Why is reorder timing so important to a business? Is it more important than when we decide to refill our cars with gas, or the refrigerator with food? Why?
The idea is when the products or items are being sold the system should reorder that particular product when the sold item reaches 3 for example. So having the correct reorder point that matches the demand is very important. You must also look at the time it takes for the item to be shipped. So if you are always using a particular item and your reorder point is low and the shipment arrival is long….you will never keep a good onhand inventory. Reorder timing is highly important in business, it is more important than when you fill your car. I actually think that using filling the refrigerator with food makes it easier for me as a couponer to understand. You don’t want to buy your product (food) too early so that it expires before need to use it (eat it). You also do not want to purchase parts (ice cream for a party in 2 months) you will not need too far in advance, they may not be needed or may be inadequate for the situation when it arises. You also may need to take a risk sometimes and purchase parts (food) that you do not need in the near future, but they are on special/free shipping/free with coupon and you should not overlook a good business deal such as these. There is a lot of time and planning that needs to go into when you purchase supplies. If you have 3 different parts you buy from one supplier and you get a bundled shipping cost, you should try to order these parts together to prevent unnecessary spending on shipping, unless the cost to store those parts outweighs the savings.
Reorder timing is important just as you stated because if stock runs out and they are not replenished on time it can lead to stoppages and regardless of whether work stops or not the company will wtill have to pay its fixed cost. There you be an effective reorder timing in any organization because the continuity of the production operation depends on it and it has to be done in such a way that it does not create excess inventory or cause delays in the work process due to shortages. Order timing is very crucial when maintaining inventory levels. When carrying a product you really want to carry the neccessary amount for the customer demand. In this you must order what you need to keep the customer happy as well ensuring you do not run out, because that can be worse than having too much inventory. You must order the amount to get you from shippment to shipment.
The reorder point occurs when the quantity on hand drops to a predetermined amount. That amount generally includes expected demand during lead time and perhaps an extra cushion of stock, which serves to reduce the probability of experiencing a stockout during lead time. The goal in ordering is to place an order when the amount of inventory on hand is sufficient to satisfy demand during the time it takes to receive that order (i.e., lead time). There are four determinants of the reorder point quantity:
1.The rate of demand (usually based on a forecast).
2.The lead time.
3.The extent of demand and/or lead time variability.
4.The degree of stockout risk acceptable to management.
If the stock quantity is not ordred in time, the business may not be able to meet the customer’s demand in time and will create loss for the business.
Stevenson, William J. (2012). Operations management.—11th ed.
Businesses use different manual inventory management techniques for inventory re-ordering such as:
Visual Control – Visual control originally referred to inventory small enough that the purchasing/inventory manager can physically see the critical supplies. When supplies are visibly lean, he or she orders.
Tickler Control – Tickler control is slightly more involved, with the manager or a designee counting a portion of the inventory daily, ensuring a 100% inventory every so many days and ordering anything that is unacceptably low.
Click Sheet Control – Click Sheet Control is a manual tracking of sales or usage. By recording usage, it provides reorder data. Some of the most advanced Point of Sale systems are an electronically managed and monitored click sheet control system.
While the terms originally applied to small scale inventory management, large businesses use automated versions of these tried and true inventory management techniques. For larger enterprises, an information system executes visual, tickler, or click sheet control but on a much more massive scale.
I believe demand plays a significant role in order timing. The release date for new smartphones and iphones especially is normally given well in advance, allowing people to get excited about the product to the point they can’t wait to have it. The cell phone provider has set the date, worked with the manufacturer and of course can predict relatively well the initial demand. All this being said, we all know what happens on phone release day! People sleep in parking lots waiting in line for stores to open to get the new phone, they stay up half the night ready to place the online orders. Some stores may only have been allotted 15 phones, and there may be 50 people waiting in line when the store opens. Companies make a demand for the phone stronger by not having the product readily available. We feed off the emotions of the consumers, they cant have it so they will want it more. This means by the time they get the opportunity to drop $300 on the phone, the price is irrelevant because it fills their emotional need to have it. The end result is that by not having the product readily available and well stocked they will want it more and the sales will increase. The movie “Jingle all the way” when the dad searches the city for the Christmas gift his son wants is a fun example of this.
the re-order point is:
Reorder point (ROP) = Lead time demand + Safety stock
If you have a demand forecast and a lead time and a safety stock target, you have the ROP. So the reorder rule is: Order only if Stock on hand + Stock on order <= Reorder point
Reordering is a critical part of any businesses anywhere- the most important things is that we take care of our customers who do not care about how we do things in house but deliver product on time with great pride. I believe that when it comes to determine how to plan on what to reorder planning is essential by using demand forecasts to decide when to order a new quantity to avoid dipping into safety stock. When this planning is established it suggests a new order for an item when the available quantity,on-hand quantity plus planned receipts drops below the item’s safety stock level plus forecast demand for the item during its replenishment lead time. If the forecast is correct and the order arrives on time, the inventory level should be right at the safety stock level at the time of receipt. This also applies to the real world especially when you are hosting a party. You already anticipate how many people are going to show up at the party and you plan accordingly, but in hindsight, you may make an extra run at supplies just in case the people you invited bring friends with them. Order timing is important to a business because they need to manage their inventory. Having too much inventory can cause a company to incur unwanted holding costs. However, not having enough inventory can mean losing orders from customers. There is an equation to calculate the Economic order quantity. This number represents to order size that minimizes total annual cost. It is the point where there is a balance between ordering/setup costs and holding/carrying costs.
This process is more important than when we decide to fill our cars or purchase food because we are not paying someone to make those purchases and we do not have a lead time to worry about.