROPs are a fast-moving target in today's Supply Chain management market because every piece of inventory owns its own pipeline story. Daily Demand Rate (DDR) Pipeline time Days stock on-hand These are my go-to numbers to build a starting point. ROPs are not static; they are fluid and review and adjust as needed...jmo

In my opinion, instead of static reorder levels, consider dynamic levels that adjust based on changes in demand and market conditions. In addition, classification of products based on their importance, and managing reorder levels accordingly. High-value or critical items may require more frequent monitoring and adjustment.

The basic formula for calculating the reorder point is: Reorder Point = Demand per Day \Lead Time in Days + Safety Stock Where: Demand per Day is the average units sold or used per day. Lead Time in Days is the time it takes to receive a new order once placed. Safety Stock is a buffer of extra stock held to mitigate the risk of stockouts due to uncertainties in demand or lead time. This formula helps businesses determine when to reorder products to avoid running out of stock during the lead time.

While the periodic review system offers flexibility, it may result in higher safety stock levels, potentially leading to increased holding costs. The chosen review period should align with the business's specific requirements and the nature of its inventory. There are a few additional considerations that could enhance the understanding of this inventory management method such as lead time and demand variability, service level agreement, inventory turnover, cost-benefit analysis and technology integration.

Use of Proper demand forecasting, if a retailer anticipates a surge in demand for certain items during the season based on sales trends, they can adjust their reorder points accordingly to ensure enough stock to meet the increased demand without overordering. Example: A toy store analyzes their sales data and notices that every December, sales of certain toys increase by 50% due to holiday shopping. They use this data to forecast demand for the upcoming December and increase their reorder point for those toys well in advance. This proactive approach allows them to have sufficient stock to fulfill the seasonal demand spike, ensuring they don't miss out on potential sales and maintain customer satisfaction by having popular items in stock.

Set a low limit within your ordering system. This triggers a reorder when you hit that low limit in your inventory. Inventory should be monitored weekly if not daily depending on the item.

I agree with checking your inventory weekly. Ordering smaller quantities and perhaps having a standard order can keep inventory levels consistent and also can put you on your suppliers priority list since you're someone they can count on for bread & butter orders. So when peak season comes you are well stocked and ready.

Thanks for the opportunity.I am going to dwell on stockout in a bit.Stockout in my definition is total loss of sales in a business at a time interval leading to negative image and corporate branding of that business. Sales is highly tied to Stock,as such out-stocking in a business over 5 years old is totally unacceptable as it's speaks volumes of the business lack of attention to historical data,trends, evolvement in the continuous changing business environment and largely that poor perception of businesses lack of recognition of suppliers as shareholders (stock holders) ,thereby giving them major collaboration roles in growing sales and expansion of business. Your sales is proportional to your in- stock at a given period.

Checking on your month to month sales, as well as your monthly sales on a year to year basis provides insight on what demands may need to be filled. By paying attention to this data you will find examples, such as: The a seasonal cranberry drink does well in your establishment every winter season. This could replace the slow mover. Giving you space to use for year around seasonal drinks options. This ties into inventory control. With this you can forecast the amount you need for each season. And having a backup plan does not hurt. Talk to your suppliers. Ask them what’s being bought up in the area. The stores near you are all buying ____ in excess. You have none. Yet you have a dedicated base of purchase power.

In the real world, determining reorder points involves considering factors such as lead time, demand variability, and desired service level. Basis the cost of doing business, firms can decide the acceptable service levels and can adjust the safety stocks accordingly. The higher the service level, the higher the safety stock.Regular review and updating these parameters based on changes in demand patterns, supplier lead times, or other relevant factors to optimize the reorder point and minimize stockouts.

Seasonality items need to be carefully ordered using past sales and increase/decrease in overall sales. Better to err slightly on the high side than to over/under order. Also demand for the item is critical in evaluating your order. Fad items die quickly so care should be taken in ordering them .

Engage in collaborative forecasting with your suppliers and key customers. Sharing demand forecasts and sales data with suppliers can help them better understand your needs, leading to more efficient production and delivery schedules. Involving key customers in forecasting can provide insights into future demand changes.

All are applicable, however each product should be managed specifically to it's specific demands and Supply Chain anomalies.

Over and above the safety stock, linearity of sales needs to be factored in to cater to calculate the Emergency Stock. This is the difference between the Average Daily Sales and the peak sale during a period (in FMCG the period is a month). On what particular day will the peak sale occur every month is unpredictable and therefore that stock needs to be carried in the pipeline at all times.