inventory management is an important aspect of retail strategy.

For example, it is important to know when it is time to reorder and how much to order at a time, a metric called reorder point.

as consumers buy a product day after day, the inventory level declines. the question for retailers is how low they should allow the inventory level to decline before they place an order;

that is, when is the optimal time to reorder? if you order too late, you take a chance of losing sales because you are out of stock. if you order too soon, consumer tastes may change, and you will be stuck with excess and unsellable merchandise. and generally, retailers do not want more inventory on hand than is necessary to avoid stock-outs because inventory ties up cash.

hence, the decision of when to order and how much to order is critical to a retailer’s bottom line. the simplest formula to determine the reorder point is the following:

reorder point * usage rate + lead time usage rate is basically how quickly the inventory sells, and lead time is the length of time from reorder to delivery. retailers tend to keep a little extra stock on hand—“safety stock”—just in case their historical data on usage rate and lead time might vary from any one particular reorder experience. adding in safety stock, the formula becomes the following:

reorder point * (usage rate * lead time) + safety stock sam’s 24-hour Gas ‘n’ sip sells 97 large sodas a day. it takes five days to place an order and receive a new shipment of large cups. But to be prepared for the possibility of extra sales or a late shipment, they need to have a safety stock equal to three days of sales.

What is the reorder point for large cups for sam’s gas station?