The reorder point is the inventory level at which you should initiate a new order to replenish your stock. It's designed to ensure that you receive new inventory just in time to prevent stockouts while factoring in the uncertainties of lead time and demand fluctuations.
You can set this reorder point manually with any inventoried product.
Versa can also calculate reorder point based on the formula below.
Average Daily Unit Sales x Supplier Lead Time + Safety stock
Supplier lead time is the average days it takes your suppliers to ship inventory to you. This is calculated using the PO date and the date the first shipment receipt for the PO is posted.
See how safety stock is calculated here.
Versa also calculate target stock which is the optimal level stock you should aim to hold. Reorder point level quantity lies between minimal stock and target stock.
If a product falls below the reorder point (either one you set yourself or one the system calculates), you will be alerted by the Inventory Reorder widget and in the PO planner.
Calculating the reorder point using lead time, safety stock, and average demand is an essential practice in inventory management. It helps businesses strike a balance between meeting customer demands and avoiding excess inventory costs. By considering lead time, safety stock, and average demand, businesses can ensure their supply chain operates smoothly, leading to higher customer satisfaction and improved operational efficiency.
Versa use auto calculated safety stock as the minimal stocking level for reorder point but you can override the minimal stocking level by defining your own reorder point record for each product.