It’s never ideal to run out of inventory. However, it can be challenging for businesses today to strike the right balance between supply and demand, given the fast and volatile nature of today’s supply chain. To ensure your inventory is always properly stocked, it’s important to determine the right processes and systems for reordering when your levels start to drop. To best inform your ordering behaviors (and ensure your inventory never runs dry), you can turn to advanced inventory management tools like StockIQ.
StockIQ leverages advanced demand forecasting, real-time inventory analysis, and sophisticated insights into your suppliers to help inform your inventory management practices. In this article, we’ll explore how StockIQ enhances your reordering practices, and how it improves upon common reorder point systems.
What is a Reorder Point?
The reorder point (often abbreviated as RoP) is a guideline for businesses, which indicates when they should place a new order for a particular SKU. Think of it as the lowest threshold for how much of a certain item you should have in stock. In theory, reorder points can be helpful because they act as a safety net, ensuring a business has enough inventory to meet customer demand while accounting for how long it will take for a new order to arrive.
To calculate reorder point, businesses typically consider three factors:
- Demand rate: The average number of units sold or used over a set amount of time.
- Lead time: The number of days it takes for a new shipment to arrive after placing an order.
- Safety stock: A buffer of extra inventory to protect against unexpected demand spikes or supply chain delays.
Traditionally, the reorder point has been calculated using the following formula:
ROP = (Demand Over Lead Time) + Safety Stock
Reorder points have been used in inventory management for a long time, but there’s something important you should know about them: by today’s standards, reorder points are considered to be a fairly outdated concept. In fact, they’re actually not used in StockIQ’s advanced software for any ordering or replenishment functions.
It’s likely your business still uses reorder points, or you’re just coming off a system where you used them. You might be wondering: if reorder points have been such a fundamental part of inventory management, why is this method outdated?
Here are a few reasons why:
1. Static calculations don’t adapt to dynamic demand
Traditional RoPs rely on fixed formulas based on historical averages of demand and lead times. However, modern demand patterns fluctuate rapidly due to factors like seasonality, e-commerce, market trends, promotions, and unexpected disruptions. Static RoPs fail to adapt to real-time changes and keep up with the pace of today’s supply chain.
2. Lead time variability is unpredictable
Supply chain disruptions, global shipping delays, and supplier inconsistencies make lead times highly unpredictable. Studies show that global supply chain disruptions will remain the norm going forward, with 90% of respondents in one survey saying they encountered supply chain challenges in 2024. Traditional RoP methods assume fixed lead times, which no longer reflect the reality of the supply chain.
3. Lack of real-time data integration
Most RoP models don’t integrate with live data such as sales data, supplier performance, and market conditions. Without these real-time insights, businesses may base reorder decisions on outdated or incomplete information, leading to inaccuracies or inefficiencies.
Instead of relying on antiquated manual reorder point methods, businesses can deploy advanced inventory management solutions like StockIQ. These systems use real-time data, demand forecasting, in-depth analysis, and other features to help ensure you always have the right amount of inventory on hand.
How StockIQ Helps Inform Reordering
When you use StockIQ in your inventory-based businesses, you can access data-driven reordering recommendations, which are dynamic and rooted in sophistication. Designed to optimize stock levels and reduce inefficiencies, StockIQ uses a unique analysis of forecast, orders, supply, and on-hand inventory projects for scheduling suggested order quantities. (Note: StockIQ’s “Order Point” policy has no relation to the RoP).
Within StockIQ, the method of using the Order Schedule provides much greater resolution and flexibility than a traditional RoP system, in terms of when and how to schedule orders. For that reason, the concept of RoP is not used in StockIQ, other than to provide a benchmark for teams coming off of older systems that may have relied on this number.
With that in mind, here are some ways StockIQ enhances the reordering process and maximizes your reordering accuracy:
1. Intelligent demand forecasting
One of the biggest challenges in setting reorder points is predicting how much stock you’ll need in the future. StockIQ leverages advanced demand forecasting algorithms that analyze historical sales data, seasonality, trends, and market shifts to predict future demand accurately. You can customize forecasts for your unique business, and monitor forecasts in real-time, to ensure that your reordering reflects the most accurate and up-to-date demand projections.
2. Dynamic safety stock adjustments
Many businesses set safety stock levels using fixed rules, such as keeping a certain percentage of average demand as a buffer. However, this approach doesn’t account for real-time supply chain risks and demand volatility. Instead, StockIQ dynamically informs optimal safety stock levels based on factors like demand variability and lead time fluctuations. This fine-tuning of safety stock levels allows businesses to minimize carrying costs while still protecting against stockouts. Research shows that avoiding stockouts can increase revenue by 5%, while a single stockout can lead to revenue losses of as high as 14%.
3. Real-time lead time monitoring and adjustments
Traditional reorder point methods often assume a fixed lead time (for example, a supplier always takes 14 days to deliver an order). However, in reality, lead times can vary significantly. StockIQ continuously tracks actual supplier performance, and updates lead time data in real-time. By factoring real-world supplier performance into your reordering policies with StockIQ, you can reduce the risk of unexpected stockouts caused by inaccurate lead time assumptions.
4. Automated reorder recommendations and alerts
Instead of requiring decision-makers to review inventory levels and place orders manually, StockIQ provides you with recommendations, alerts, and other key inventory suggestions. That’s because StockIQ continuously analyzes current stock levels, projected demand, supplier, and safety stock data. Then, when it’s time to reorder, StockIQ generates precise, data-backed recommendations, reducing human error and eliminating the need for constant manual oversights.
5. Proactive insights for smarter decision-making
Unlike traditional reorder point models (which simply trigger an order when the stock reaches a certain level), StockIQ provides businesses with proactive insights that help them make informed ordering decisions. For example, you’ll be able to identify slow-moving products (which might not need frequent reordering) and detect demand spikes (which may require adjusting reorder points on the fly). With this level of insight, businesses can move from a reactive inventory strategy to a proactive one.
Enhance How You Approach Reordering with StockIQ
If you’re still using a reorder point system, you’re definitely not alone: this is historically how inventory-based businesses have tackled reordering. But today’s advanced inventory management software allows you to accurately and strategically approach reordering, without struggling with static calculations and manual adjustments.
If you’re ready to take advantage of the power of StockIQ to improve your reorder point system, we should talk. StockIQ is a user-friendly supply chain planning suite, designed to help you boost operational efficiency, improve forecast accuracy, and simplify your strategic planning. Our tools give you a clear, accurate view of your inventory and expected consumer habits, so you can order accurately, every time.
Interested in seeing how StockIQ can enhance the way your business tackles reordering? Contact us today or request a StockIQ demo.
