PLAYBOOK / STEP 3
Reorder point and EOQ.
Reorder point equals expected demand over the lead time plus safety stock. EOQ minimises the sum of holding cost and order cost. Set both per SKU; turnover follows.
Formulas
ROP = (daily demand × lead time) + safety stock
Safety stock = Z × σdemand × √lead time
EOQ = √(2 × annual demand × order cost / holding cost per unit)
Z is the service-level multiplier (95% = 1.645; 98% = 2.054). The square-root term reflects independence of daily demand variances over the lead window.
REORDER POINT
Safety stock
49
Reorder point
609
EOQ
Economic order quantity
1184
What this does for turnover
Disciplined reorder-point settings cut overshoot. Average inventory falls toward the EOQ-implied steady state, lifting turnover one to two turns on a previously undisciplined book inside two cycles.
ERP fields to populate
- Lead time per supplier. Pull from receiving history, not the master file.
- Demand std dev per SKU. Compute over the trailing 26 weeks.
- Safety-stock service level. Default 95%; lift to 98% for medical and food-safety items.
Step 3 / 6
Reorder point and EOQ
Set ROP and EOQ per SKU; turnover lifts on its own.