Recalculating Reorder Points

Reorder Points (ROP) is the level of inventory at which a purchase order should be issued to replenish inventory and avoid out of stock situations. The basic definition of reorder point is normal usage during the lead time + safety stock. In All Orders we take the simple formula of Daily Avg. Usage during a given time period multiplied by the lead time multiplied by the safety stock %. The safety stock % is a trade off between the risk of stock outs resulting in decreased customer service and increased costs resulting in carrying more inventory.

The Recalculate Reorder Points screen in All Orders allows you to generate new reorder points and lead times based on past usage data. You can specify a date range for determining which data you want to base the calculations on. Lets take the holiday season as an example. Say it is August and you want to maintain reorder points during the holiday season which reflect the increase in volume. You can specify a date range consisting of the holiday months from the previous year and use that data to determine what your new reorder points and lead times should be for the upcoming holiday months. Once you have calculated the ROP you will use the Reorder Analysis to identify products that are with stock levels below the reorder points.

To open the Recalculate Reorder Points screen go to the Purchasing menu and click Recalculate Reorder Points. Once the screen is loaded you can either select to create a new scenario or load a previously created one. A scenario is a set of rules that are grouped together to define how you want to create the new reorder points and lead times. After creating a group of rules you can save them as a scenario and give it a name. If you have not already created any scenarios, click the Start New Scenario button to get started.

 

You can now set many of the attributes of the new scenario:

Date Range: Select the past dates range to use to determine how much of your items were sold to customers or used up in the production process.

Include Ship Doc History: When determining how much of an item was used during the date range, include units that were sold to customers in the totals.

Include Work Order History: When determining how much of an item was used during the date range, include units that were used up in the production process in the totals.

Use Default Lead Times/Use Calculated Lead Times: Select Use default lead times if you want to simply use the lead times that are currently assigned to your items. If you would like to use calculated lead time based on the most recent, actual lead time, select Use the number of days between the most recent Purchase Order/Receiving as lead times.

Click Next to load all of the data and start generating new reorder points, lead times and max quantities. Notice the data in the list may have different colors associated with them. Default values are colored green. When all the data is loaded for the first time everything will be in green. If a value is manually edited by the user it turns red. If another value is recalculated due to another value being edited manually, it will turn blue.

The columns on the list include:

Item: The name of the item.

Description: The purchasing description of the item. If the purchasing description is empty then the sales description will be shown.

Total Usage: The total quantity of the item that was used up for the date range specified for the scenario. This is made up of the quantity sold to customers and/or used up in the production process. The total usage can also be manually updated.

Avg. Daily Usage: The total usage quantity divided by the number of days in the date range specified when setting up the scenario give us the average amount that was used for each day.

UOM:The unit of measure used for purchasing the item.

Lead Time:The lead time for the item. If Use default lead times was selected when setting up the scenario then the lead times will be the default ones assigned to the items. Otherwise the lead time shown will be the actual number of days between the last time the item was received and when it was placed on a purchase order. The lead time can also be manually entered.

Safety Stock %: If you want an additional percentage of the total quantity that is expected to be used to be added  to the new reorder point you can enter it here. For example if you have an average daily usage for an item of 5 and a lead time of 5 days the reorder point would be 25. If you want an additional 20% in stock on top of what is expected to be used up, enter 20 into the Safety Stock % and it will increase the reorder point to 30.

Reorder Point: This is the newly calculated reorder point. It is based on the average daily usage multiplied by the lead time. If there is a safety stock % assigned, the reorder point will be increased by that percentage. The reorder point can also be manually entered.

Max Qty % /  Max Qty: The Max Qty defines the maximum quantity of a particular item you should have in stock. By default the Max Qty will be equal to whatever is currently set as the item's reorder point. Enter a Max Qty % to specify a percentage of the reorder point, that if added to the total reorder point ,should be the maximum quantity in stock at a given time. For example, if I have an item with a reorder point of 50, and the maximum quantity that should ever be in stock is an additional 20%, enter 20 as the Max Qty % and the new max qty will be 60. Either of these values can be manually updated.

At the top of the screen you will notice the settings for the current scenario are visible for reference purposes.

You can also enter a name, memo and specify whether a scenario should be marked as inactive

Before updating the data in your scenario for individual items, you may want to run some bulk updates. Fill in the appropriate values and click the update button to update every item on the list.

After all of the values in the list have been updated to your liking, you can apply them to the items themselves which will make them "live". Each of the 3 values (reorder points, lead times and max quantities) can be applied individually. You will be notified one by one as each item is updated. Please note that for larger item lists the updates may take some time, particularly if you want updated reorder points to get applied to Quickbooks as well.

The toolbar at the top of the screen has many different buttons.

Load/Create Another Scenario: Click this button to go back to the main Recalculate Reorder Points screen where you can either select an existing scenario to load or begin creating a new one.

Save/Save & New/Save & Close: Click the save button to save the changes you have made to the current scenario. Click the down arrow on the right side of the Save button to either save and start creating a new scenario or to save the scenario and the close the Recalculate Reorder Points screen.

Reset: Click this to roll back all of the changes you have made to the current scenario to the last time the scenario was saved.

Cancel:Click this to cancel any changes you have made to the current scenario and close the Recalculate Reorder Points screen.

Delete: Click this to delete the current scenario.

Help: Click the help button to load the help article for the Recalculate Reorder Points screen.

Copy: Click the Copy button to make an exact copy of the current scenario. Handy if you have a scenario set up perfectly and you would like to create a new scenario that uses it as a starting point.