General Steps to Calculate Inventory Reordering Requirements for Your Business

 First, let me say that the inventory forecasting Excel templates I have built are all in high demand since I started building them.

Inventory Templates:

To calculate inventory ordering requirements, you need to consider several factors such as the demand for the product, the lead time to receive the product, the safety stock level, and the order frequency. Here are the steps to follow:

  • Determine your demand: Look at your sales history and forecasts to determine how much of the product you expect to sell during a given period, such as a week, month, or quarter.
  • Calculate your lead time: Determine how long it takes for you to receive the product from your supplier after you place an order. This can include the time it takes for the supplier to process the order, manufacture the product, and ship it to you.
  • Determine your safety stock level: Safety stock is the amount of inventory you keep on hand to protect against unexpected fluctuations in demand or delays in the supply chain. The safety stock level can be determined by analyzing historical demand data and lead times and using statistical methods to calculate the probability of stockouts.
  • Calculate your reorder point: The reorder point is the inventory level at which you need to place an order to avoid stockouts. It is calculated as the sum of the safety stock level and the expected demand during the lead time.
  • Determine your order frequency: Based on the reorder point, decide how often you need to place orders to maintain adequate inventory levels. This can depend on factors such as the lead time, the size of your order, and the cost of carrying inventory.

By following these steps, you can calculate the inventory ordering requirements for your business and ensure that you have enough inventory on hand to meet customer demand while avoiding stockouts and excessive carrying costs.

More Inventory Spreadsheets

Why Its Good To Management Your Inventory Well

It helps you with decision making, analyzing customer spending patterns / seasonality, keeps customers happier and continuing to buy things, and it is a great way to improve your cash flow. From the time you receive payment to the time you invest that back into more inventory, get that inventory, and then sell it again, needs to be as short as possible without cutting corners. Additionally, you will have less waste by keeping your inventory lean and efficient. Products won't sit forever and spoil, go out of fashion, and be worth much less than planned.

Article found in Accounting and Finance.