Safety Stock Calculation and Reorder Point in Inventory Management - Method 2

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Safety Stock Calculation & Reorder Point

Reorder Point = Daily Average Sales X Lead Time + Safety Stock = 2695

Safety Stock = STDEV of Daily Sales X Z-Score X SQRT(Lead Time in Days) = 142

Daily Average Sales = 255

Lead Time(in Days) = 10

STDEV of Daily Sales = 27.35

Service Level = 95%

The reorder point (ROP), also reorder level (ROL) or "optimal re-order level",[1] is the level of inventory which triggers an action to replenish that particular inventory. It is a minimum amount of an item which a firm holds in stock, such that, when stock falls to this amount, the item must be reordered.

Reorder Point = Normal consumption during lead-time + Safety Stock

How to calculate a reorder point
You need to know when to order each item in your inventory separately, because different items have different sell-through rates. To calculate the ROP for each item, you’ll need to know the following parameters:

Lead time: Time taken (in days) for your vendor to fulfill your order

Safety stock: The amount of extra stock, if any, that you keep in your inventory to help avoid stockouts

Daily average usage: The number of sales made in an average day of that particular item