In this article, we’ll show you why and how to calculate reorder points, give you a calculator, and walk through how you can let Extensiv can do the work for you. Incorrectly managing your inventory comes at a steep price and the likelihood of this happening increases as your portfolio grows. However, many retail companies don’t give their stock orders the attention needed to manage them correctly. Use POS data and empirical evidence to determine when to reevaluate your ROP. With the right tools, there’s no need to manually calculate reorder points. Explore the Point of Sale system with everything you need to sell in person, backed by everything you need to sell online.

However, by demystifying ROP, we can transform it from an enigmatic concept into a powerful, practical tool for inventory management. Rakesh Patel, author of two defining books on reverse geotagging, is a trusted authority in routing and logistics. His innovative solutions at Upper Route Planner have simplified logistics for businesses across the board. A thought leader in the field, Rakesh’s insights are shaping the future of modern-day logistics, making him your go-to expert for all things route optimization. Your delivery team can take digital proof of deliveries to minimize the delivery time and increase efficiency.

Demand Lead Time

A grocery store, for example, would likely have higher reorder points for quick-selling produce than a furniture store would for slow-selling mattresses. These articles and related content is the property of The Sage Group plc or its contractors or its licensors (“Sage”). Accordingly, Sage does not provide advice per the information included. These articles and related content what is rop in business is not a substitute for the guidance of a lawyer (and especially for questions related to GDPR), tax, or compliance professional. When in doubt, please consult your lawyer tax, or compliance professional for counsel. Sage makes no representations or warranties of any kind, express or implied, about the completeness or accuracy of this article and related content.

• Establishing reorder points frees up crucial capital and ensures your business is operating at maximum efficiency across inbound and outbound logistics.
• When establishing a reorder point, you want to avoid repeatedly pulling from your safety stock.
• Knowing [your] business, including target, risk, and cost, is the first and necessary step [to setting reorder points].
• Safety stock, as the name suggests, is the extra “just in case” inventory you keep on hand to anticipate variability in demand or supply.

The values used to calculate your reorder point and date are fully customizable for each SKU. You can even adjust how far back the system looks to calculate your sales velocity, allowing you to adjust for any potential seasonality or outlier sales. But this comes at a risk – if any of your formulas are wrong, so will your reorder point calculations. If yours is a small startup, calculating product reorder points is as simple as setting up an Excel spreadsheet (or a spreadsheet with Google Sheets or Apple Numbers). So, what is the best way to solve stock issues and determine the right time to order stock?

How to Calculate Reorder Points with the ROP Formula

In many cases, a broader view beyond an inconsistent set of numbers will get your product moving again. Even if running on automated software, it’s wise to review your processes and verify everything is operating as intended. It might be tempting to set reorder points and then move on to the next vital project, but things change. You should place a new order with Supplier B once your stock hits 1,451 workout shirt units.

Or, in some cases, such as fresh food, you will have to literally throw away the food at the end of the day, because you cannot keep it tomorrow or next week or next month,” Nasiry says. In other words, if you want to run an efficient business, you can’t rely on intuition to determine when to reorder stock. In this retailer’s guide to reorder points, you’ll learn everything you need to know to set effective reorder points and much more. Remember, the key to successful ROP management is continuous monitoring and adjustment in line with your business dynamics. It represents the specific level at which your stock of a particular item is low enough that you need to order more.