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.
Note: Before learning about this advanced feature, we suggest you first review the general 'Reordering 101' Help Article. |
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)
Variable | Description | Source |
---|---|---|
Consumption |
The current rate of sale. This number is created by looking at average daily sales in the timeframe selected. | Calculated |
Processing Time | Days required to process shipments once the purchase order is received. |
User |
Supplier Lead Time | Days expected between creating a PO, submitting to the supplier, and receiving stock. | User Defined |
Safety Stock Days |
Safety stock is simply extra inventory beyond expected demand defined by the number of days. Safety stock acts as a buffer in case the sales of an item are greater than planned. Reasons to include a safety stock buffer included shipment held up at customs or unexpected sales demand. | User Defined |
Growth Multiplier | The expected annual rate of growth for product sales. | User Defined |
Reorder Point | The reorder point is the calculated reordering qty based on consumption velocity, lead times and safety time, and growth multiplier. | Calculated |
Reorder In Qty Of | The "reorder in qty of order" is the order multiple if the product cannot be ordered in eaches or individual units. For example, the "Reorder In Qty Of" field would be '12' if you could only order cans of the Coke by the case (12 cans in a case) | User Defined |
Days of Inventory | Days of the inventory is the desired number of days of inventory. The reordering point max calculation will optimize to this value. | User Defined |
Reorder Point Max | The maximum number of units to be purchased during the reordering process and is calculated as (Consumption Velocity x Days of Inventory) + Reorder Point |
Calculated |
Reorder Qty |
Suggest Product Qty be reordered and is calculated as (Reorder Point Max - Current Stock Available). |
Calculated |
Let review some examples to better illustrate the reordering threshold based on sales velocity.
Example 1
For this product, we want to calculate the reorder point of the blue polo shorts based sales from the past 30 days.
The blue polo shirt currently has 10 units on hand (QoH). With no incoming PO shipments or open sales, the Avail to Promise value (Avail = QoH + Incoming PO Shipments - Committed Sales) is also 10 units.
From the sales history graph, the blue polo short was sold 15 times in the past 30 days.
As a result, the consumption velocity is calculated to .5 units / day (or 15 units / 30 days).
At the current rate, this product would completely stock out at day 20 if we are averaging 1/2 units/ day, and we have only 10 units currently available.
For the "Reordering" section above, we have the following calculations
Consumption velocity = .5 units / day (Calculated)
Total Lead Time = 1 processing day + 14 supplier leads days + 7 safety stock days = 22 days (Calculated)
Usage Growth = 0% (User Defined)
----
Reorder Point = Consumption Velocity x Total Lead Time
Reorder Point = 0.5 units / day * 22 days = 11 units
----
If you want days of inventory to be 30 days:
Reorder Point Max = (Consumption Velocity x Days of Inventory) + Reorder Point
Reorder Point Max = (0.5 units / day x 30 Days of Inventory) + 11 units
Reorder Point Max = 15 units + 11 units
Reorder Point Max = 26 units
----
If the qty available < calculated reorder point, then Finale will send a notification and populate this product on the reorder screen.
For this example, the Avail value (10 units) < Reorder Point value (11 units) so Finale would suggest that blue polo shirts be reordered.
The suggested reorder quantity = Reorder Point Max - Avail value
= 26 units - 10 units
= 16 units
--
Please note that supplier lead days in the "Reordering section" is automatically populated from the "Supplier Lead Days" field.
Note: The 'calculation time period reordering method' parameter can be set globally and be applied to all products within Application Settings. There is also the ability to set the time frame method on a per product basis within the Product Details page. |
Example 2: Growth Rate Example
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.
Note: The Growth Multiplier parameter is a percentage. For example, if you are a 50% growth rate, then you would enter '50' in the input field. |
Note: The reordering method (min / max or sales velocity) can be set globally and be applied to all products, and the setting can be found within Application Settings >> Products. There is also the ability to set the reordering method on a per product basis within the Product Details page. |
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