As a business owner, you know that managing your inventory is essential for keeping your customers satisfied and ensuring that your company stays profitable. One important aspect of inventory management is determining the frequency of restocking. However, figuring out the optimal ratio for restocking can be challenging.
What Is the Inventory Restocking Ratio?
The inventory restocking ratio is a measure of how often you should restock your inventory to maintain sufficient stock levels while minimizing overstocking costs. It takes into account the average daily sales and the lead time for new products to arrive, which is the time it takes from placing an order to receiving the product.
The most commonly used formula for calculating the inventory restocking ratio is:
Restocking Ratio (Average Daily Sales * Lead Time) /
Reorder Point
Where "Reorder Point" is the minimum quantity of an item that you want to keep in stock before placing another order.
Factors Affecting the Inventory Restocking Ratio
Several factors can affect the optimal inventory restocking ratio, including:
- Sales Volatility
- Lead Time Variability
- Holding Costs
- Reorder Point
Case Studies: How Companies Optimize Their Inventory Restocking Ratio
To better understand how companies optimize their inventory restocking ratio, let’s look at a few real-life examples:
- Amazon
- Zappos
