Re-Order Point (RoP) & Economic Order Quantity (EOQ) Calculation Guide

The re-order point (RoP) and Economic Order Quantity (EOQ) of a final product can be determined using the following steps:

1. Determine the demand for the product: This can be done by analyzing historical sales data or forecasting future demand based on market trends and customer behavior.

2. Calculate the lead time: This is the time it takes for the product to be manufactured, shipped and delivered to the customer. It is important to factor in all the variables that may impact the lead time, such as supplier lead times, shipping times, and customs clearance times.

3. Determine the safety stock: This is the buffer stock that is kept to avoid stockouts in case of unexpected demand or delays in delivery. The safety stock can be determined based on the desired level of service level, which is the probability of not running out of stock during the lead time.

4. Calculate the re-order point (RoP): The RoP is the level of inventory at which a new order should be placed to avoid stockouts during the lead time. It can be calculated using the formula: RoP = (Demand per day x Lead time) + Safety stock.

5. Calculate the Economic Order Quantity (EOQ): The EOQ is the optimal order quantity that minimizes the total cost of inventory management, including ordering costs and holding costs. It can be calculated using the formula: EOQ = square root of ((2 x Annual demand x Ordering cost) / Holding cost per unit).

By following these steps, businesses can determine the optimal level of inventory to maintain for their final products, ensuring that they can meet customer demand while minimizing inventory costs.