The reorder point formula isn’t terribly complicated on its own. But there are a few things that can throw off your sales predictions, your supplier’s lead time, and your business’s reordering needs. Keep these factors in mind as you estimate demand and fulfillment for your products.
Believe it or not, the time of year can throw your reorder point formula for a loop if you’re not careful.
For starters, seasonality can drastically affect demand for your product. For example, you’re likely to sell more baseball bats right before your community’s youth baseball program starts. That means, during that time period, you’ll have a higher number of average daily sales and maximum daily sales. On the flip side, high-volume sales during one time of the year may inflate your average numbers for the rest of the year, resulting in inaccurate forecasting that leaves you swimming in products that customers won’t want to buy for another six months.
Seasonality can also affect lead time metrics. If your baseball bat supplier is in China, for example, your order lead times in January or February are likely to be thrown off by Chinese New Year.
When factoring in seasonality, be sure to reference your sales and lead times from previous years. If your business sees large fluctuations in customer demand or lead times based on seasonal factors, we highly recommend using an inventory management software to track seasonal trends and adjust your reorder point accordingly.