Lead Time
One of the most important variables to calculate the reorder point is the lead time. It is a concept that refers to the time that passes from the time an order is placed with a supplier until the goods are delivered to the customer. Since this variable multiplies the expected sales, the lower this variable, the lower the reorder point.
A priori, its calculation is relatively simple. Simply subtract the date the order was placed from the delivery date. However, in practice, it depends not only on the suppliers' sourcing time but also on the location of your company within the supply chain.
Thus, if your company is dedicated to the distribution of goods to the end consumer, you will be at the end of the chain and, therefore, your lead time will be the accumulated time of the rest: that of the suppliers of raw materials, that of the factory that has to produce it and that of the distribution centre that will send it to you. Therefore, although lead time may seem like a simple calculation, it is actually more complex than it seems.
In reality, the goal of any company, especially those involved in eCommerce, is to make the lead time as short as possible. Consequently, the reorder point should also be reduced to optimise the company's inventory management as much as possible.
