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Sunday, June 27, 2010

Optimal Order Size Question

When creating a build to for food orders, what is the exact formula
used? I know it's units used divided by how many days and something to
do with how many deliveries a week.


Thanks for the question, James.

Use of the formula described depends on the shelf life of the product. For example, fresh picked raspberries have a rapid spoilage rate when compared to frozen raspberries. The average daily usage/number of deliveries per week model works well for high volume items with a shelf life of 7 days or more.

A twist on this method you may find interesting is to multiply your expected sales (in dollars) by the average consumption per dollar of sales. If you used 1 case for every $1,000 in sales and your sales forecast is for $20,000, you would require 20 cases. Simply check to see what the in stock level is and order the net amount. In our example, we would order 18 cases if we had 2 cases on hand.

Should we order extra in case our sales forecast is off? I think the answer depends on your number of deliveries per week, the day of the order, and your ability to adjust to actual sales volume.

If you are placing a Thursday order for a Friday delivery to handle a busy weekend and you can't get the next delivery until Monday, you would want to provide for a small cushion. On the other hand, a Monday order to replenish your inventory should not be inflated with a safety factor. Your suppliers are most likely in your area all week for any adjustments.

To utilize this method, ask your distributor for a quarterly tracking report. Next you should run a sales recap for the same quarter on your POS system. Divide the number of cases on the tracking report by the total food sales for the quarter. The result is the average usage in terms of sales.

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