After learning how to set up reorder rules, you can start with a basic reorder rule and add on additional parameters based on your preferences for more control and flexibility over reordering.
To forecast a reorder quantity based on historical sales:
1. Decide the "# of days sold" for historical sales you want to consider.
2. Determine the average lead time.
3. Decide if you want to order any extra safety stock.
Choosing the parts of your rule
The first part of your rule. Ideally, an optimal re-order quantity should equal:
Average daily sales (ADS) x Average lead time (ALT)
Average daily sales (ADS) can be written as
(sold / # days sold).
Average lead time (ALT) and # days sold should be written as constants.
# days sold should match the filter chosen when creating POs.
As an example: a reorder quantity factoring the number of daily sales over 30 days with an average lead time of 15 days would be
(sold / 30) * 15.
With the re-order quantity determined, you can now begin considering additional parts of your rule such as factoring in a re-order point, free stock counts, and/or incoming stock levels from other open purchase orders which can help prevent over or under-purchasing.
A re-order point is the quantity of stock needed to meet the maximum sales demand over the maximum lead time (accounting for any delays in PO delivery or spikes in sales.) Put simply, you can consider this the same as the Re-order quantity + safety stock.
Re-order point can also be expressed and used in a few other ways:
Maximum daily sales (MDS) x Maximum lead time (MLT).
Re-Order quantity x a multiplying factor. e.g. Re-Order quantity x 1.50 (assuming maximum sales are expected to be 50% higher than average until more stock arrives).
Note: If you do NOT factor in safety stock as part of your reordering process, then you can simply consider re-order point and re-order quantity as being the same thing.
Free and incoming stock
Free: on-hand stock - reserved
Incoming: Stock expected to be received on currently open POs.
Bringing it all together
With all of these pieces in place you can now define your reorder rule. The overall structure will be:
Re-order quantity + (Re-order point - (Free and Incoming stock))
Use the following as an example:
(sold / 30) * 15
Re-order point, no safety stock (same as re-order quantity):
(sold / 30) * 15
Re-order point, w/ safety stock (expressed as a multiplier of re-order quantity):
((sold / 30) * 15) * 1.50
Free and incoming stock:
free + incoming
Suggested advanced rules:
Reorder rule, no safety stock included:
Math.max(2 * (sold / 30) * 15) - (free + incoming), 0)
Reorder rule, including safety stock:
Math.max(((sold / 30) * 15) + (((sold / 30) * 15) * 1.50) - (free + incoming), 0)