Young Man in Factory

It can be tough to know when the exact right time is to reorder more inventory, especially if you’re just starting out. Let’s go over ways in which you can better pinpoint the right time and how you can prevent your business from running out of stock. The key is to plan ahead when it comes to inventory management, taking into account things like knowing your velocity of sales.

Here are some tips for managing the balance of lead time from manufacturing and your turnover rate of sales:

Know what your reorder point is: This refers to the inventory unit quantity you currently have on hand that triggers the purchase of replenishment inventory. Once you get this down to a science, your purchasing processes and supplier fulfillment services will work in seamless conjunction, with the reorder point resulting in the replenishment inventory showing up exactly when the on-hand inventory is used up. This should be your goal, as it results in zero interruption in production and fulfillment activities, plus you save on storage space.

You can figure out the reorder point by using the basic formula of multiplying the average daily usage rate for a particular item by the lead time, measured in days, to replenish it. You can further build out that formula to account for safety stock, such as:

average daily unit sales x the lead time + safety stock = reorder point

This way, you can determine how quickly the item is selling and how long it will take you to receive replenishment, all while accounting for any extra stock you may have on site.

Use existing data to make predictions: You should have software in place that shows you, at a glance, what you have and what you need. Many factors go into this decision making process such as:

  • Quantity sold for each product category
  • Quantity left in your inventory for each category
  • Inventory velocity, or how much time it takes to sell each item
  • Depletion days, which refers to how many days until your stock is depleted
  • Lead time, or how long it takes your supplier to deliver goods after a reorder request is placed

Besides knowing when to reorder, you should also be able to measure the overall quality of your inventory management process and strategy via tracking trends on anything from lost sales to order cycle time to item fill rate. Sound overwhelming? It certainly can be.

You likely don’t have the time or dedicated resources to handle inventory management on your own. After all, you’re busy trying to grow your business. Let Fulfilltopia handle the details with our comprehensive inventory management services designed to make your life just a little bit easier. Contact us today for a free quote!

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