How do I configure Sales Velocity reordering?

Planning reorder points are a crucial part of inventory management. Setting your reorder point to the optimum amount lets you cut down on excess spending while ensuring you’ll have enough stock for your customers even when things take an unexpected turn.

Keeping tabs on how much you’ve sold every day is straightforward when you’re selling on a single sales channel.   As you start selling more and more, across additional channels, manually recording every sale becomes an exhausting and time-consuming task. And if you only tally up your numbers on a weekly or monthly basis, missing the reordering point becomes a more likely possibility.

Finale dynamic reordering takes the guesswork away and gives you all the tools necessary to make smart purchasing decisions.

Leveraging the sales velocity of a product, Finale will automatically calculate dynamic reorder points based on your inputs - supplier lead time, desired safety stock, and expected sales growth — to make smarter, faster, purchasing decisions.

The reorder qty calculated is calculated with the following formula:

Reorder Qty = (Total Lead Time x Consumption Velocity) * Growth Rate Adjustment

where: Total Lead Time (days) = Processing Time (d) + Supplier Leads Days (d) + Safety Stock (d)

Configuration

The reordering section (below) is configured as follows:

1. Calculation method time period (days): Number of days in the past Finale uses to calculate the daily sales average (Sales Velocity)
2. Consumption Velocity: Based on the calculation method time period, this is the average daily sales for the product at this location.
3. Processing Days: How long does it take to receive the shipment into inventory once it arrives from the supplier.  For example, if it takes a week to receive a shipment in full after it's delivered, you would enter 7 for processing days.
4. Supplier Lead Days: This is derived from the section immediately above Reordering (the Purchasing section) and is pulled from Supplier 1 Lead Days.  This is the number of days from creating a PO until the shipment is delivered to you from the supplier.
5. Safety Stock Days: This adds a pad to the minimum quantity on hand.  If you do not want to wait until the very last minute to reorder inventory, add a value here to add additional days of inventory to the minimum quantity.
6. Usage Growth % per year: Enter the anticipated yearly product growth here
7. Days of Inventory: How many days of sales you'd like to forecast for when you're ordering.  For a month's supply, for example, you would enter "30" for 30 days.
8. Reorder Point Calculated: This is the quantity Finale calculates based on all of the fields input. This is the minimum stock level allowed.  Once you fall below this number, the product will be included in the reorder report and reorder screen as needing to be replenished.
9. Reorder Point Max Calculated: Based on the days of inventory set, this is your ideal stock level to cover the specified number of days.
10. Reorder in Quantity Of: Use this field to specify any pack sizes.  For example, if your supplier only ships you cases of 12, you would use "12" in this field.  Finale would then ALWAYS round up into a multiple of 12, so you can order full packs from the supplier.

Example 1: Basic Configuration

For this example, we are looking at the last 30 days of sales to forecast out for the next 30 days.  We are also saying we place an order every day with the supplier (processing time) and the supplier takes 2 weeks to ship to us (supplier lead time).  See reordering fields configured in the example above.

In this example, we are also setting this product to have 10 units on hand (QoH).  With no incoming PO shipments or open sales, the Available to Promise value (Avail = QoH + Incoming PO Shipments - Committed Sales) is also 10 units.

Using the sales history graph, we can see the blue polo short was sold 15 times in the past 30 days.  As a result, the consumption velocity is calculated to 0.5 units per day (or 15 units per 30 days).

At the current rate, this product would be out of stock after 20 days if we are averaging 0.5 units per day with 10 units available.  This is referred to as "Stockout Days" within Finale (20 days).

Based on our consumption velocity of 0.5 units per day and the lead time it takes to get new inventory (15 days), Finale calculated that we need to reorder once we fall below the minimum of 8 units.

The calculation used is: 0.5 x 15 = 8 (Finale always rounds up to a whole number)

The ideal stock level to cover 30 days of sales plus a lead time of 15 days (a total of 45 days to receive the product (Reorder Point Max Calculated), is calculated as 23 units.

The calculation used is: 0.5 x 45 = 23 (Finale always rounds up to a whole number)

Based on the current stock level of 10, Finale would not prompt you to reorder this product until your stock levels fell BELOW 8.  

If you are using a usage growth multiplier, Finale would include this in the formula to calculate the minimum and maximum stock levels as well.

Example 2: Growth Rate Configuration

In this example, an annual growth rate is populated to show the differences. 

When  "Reordering" section below, we have the following calculations

• Consumption velocity = 1.07 units / day (Calculated)
  
  
• Total Lead Time  = 5 processing day + 270 supplier leads days + 90 safety stock days = 365 days (Calculated)
  
  
• Usage Growth = 0% (User Defined)
  
  
• Reorder Point = Total Lead Time x Consumption Velocity 
• Reorder Point = 365 days * 1 unit / day  = 392 units 
  
  

When the annual growth rate of 50% is inputted, we have the following calculation 

• Consumption velocity = 1.07 units / day (Calculated)
  
  
• Total Lead Time  = 5 processing day + 270 supplier leads days + 90 safety stock days = 365 days (Calculated)
  
  
• Reorder Point = Total Lead Time x Consumption Velocity 
• Reorder Point = 1.07 unit / day * 365 = 392 units 

• Usage Growth = 50% (User Defined)
• Reorder Point adjusted by 50% growth rate = 484 units 

* The growth rate adjustment is a complicated mathematical calculation.  Here is a summary of the equation: 

The basic calculation is sales / day from the time period multiplied by supplier lead time for primary supplier + processing days + safe stock days multiplied by sales growth coefficient. 

Sales growth coefficient is the annual growth percentage per year converted into a daily growth percentage applied across the total number of days.  The final number is then rounded up to an integer.

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