What is a Reorder level in E-commerce?
A reorder level is the minimum quantity of a product that must be maintained in stock to ensure that the product is always available for purchase. When the product quantity reaches this level, it is time to place a new order with the supplier to replenish the stock. The reorder level is determined by the inventory system and is based on customer demand, production lead times, and other factors.
Significance of Reorder level in E-commerce Warehouse
The reorder level maintains a certain stock level to avoid out-of-stock situations. This helps to ensure that there is always enough stock to meet customer demand while avoiding overstocking and resulting in unnecessary costs. The benefits include –
- Setting a reorder level allows you to always have the right amount of stock to meet customer demand and avoid stock-out situations.
- Keeping just the right amount of stock on hand can help you save money on inventory costs.
- Reorder points can help better predict customer demand and adjust the inventory levels accordingly. By having an automated system to track inventory, you can also consider seasonal fluctuations and other external factors that may affect customer demand.
- Enhanced customer satisfaction to increase customer loyalty and satisfaction, as well as boost your overall sales.
Prerequisites to Calculate Reorder Level and How It Works
The prerequisites include –
- A good understanding of the company’s inventory management system
- Accurate inventory records
- An understanding of reorder points
- Calculated reorder levels
Once these prerequisites are in place, the company can calculate the reorder level for each item in its inventory.
Reorder level = (Average Demand x Lead Time) + Safety Stock
When the inventory level drops below the reorder level, it is time to place a new order.
Use Case With Reorder level
For example, a retail store may set a reorder level of 10 units for a popular item. This means that when the inventory level of the item drops to 10 units or below, it will trigger an alert to the store manager that they need to order more of this item. The store manager will then place an order with the supplier to replenish the store’s inventory.
