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How to Calculate Order Points and Order Quantities

Catie has been an inventory manager at a veterinary hospital for almost six years. And started her own soap business back in 2018.

What it Means

Order Point-

A two week supply of an item that is in stock and available for sale.

Order Quantity-

A month's supply of an item.

Once you hit two week's worth of an item, order a month's worth.

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Why We Use this Method

By utilizing calculated two week order points and one month order quantities, inventory items in your business will likely never become "out of stock".

With this method, the items will be sold before the business is invoiced for the inventory purchased. In essence, the business is kept "in the green".

These time preiods may need to be adjusted for your business. Perhaps you only place an order once a month so a six week order point and an eight week order quantity may by more appropriate. With these longer periods of time, the inventory may not generate revenue before the business is invoiced for the inventory.

Calculate Often

Category 'A' inventory items should have their order points and order quantities calculated quarterly, while all other items should be calculated annually.

This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.

© 2021 Catherine Berry

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