How to Calculate Reorder Quantity? Formula, Tips, and Tools

Knowing your reorder quantity (ROQ) helps you order just the right amount of items to avoid stockouts or having too much. This guide covers how to calculate ROQ, why it matters, and how tools like procurement software can simplify inventory management.

What is reorder quantity?

Reorder quantity (ROQ) is an inventory metric that designates the amount of stock you should order when your stock level reaches a reorder point. ROQ essentially asks, “How much do we need to order to keep our inventory levels healthy?” Inventory management and procurement software enable alerts that notify managers when stock reaches a reorder point (ROP) as well as suggesting a reorder quantity.

Determining the right ROQ depends on several key factors:

• Average daily usage (ADU). This is how much stock the business typically uses each day. 
• Lead time. The time it takes for the supplier to deliver a new order once it’s placed.
• Safety stock. An extra buffer of inventory that’s kept on hand to cover unexpected delays or demand increases.

By calculating ROQ with these factors, you can maintain steady stock levels and minimize the risk of stockouts and overstocking. Combined with demand forecasting, an effective reorder quantity is an important facet of stock control.

Reorder quantity vs. reorder point (ROP)

Reorder quantity (ROQ) and reorder point (ROP) serve different but complementary roles in inventory management. Whereas ROQ determines the quantity needed to restock, ROP is a time-bound metric, designating the point in time when it’s necessary to place a new order to avoid running out of stock.

In other words, reorder quantity tells a business how much to order. It uses data like demand, lead times, and order constraints to calculate the optimal time to restock. It adapts to changes like market trends and seasonality. Reorder point, on the other hand, tells a business when to order, acting as a signal to initiate a new purchase order in time to prevent stock levels from dipping too low.

By understanding both ROP and ROQ, you can anticipate and meet demand, maintain a responsive supply chain, and achieve optimal stock levels across different product categories.

Reorder quantity vs. economic order quantity (EOQ)

Economic order quantity (EOQ) is another procurement metric with an emphasis on improving cost efficiency. EOQ takes into account more data than ROQ – it calculates the most cost-effective order size to minimize carrying costs (holding inventory) and ordering costs. While ROQ focuses on stock availability, EOQ is designed to find the “sweet spot” order quantity. By doing so, EOQ helps balance frequent small orders, which increase ordering costs, against larger orders, which increase holding costs.

While ROQ helps ensure there’s always enough inventory to meet demand, EOQ is more geared toward keeping costs manageable over time.

Continue reading about economic order quantity.

Reorder quantity formula

The reorder quantity formula is pretty straightforward. It considers three other metrics: the average daily usage, supplier lead time, and safety stock, if applicable.

Reorder quantity = (Average daily usage × Lead time) + Safety stock

Example: Let’s say a business sells 20 units daily, with a supplier lead time of 5 days. They keep 50 units as safety stock to prevent stockouts. Using the ROQ formula:

ROQ = (20 × 5) + 50 = 100 + 50 = 150

So, they’d reorder 150 units when stock reaches the reorder point to maintain steady inventory.

The importance of accurate reorder quantity

Setting an accurate reorder quantity (ROQ) is crucial in inventory management for the following reasons:

Preventing stockouts and overstocking

When ROQ is set accurately, stockouts are minimized. This reduces the risk of lost sales and frustrated customers due to unavailable products. This is particularly critical in industries with high demand fluctuations, such as retail, where even minor delays can lead to costly gaps in availability​.

Additionally, accurate ROQ prevents excess inventory. This lowers carrying costs (i.e., the expenses related to storing unsold goods). Overstock can tie up capital, take up space, and increase the risk of inventory obsoletion.

Impact on cash flow and customer satisfaction

For small manufacturers and distributors, an accurate ROQ supports smoother operations and healthier cash flow. This is especially important for smaller businesses with limited budgets, where efficient cash management can support other areas, like expanding product lines or improving customer service​.

Consistent stock levels also enhance customer satisfaction, allowing you to fulfill orders promptly. A reliable supply strengthens relationships with customers who know they can depend on your availability to meet their needs​. An accurate ROQ supports financial health and boosts operational efficiency, helping businesses respond to demand effectively while minimizing waste. 

Adjustments for lead times and demand

In real-world scenarios, lead time and average daily usage can fluctuate. Businesses may need to adjust ROQ to stay responsive to these changes:

• Varying lead times. If supplier lead times extend (for example, from 5 to 7 days), increasing the ROQ to cover the extra time helps avoid stockouts.
• Shifting demand patterns. During peak seasons or promotional periods, average daily usage may increase, calling for a higher ROQ to meet heightened demand without risking shortages.

Adjusting ROQ in response to these variables can help you maintain efficient inventory control. This way, you can adjust your stock replenishment strategy to changes in demand and supply chain dynamics.

How can procurement software simplify replenishment?

Procurement software makes managing purchasing, vendors, and order quantities much more efficient compared to manual methods. Automated procurement systems simplify purchasing by predicting reorder needs based on real-time data. This includes: 

• Sales patterns. By tracking historical sales data, procurement software can help predict ROQs more accurately. It does this by identifying recurring demand trends. This feature is especially useful if your business often faces demand fluctuations.
• Lead times. The software calculates average lead times for materials and items, adjusting reorder quantities based on potential supplier delays. By incorporating lead times into ROQ calculations, you can prevent stockouts and order at just the right time.
• Seasonal demand. Many procurement systems have seasonal forecasting capabilities, which recognize periods of high and low demand. This feature is essential if your business sells seasonal products. You can adjust ROQs based on anticipated surges or dips in sales​.

Comprehensive manufacturing ERP software with a robust procurement module offers various other features that simplify inventory management and purchasing operations. Key features include:

• Demand forecasting. By analyzing past sales and current market trends, demand forecasting tools provide insights that allow for more accurate ROQ settings. This reduces guesswork​.
• Automated ordering. As inventory levels reach the reorder point, the software not only notifies you to place new orders for materials but also automatically raises prefilled purchase orders and helps track them. This minimizes the risk of human error and keeps inventory levels stable without manual monitoring​.
• Vendor management tools. These tools help companies manage relationships with multiple suppliers, track each vendor’s performance, and select the best options based on lead time, pricing, and reliability. Effective vendor management further supports accurate ROQ, as it keeps lead time data current and improves supply chain reliability.

Key takeaways

• Reorder quantity is the amount of stock to order when inventory reaches a predefined reorder point, ensuring steady inventory levels and avoiding stockouts or overstocking.
• The formula for ROQ is (Average Daily Usage × Lead Time) + Safety Stock, allowing businesses to calculate the precise amount of inventory needed based on usage, lead times, and buffer stock.
• ROQ determines how much to order, while ROP indicates when to order. Together, they help maintain optimal stock levels and a smooth supply chain.
• Setting the right ROQ prevents stockouts, avoids excess inventory, supports cash flow, and enhances customer satisfaction by ensuring products are always available.
• Modern procurement software simplifies ROQ calculations by analyzing sales patterns, lead times, and demand trends, while features like demand forecasting, automated ordering, and vendor management further streamline inventory replenishment.

Frequently asked questions

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