What sets your safety stock and reorder points
Safety stock is the spare you hold for bad weeks: when more sells than usual, or a delivery is late. Narada sizes it for every part at every branch, every night, from that part’s own sales and that supplier’s own deliveries.
So your reorder points are not typed in once and left. They move as your business moves.
| What changes | Safety stock | Why |
|---|---|---|
| Sales swing more from week to week | Up | Bad weeks are worse |
| The supplier’s delivery times vary more | Up | You cannot tell how long the wait will be |
| The supplier takes longer to deliver | Up | More days to cover |
| You raise a part’s target | Up | You asked for fewer empty shelves |
| The part is cheap and earns a good margin | Up | Running out costs more than holding |
| Sales become steadier | Down | Fewer surprises to cover |
| The supplier’s delivery times become steady | Down | Less waiting to guard against |
| The part costs a lot and earns little | Down | Holding it costs more than running out |
| The part is discontinued | Down | Leftover stock may never sell |
How the reorder point is built
Section titled “How the reorder point is built”The reorder point is the stock level that tells you to order again. It has two parts:
- What you expect to sell while you wait. The wait is the supplier’s delivery time. On a set ordering day, it also includes the days until your next check.
- Safety stock on top. The spare for weeks that go worse than expected.
Stock falls to the reorder point, you order, and the safety stock carries you until the delivery lands. See How Narada works out what to order for the full cycle.
Two ways to size the spare
Section titled “Two ways to size the spare”Which way a part uses depends on its forecast. See How the forecast is made.
When the forecast has proved itself, Narada plays out many possible weeks over the wait. It uses the forecast’s range, and it mixes in how late this supplier has really been. Then it holds enough to cover all but the worst of them. How far into the bad cases it goes is the part’s target.
When it has not, Narada looks at how much the part’s daily sales have swung recently. It adds how much the supplier’s delivery time has swung. Then it holds enough to cover the swings the part’s target asks for.
The recent window is the one set by Sales history used to rank parts A, B and C on Your Numbers. It is 90 days unless you change it.
How long Narada thinks the supplier takes
Section titled “How long Narada thinks the supplier takes”Narada plans on the wait it can best back up, in this order:
- Measured from your own deliveries. Once a supplier has delivered enough times, Narada uses the time they really took, and how much it varied.
- What you told it. A lead time on the part or the supplier in your files.
- An assumed two weeks. Only when there is nothing else. The line says the wait is assumed.
Until there are measured deliveries, Narada has no record of how late a supplier runs. It then plans as if deliveries come on time. Sending your receipt history fixes this.
How high the target is
Section titled “How high the target is”Each part has a target: how sure you want to be of not running out while you wait. A higher target means more safety stock.
By default, the target is the higher of two things. One is the floor for the part’s class (A, B or C). The other is the part’s own money answer: what running out would lose you against what holding one more costs. A profitable part can aim higher than its floor. No part goes below it.
You can choose other ways to apply targets. See How sure Narada aims to be.
Slow parts that customers keep asking for
Section titled “Slow parts that customers keep asking for”Some parts sell too rarely to earn a place on the shelf by the numbers. Yet customers ask for them again and again over a year.
When that happens, and the margin at stake pays for holding it, Narada keeps 1 on the shelf. Special orders count as asks.
A part that has stopped selling at a branch is not reordered there, unless the rule above keeps one on the shelf.
Why did a reorder point change overnight?
Section titled “Why did a reorder point change overnight?”Because something it depends on moved. Common reasons:
- New sales came in, so the expected sales or their swing changed.
- A delivery arrived late or early, so the supplier’s measured wait changed.
- The part moved between A, B and C.
- Its forecast passed or failed one of its tests.
- Someone changed a setting on Your Numbers.
Press Show on the line in What to Order to see each step for that part.
What Narada cannot see
Section titled “What Narada cannot see”- A supplier problem you heard about but that has not shown in deliveries yet.
- A big order you know is coming, until it shows in sales or open orders.
- Short shipments. Narada counts when an order arrived, not whether it was complete.
In these cases, adjust the order yourself before you approve it.
Taking these numbers into your ERP
Section titled “Taking these numbers into your ERP”Press Reorder points on What to Order to download every part’s reorder point and safety stock. Your ERP’s min is the reorder point.
- How sure Narada aims to be
- How the forecast is made
- A part’s page: every number for one part, worked out.