How to Regulate and Automation of Inventory Reorder Points

 Understand the basics:

What is the point of reordering? Before embarking on automation, it is essential to understand what the point of reordering is. The reorder point is the inventory level at which you must order to replenish your inventory. This ensures that you have enough stock to meet customer demand while avoiding overstocking. Formula for calculating reorder points: Reorder point = (demand rate x delivery time) + safety stock Demand Rate: The average rate at which you sell or use a product. Delivery time: The time it takes for your supplier to deliver new goods. Safety stock: You keep extra inventory to account for changes in demand and delivery times.

Analyze historical data

To establish effective reorder points, you need to analyze historical data. Review past sales and spending habits for each product. Pay attention to seasonality, trends, and any unexpected fluctuations. This data will help you determine average request rates and variation in execution times.

Calculate safety inventory

Safety stock acts as a buffer to address uncertainties in demand and delivery times. A common approach to calculating safety stock is to use statistical methods, such as standard deviation of demand and lead times. Software tools like inventory management systems or Excel spreadsheets can automate this calculation for you.

Implement an inventory management system

To automate the process of setting up and managing reorder points, consider investing in an inventory management system (IMS). IMS software can integrate with your sales, purchases and inventory data, making it easier for you to track and manage inventory levels. It can also generate reorder point alerts when inventory drops below a certain threshold.

 Set reorder point threshold

In your IMS, set up order point thresholds for each product. These thresholds will trigger automatic replenishment actions when inventory levels reach them. Ensure that thresholds take safety stock into account and are regularly updated based on changes in demand and delivery times.

Monitor and adjust

Automation doesn't mean you can set and forget your reorder points. Monitor your inventory levels regularly and adjust reorder points as needed. If you notice changes in demand, supplier delays, or other factors affecting your inventory, make adjustments as needed to maintain optimal inventory levels.

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