Inventory Management

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The inventory level at which a new purchase order should be placed to replenish stock before it runs out, accounting for lead time and demand.

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The reorder point ensures you never run out of stock (stockout) while not ordering too early (overstocking). It factors in average daily sales, supplier lead time, and safety stock buffer. When inventory drops to the reorder point, it triggers a purchase order. Modern inventory systems like Laabam.One can automate reorder point calculations and purchase order generation.

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Reorder Point = (Average Daily Sales × Lead Time in Days) + Safety Stock

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A store sells 20 units/day of a product. Supplier lead time is 7 days. Safety stock is 50 units. Reorder Point = (20 × 7) + 50 = 190 units. When stock hits 190, order more.

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What is safety stock?

Safety stock is extra inventory held as a buffer against unexpected demand spikes or supplier delays. It prevents stockouts when actual demand exceeds forecast or deliveries are late.

How often should reorder points be recalculated?

Review quarterly or whenever there's a significant change in demand patterns, lead times, or supplier reliability. Seasonal businesses should adjust before peak seasons.

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Inventory Turnover

A ratio that measures how many times a company's inventory is sold and replaced over a specific period, indicating sales efficiency and inventory management.

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