Practical Re-order Level Setting

When lead-time and demand variability is variable, it is hard to define a re-order point, even when the cycle service level is clear.

As such, a practical way to set reorder points is to tap on the experience of the warehouse staff to identify out of stock (OOS) SKUs, and to go through the demand variability, lead time, cycle service level to set new reorder points and monitor OOS. The staff may tell you that they previously order the minimum order quantity, or there are highly variable demand or lead times? With experience, you can also set higher safety stock, and hence a higher reorder point for seasonal products.

How do you free up space for higher reorder points? Well, the same experienced staff will be able to ye you what SKUs could be over stocked. You can then calculate a lower reorder point to free up space.