Nowadays, when competition begins to take place under more severe conditions, businesses place great emphasis on methods that will reduce their costs but do not cause any disruption in services. 

Storage expenses are among the operating expenses of the enterprises. A large number of product receipts are provided at the same time, and keeping them in the warehouse for a long time results in a significant cost increase. 

To overcome this situation, businesses resort to very different storage strategies. One of the storage strategies applied is the reorder point method. 

Reorder point calculation is usually easily calculated on a given formula. 

The whole process should be professionally observed to avoid any mishaps in the account.

What is Reorder Point?

The reorder point is a method for eliminating unnecessary costs associated with storing more than the product's amount. 

Thanks to this method, only products that meet customer demands are kept in warehouses. 

In this method, which can also be described as a continuous flow model, only the amount of product is stored, and after the demand is met, reinforcements are made in line with the new demands, following the reorder level formula 

In this age, when mass production, mass storage, and mass marketing methods are largely outdated, all these practices are carried out in smaller pieces. 

Therefore, the Reorder point method is increasingly popular. 

Storage activity, which leads to high-cost figures, especially for large enterprises, can be controlled by this method.

Reorder Point Formula

The formula for the reorder point, which is one of the new trends in storage management, is quite simple. 

The reorder point formula is denoted by "r". 

The delivery time of the ordered products is indicated by "m" and the amount of product requested per unit time is indicated by "c". 

In addition, a certain amount of product called the security stock is included in the calculation formula. 

Security stocks are the products reserved to prevent product flow from being interrupted in cases such as shipping problems, sudden and unexpected increases in sales, and product shortages in the supplier company. 

To determine the reorder point, the average delivery times must be determined first. 

The transportation times of the last 6 deliveries are summed up and divided by 6 so that the reorder point is calculated. 

Then, to calculate the daily demand for the product, the amount sold for a month is divided by 30.

 These two numbers are then multiplied, and the result is summed up by the amount determined as the security stock in the reorder point calculation 

As a result of this total, the reorder point is obtained.

How to Calculate Reorder Point Formula? + Examples

To better understand the point of reordering, it would be better to proceed with an example. 

Let's assume that the monthly sales capacity of a product is 100 pieces, which will help perform the reorder level calculation. 

This number is divided by 30 to find the daily demand required to perform the reorder point calculation, resulting in 3.33. 

Let's assume the duration of the last 6 deliveries as 4, 6, 4, 5, 6, and 5, respectively. 

To find the average delivery time, these numbers need to be summed up and divided by 6, from which 30/6 results in 5.

It is necessary to determine the security stock required for application in adverse situations that may occur while delivering this product. In this case, let's consider that number to be 20 products. 

To determine the reorder point, the daily sales figure must first be multiplied by the average delivery time. 

This corresponds to the 3.33x5 calculation, and the result is 16.65. The security stock plus this number and the result of 36.65 is reached. 

In other words, when the number of products in the warehouse reaches the 36-37 band, it is necessary to reorder.

How Can the Reorder Point Formula with Fabrikatör Help You Optimize Inventory?

Fabrikatör is a powerful inventory management tool designed to help Shopify merchants streamline stock control and prevent inventory issues.

With the reorder point formula, you can efficiently track stock levels, automate restocking, and reduce unnecessary costs.

With Fabrikatör, you can:

✨ Automate reorder point calculations based on demand and lead time to prevent stockouts.
✨ Maintain optimal inventory levels by factoring in real-time sales trends and supplier lead times.
✨ Reduce excess storage costs by only restocking when necessary.
✨ Improve supply chain efficiency with automated purchase order creation.
✨ Set safety stock levels to protect against demand spikes and supplier delays.
✨ Gain insights from 100+ metrics to refine your replenishment planning.
✨ Sync inventory updates seamlessly with Shopify to maintain stock accuracy.
✨ Track incoming shipments and manage supplier-specific SKUs effortlessly.
✨ Save time with centralized supplier communication and automated PO approvals.

By leveraging the reorder point formula with Fabrikatör, you can ensure that your inventory stays balanced, your supply chain remains efficient, and your customers always get what they need right when needed.

Ready to take control of your inventory?

Try Fabrikatör or request a demo today! 🚀

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