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Calculate reorder point and safety stock | Free template

Calculate reorder point and safety stock is a free template to calculate the safety stock and reorder point for several products depending on demand, standard deviation of demand and delivery time. Reorder point is a decision rule for the purchase of goods with independent demand.

Independent demand means that the demand for one product not is dependent on the demand for other products, which is to say that there is no connection between the products. With dependent demand means that the demand for a product depends on the demand for other products, which is to say that a product is incorporated into one or more other products.

Reorder point is a decision rule used to determine when companies must make orders for materials or goods. A company can´t wait to order new goods until the stock reaches 0, since the goods often are not delivered immediately. The demand for the product and the delivery time determines the size of the reorder point. A reorder point is an expression of the stock to trigger a new order of goods and during the delivery time this stock level should be sufficient to meet demand.

To know exactly the size of demand and the delivery time can be difficult and therefore may require that the company has a safety stock. A safety stock take into account and minimize the risk that stock will run out even when there is variation in demand or delivery time. In this template safety stock is calculated as the standard deviation of the demand times Z-value times the delivery time divided by the number of working days. The delivery time is assumed to be somewhat correct and variation therefore may be taken into account by adjusting the standard deviation of demand. If the delivery is delayed by one day so does the need for a safety stock of the level of demand during a working day. A Z-value of 3 means that it covers approximately 99.86% of the variation in demand.

Reorder point is calculated as the demand per day times the delivery time plus a safety stock. You can use this template to calculate the safety stock and reorder point for a variety of products with independent demand. To facilitate these calculations further, an inventory software or inventory system would be recommended.
Updated: 01-01-2015 | Created by All-templates.biz

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Tags: purchasing procurement supply chain excel