To calculate the ROP for each item, you’ll need to know the following parameters: You need to know when to order each item in your inventory separately, because different items have different sell-through rates. Setting a reorder point helps you optimize your inventory, replenish your stock of individual items at the right time, and meet your market demand without going out of stock. The your vendor takes to supply the items, the more sales you’ll be losing. If you order when you have zero stock on hand, you’ll be unable to make sales for as long as it takes to receive the order. If you order when you still have a lot of stock on hand, it will lead to extra stock piling up, which will increase your holding costs. If you’re a business owner, knowing when to order more stock is important. In other words, it tells you when to place an order so you won’t run out of stock. A reorder point (ROP) is a specific level at which your stock needs to be replenished.
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