How to Calculate Inventory Reorder Points and Safety Stock Values

An easy explanation of how to calculate safety stock values and reorder points for inventory management. This video provides examples and formulas for calculating inventory reorder levels and safety stock amounts. It also discusses what to do when getting some of the necessary values is difficult.
======================================
Useful Links:
Videos to create your own safety stock and reorder point template for multiple products
Part 1 of 2: • PART 2 of 2: Calculati...
Part 2 of 2: • PART 2 of 2: Calculati...
Purchase the online template which is described in the videos: www.numericali...
Look for "Inventory Management Template with Video Explanations" at the link above.
Resources:
Web site: www.numericali...
Digital downloads/templates: www.numericali...
LinkedIn: / numericalinsights
Newsletter Sign-up: www.numericali...
======================================
Music Credit: Spring by Ikson / ikson
Music promoted by Audio Library • Spring - Ikson (No Cop...

[@princemusonda2350]

Thank you for the lesson

[@TraceySmith]

Happy to help.

[@desireebrando9615]

I'm a business school student waiting to take core classes on supply chain and you have helped me get my toes wet! Thank you for the valuable insight.

[@TraceySmith]

I’m happy to hear that you liked the video.

[@TraceySmith]

I'll be launching a private community soon to discuss the topics I post to KZbin. If you would like to receive notification of when it's launched (very soon!), feel free to sign up for my newsletter to receive more information. You'll be able to ask questions of me and other members to share ideas and knowledge. academy.numericalinsights.com/62112814-b325-43af-938a-ceaf007d4276

[@isalvare75]

Thank you for the video. Very informational. I do have a question. What is your approach when where you are about to start to mass produce a product for the first time (historical data does not exist) ?

[@TraceySmith]

For new products, I would base a forecast on the most similar product I could find for which I have historical data.

[@chriskudrle3216]

This is great Tracy!

[@TraceySmith]

Thank you, Chris! Glad you enjoyed it.

[@TraceySmith]

I've received a couple comments about the safety stock number producing a negative number. That's not possible since the maximum values will always be greater than or equal to the average values. Check to see if you have your maximums and averages reversed in the formula.

[@Xeno_G23]

You are amazing. Keep up the good work!!

[@TraceySmith]

Thank you.

[@miransh]

Hi Tracey, thanks for the beautiful explanation, I found it useful,”; When you talk about days, are weekends included? Do you include holidays in this calculation?😊 I worked for a Toronto based company which used DOS (Days of Supply) instead of weeks of supply (WOS), trying to understand when to use DOS AND WOS. Thanks

[@TraceySmith]

Thank you for your kind comment. You can use days of supply (DOS) or weeks of supply (WOS) as long as you keep your units consistent. For example, you would pair average and maximum weekly demand with weeks of supply and average and maximum daily demand with days of supply. That said, you can always convert as well. Sometimes the data I have is monthly demand and I divide by 4.3 to get the estimated weekly demand. As for holidays/weekends, my opinion is that the small difference between business days and calendar days caused by whether you ship products on the weekend and holidays is not large enough to impact the decisions you will make on inventory ordering. Remember that the point of these calculations is to guide when to order. The difference of a few days of supply won't impact when you order enough to worry about... unless you're running so super-tight on inventory. :-) If you calculate that you have 11 days of supply, then you have 11 BUSINESS DAYS of supply. (BUSINESS DAY = days you ship product out to customers). The difference of a few physical days vs. business days will not be a big enough difference that it will impact your inventory decisions. These calculations are meant to guide decisions. 100% accuracy isn't needed. No-one's inventory counts are even 100% accurate. :-) Like all inventory professionals, do the best you can with the data you have.

[@wanderingsoul5295]

Hello - first of all, wonderful video! One question though: What is the formula for calculating Reorder Quantity - How did you get to 14+3=17 weeks worth stock? Do you have another Link or Video on this topic? Thanks a ton!

[@TraceySmith]

The reorder point is the (lead time demand) PLUS the safety stock value. It's shown at about 5:35 in the video. Putting those two formulas together, we get the following. I will do this in days to match the video but you can also do it in weeks. Reorder point = (average demand in units per day) * (lead time in days) + (Safety stock in units) For the reference to having 17 weeks of stock when the order arrives, here is the situation. They placed an order when there was 14 weeks of inventory. It takes 10 weeks for the order to arrive. That means, when the order arrives, our inventory has dropped down to about 4 week's worth. 13 weeks of inventory arrived at that point so we have the 4 week's worth that we still had in stock PLUS the 13 week's worth that just arrived, for a total of 17 weeks of inventory now in our building. Of course all numbers are estimates since we know our inventory usage varies up and down over the weeks, but we use these calculations for planning. I'll be demonstrating a real case study on this topic on December 3rd where I share all the ups and downs of using thee equations and what you'll end up having to consider. You can sign up at this link. academy.numericalinsights.com/inventory-planning-challenges-calculations-and-considerations Thank you very much for complimenting the video. Greatly appreciated!

[@ganeshankana3632]

Hello - My Demand is in Month Wise Aug -0 Sep -2169 Oct- 5000 Nov- 163 Dec -370 Lead time is 2 m0nths safet time is 2 months how to calculate reorder point by month wise ?

[@sudeshnadeshmukh6176]

how many total video you have ?

[@TraceySmith]

I've got a new one today on calculating inventory turns and why it's a bit more detailed than what they show you school.

[@TraceySmith]

I'll be launching a private community soon to discuss the topics I post to KZbin. If you would like to receive notification of when it's launched (very soon!), feel free to sign up for my newsletter to receive more information. You'll be able to ask questions of me and other members to share ideas and knowledge. academy.numericalinsights.com/62112814-b325-43af-938a-ceaf007d4276