The reorder level is when your pharmacy should order a product from your suppliers. Each item should have its reorder level calculated. Remember that the reorder level is not the reorder quantity. Some refer to the reorder level as the reorder point. The system helps you control stock quantities at your pharmacy. Predetermine the level of effective inventory control. There are several ways to calculate the reorder levels for items at your pharmacy. Incorrect reorder level calculations may lead to understocking or overstocking. Inadequate stock can lead to a loss of sales, while excess stock can result in losses from expiries.

The formula for calculating the reorder level is Reorder level = (Lead Time in Days x Average Daily Consumption) + Safety Stock. In our earlier article, we discussed how to vary safety stock levels depending on how the demand for an item varies over time. The Average Daily Consumption can be calculated over varied periods, for example, over 30 days or a week. You can try out the formula using free online reorder point calculators. Account for the time you take to process purchases when calculating lead times. Larger organizations may require various team members’ approvals, which may take days.

Correctly calculating reorder levels can boost your pharmacy’s cash flow. Accounting for demand variability may limit losses due to expiries. Fixed reorder points have the advantage of simplifying decisions regarding stock control. The levels of customer loyalty may increase as clients will build the perception of your pharmacy always stocking what they need. The retail (community) segment of pharmaceutical practice in Kenya is awash with supplier offers. Reorder levels can help you make sense of all the noise in the marketplace. Properly manage your stocks and cash flow using such data to make objective decisions. Reorder point calculations can boost profits as their proper use may decrease costs associated with improper stock management.

Reorder levels come with their challenges. Pharmacies lacking automated systems must consistently check if the calculated reorder level is relevant. Variables that affect demand may cause the previous calculation to be irrelevant. Incorporate the XYZ analysis when calculating reorder points to manage such scenarios. Reorder point levels also do not consider economies of scale. You may have to use your judgment when accounting for the competitive landscape of retail (community) pharmacies in Kenya. Purchasing fewer items may mean being expensive when potential clients compare your pharmacy prices against competitors.

Reorder levels work for items whose demand and lead time are unpredictable. Calculate the reorder point for products you order in small quantities yet frequently. The framework works for stock whose ordering cost is low, for example, where the supplier does not charge you to deliver. The process works for products with minimal possibility of going out of stock at the supplier level. Determine whether fixed or variable reorder levels are practical at your pharmacy. Keep testing until you find what helps you optimize your inventory levels. Ultimately, your goal should be to minimize losses and maximize cost using data that helps make objective decisions for your pharmacy.