How to Automate Inventory Reordering Based on Preset Thresholds

 Automating inventory reordering based on preset thresholds is a smart way to streamline your inventory management process, ensuring that you never run out of stock while also avoiding overstocking. By automating reordering, you can reduce manual errors, save time, and make your business more efficient. Here's how you can implement an automated inventory reordering system based on preset thresholds.

1. Set Reorder Points (ROP) for Each Product

The first step to automation is setting reorder points (ROP) for every product in your inventory. A reorder point is the stock level at which you should place a new order to restock your inventory before running out.

How to calculate reorder points: To determine the ROP for each product, consider the following factors:

• Lead time: The amount of time it takes for your supplier to deliver the product after placing an order.
• Average demand: The average number of units sold over a certain period.
• Safety stock: Extra inventory to cover unexpected fluctuations in demand or supply chain delays.

The formula for ROP is:

$$ROP = (Average Demand \times Lead Time) + Safety Stock$$

For example, if a product has an average demand of 50 units per week, a lead time of 2 weeks, and you want to keep a safety stock of 100 units, the reorder point would be:

$$ROP = (50 \times 2) + 100 = 200$$

When stock levels hit 200 units, you would place a new order.

2. Use Inventory Management Software (IMS) with Automated Reordering Features

Next, you’ll need an inventory management system (IMS) that can track inventory levels in real time and automatically trigger orders when stock falls below the preset reorder points. Most modern IMS platforms come with automated reordering features, and here's how they work:

• Stock monitoring: Your IMS will continuously track inventory levels, updating stock counts in real time as items are sold or received.
• Automated alerts: Once stock levels fall below the reorder point, the IMS sends an alert or places an automatic order with your supplier.
• Customizable triggers: You can customize the threshold settings for different products based on demand, seasonality, and supplier lead time.

Popular IMS platforms like TradeGecko, Zoho Inventory, and Cin7 provide automated reordering features to simplify this process.

3. Integrate Your Inventory System with Suppliers

To make the reordering process even more seamless, integrate your IMS with your suppliers or vendor systems. This allows the system to automatically place orders with your suppliers when stock hits the reorder point.

Here’s how integration can work:

• Automatic order creation: When stock reaches a low level, the IMS can generate a purchase order (PO) and send it directly to your supplier. This eliminates the need for manual intervention in creating and sending orders.
• Supplier preferences: Set supplier-specific lead times, preferred order quantities, and pricing to ensure the system makes the right order every time.
• Stock-level synchronization: Integration ensures that both your IMS and supplier systems are synchronized, minimizing the risk of stockouts or overselling.

4. Set Minimum and Maximum Stock Levels

In addition to reorder points, it’s important to set minimum and maximum stock levels for each product. This gives your system more control over how much inventory is ordered.

• Minimum stock level: This is the lowest amount of stock you want to keep on hand. If your stock falls below this level, a reorder is triggered.
• Maximum stock level: This sets an upper limit on the quantity of stock you want to maintain. If an order is triggered that exceeds the maximum stock level, the system can adjust the order to keep stock levels within the desired range.

Setting these limits prevents overstocking and ensures that you don't tie up too much capital in inventory that isn't selling.

5. Use Predictive Analytics for Smarter Reordering

Integrating predictive analytics into your automated reordering process can enhance its accuracy, especially if demand fluctuates due to seasonality or market trends. By using historical sales data, seasonality trends, and sales forecasts, predictive analytics can forecast future demand more accurately, helping you set more accurate reorder points and timing for orders.

With predictive analytics, your system can:

• Anticipate demand spikes: For example, if you know that demand will increase during the holiday season, the system can automatically adjust reorder points or safety stock levels in advance.
• Optimize reorder timing: The system can place orders at the right time to ensure you receive stock exactly when you need it, based on demand forecasts and lead time.

Using advanced forecasting and analytics tools can further fine-tune your inventory reordering process.

6. Automate Supplier Communication and Order Tracking

Once an order has been placed, automating communication with your suppliers and tracking orders ensures that the replenishment process remains smooth and timely. With the right system, you can:

• Track purchase orders: Your IMS can monitor order status and send automatic updates about delivery timelines.
• Automate communication: Notifications or emails can be sent to suppliers when inventory is low, reducing the need for manual communication and ensuring faster response times.
• Track deliveries: The system can track expected delivery times and alert you if there are any delays, allowing you to make adjustments before stock runs out.

This automation reduces the manual effort involved in reordering and keeps you informed about your inventory status without extra steps.

7. Monitor and Adjust the System Regularly

Although automating reordering based on preset thresholds is highly effective, it’s important to monitor and adjust the system regularly. Business environments change, and so do your inventory needs. Some adjustments that may need to be made include:

• Updating reorder points: As demand patterns change or you find that products have different lead times, you may need to adjust your reorder points.
• Seasonal changes: Ensure that your reorder points and safety stock levels are adjusted to account for seasonal fluctuations or upcoming sales events.
• Reevaluate supplier performance: If lead times change or suppliers are less reliable, your reorder process may need tweaking to account for these changes.

Regularly reviewing your automated reordering system helps keep it aligned with your business goals and ensures optimal inventory levels.

8. Consider Different Reordering Strategies for Various Product Types

Not all products are the same, and different types of products may require different reordering strategies. Some products may be high-demand and require more frequent reordering, while others may be low-turnover items. Consider these strategies:

• Fast-moving products: For items with high turnover, you may want shorter reorder points and more frequent reordering to avoid stockouts.
• Slow-moving products: For items with slow sales, set longer reorder points to avoid overstocking and tying up capital in products that aren’t selling quickly.
• Seasonal products: Products that are in demand during specific seasons, such as holiday decorations or summer gear, should have adjusted reorder points to accommodate the peak demand period.

By customizing your reorder strategies based on product type, you ensure that each product is managed optimally.

9. Test and Optimize the System

Once your automated reordering system is in place, continually test and optimize it. This involves running simulations to check for potential errors, verifying that the system is correctly calculating reorder points, and ensuring that orders are being placed at the right time. Testing helps identify any inefficiencies or problems early on, allowing you to make adjustments before they impact your operations.

Conclusion

Automating inventory reordering based on preset thresholds can save time, reduce errors, and improve efficiency in your inventory management process. By setting reorder points, integrating your system with suppliers, utilizing predictive analytics, and regularly optimizing the process, you can maintain optimal inventory levels with minimal manual intervention. Ultimately, automated reordering helps you stay ahead of demand, reduce stockouts, and avoid overstocking, contributing to better cash flow and smoother business operations.