Understanding how reorder levels result in order recommendations helps you when reviewing your orders
Read the tutorial
In this tutorial we show how the re-order levels are used to generate order recommendations.
The stocking indicator
How an item is recommended for order, if at all, is determined by the stocking indicator.
After watching the tutorial on the stocking indicator, you would already know that setting it correctly is critical for inventory replenishment.
How reorder levels are calculated
For stocked items, the tutorial on how the reorder levels are calculated highlighted the important levels from an ordering perspective:
- the reorder point, which determines “when” to order
- and the order up to, which is used to determine “how much” to order
Compute the recommended order quantity
To compute the quantity to be recommended for order, firstly establish your current stock position or net stock. To do this:
- Take your current stock on hand
- Subtract overdue customer orders and any allocated/committed stock
- Then add in any stock that is already on order
Now compare your net stock of 102 with the reorder point of 113. As 102 units is less than 113, this item must be ordered today.
To determine the quantity to be ordered, subtract your net stock of 102 from the order up to of 139.
This results in an order recommendation of 37 units to be ordered today.
Minimum order quantity and order multiple constraints
Supplier minimum order quantity and order multiple constraints are applied to the ideal order by:
- ensuring that the recommended order quantity is at least the MOQ
- then rounding the recommended order quantity to the nearest order multiple
In this case, the ideal order of 37 units is bigger than the MOQ, and the ideal order is rounded to the order multiple of 5.
Non-stocked items are only ever ordered when one of your customers orders it from you. For non-stocked items the net stock in units is calculated as:
- stock on hand
- minus back orders, allocations and firm demand within the lead time
- plus any stock on order
If the net stock is negative, in this case -4, the recommended order quantity is for 4 units to fill the gap.
It is important to pay attention to non-stocked items that have MOQ’s as the MOQ may cause the ideal order to be increased, leaving you with excess once the order is receipted.
Obsolete items will never be ordered under any circumstances. You may still have stock of them, you can still sell them but you will never purchase them.
With the stocking indicator set to obsolete, all backorders are ignored, and the app will never recommend an order for this item.
You should now understand the calculation of the order recommendations for stocked, non-stocked and obsolete items.
You should also understand the impact that minimum order quantity and order multiple supplier constraints have on the ideal order.