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The Reorder Point Explained

By using this application, the most widely accepted method of calculating the reorder point is automatically applied for you. It uses your rate of sales and automatically uses the variance between your highs and lows to also include a safety stock buffer. In short, it suits the majority of merchants the majority of the time. Keep your inventory above this number and you’re golden.

In order to see the reorder point of your products, select the Reorder Point tab. If the reorder point isn’t present in any of the columns, click Columns and select it.

The reorder point is configured with the safety stock – which factors in spikes in sales which may happen on your busiest days. For bigger merchants, if it’s important that you never run out of stock, you may want to keep safety stock on. Smaller merchants who want to keep less of their money tied up in inventory can toggle this setting to remove the automatically calculated safety buffer. While this strategy plays it closer to the edge, some merchants prefer the benefits of having more cash flow to work with.

In order to interpret the reorder point, look whether the current stock level is below it. If it is, it means that, based on your average rate of sales, you’re going to run out of stock soon. The app calculates on its own whether you’re going to run out of stock, and you can see whether to reorder or not in the “Reorder” column.

Between red (at risk of running out of stock) and green (not at risk) there isn’t any margin, therefore it’s a good idea to have a “medium risk” warning for products, which would create a “danger zone”, represented in yellow. Danger zone products are not going to immediately run out, but it’s a good idea to play it safe and reorder anyway to account for any delays in the ordering or shipping process. To set a medium risk warning for items, go onto Settings > Warning Settings. You can set it by entering a number of units above the reorder point.

To see only products with a specific risk, you can click on the Reorder button and choose the colour that represents the risk:

  • red = high risk of running out of stock
  • yellow = medium risk of running out of stock,
  • green = no risk of running out of stock
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