Automate Inventory Reordering: Never Run Out of Stock (or Drown in Excess) Again

Someone on your team checks the stockroom. They notice you’re low on a fast-moving product. They tell the manager. The manager says they’ll order more. Two days later, a customer asks for that product and you’re out. The manager forgot to place the order — or they ordered it, but the supplier’s lead time was longer than expected. The customer goes elsewhere. You lose the sale and possibly the relationship.

A week later, a pallet of a different product arrives that nobody remembers ordering. Turns out someone placed a duplicate order because they didn’t know the first one had already been submitted. Now you’ve got $8,000 in stock you won’t sell for six months, sitting in a warehouse you’re paying rent on.

These two scenarios — stockouts and overstocking — are two sides of the same problem. And that problem is manual inventory reordering.

The Real Cost of Getting Reordering Wrong

Most business owners think of inventory costs as the purchase price of goods. But the real cost is much broader.

Stockout costs include the lost sale, the cost of emergency orders (express freight premiums of 30-100%), the operational disruption when production stops waiting for materials, and the long-term damage when customers learn they can’t rely on you.

Overstocking costs include the capital tied up in excess inventory (money that could be earning a return elsewhere), warehousing and insurance costs, spoilage or obsolescence for perishable or seasonal items, and the eventual markdowns when you discount stock to clear it.

Research from the IHL Group estimates that overstocking and stockouts cost retailers globally over $1.8 trillion per year. For individual businesses, the cost typically runs between 20% and 30% of total inventory value annually when you account for carrying costs, spoilage, and lost sales.

How Automated Reordering Works

At its core, automated reordering is straightforward: the system monitors your stock levels and triggers an order when inventory drops below a defined threshold. But the difference between a basic system and a good one lies in how those thresholds are calculated and how the system adapts.

Setting Reorder Points

The reorder point is the stock level at which a new order should be placed. Get it right, and you always have stock when you need it without holding too much. Get it wrong, and you’re either constantly running out or constantly overstocked.

The basic formula is:

Reorder Point = (Average Daily Usage x Lead Time in Days) + Safety Stock

For example: if you sell 10 units per day, and your supplier takes 7 days to deliver, your reorder point is 70 units plus whatever safety stock you want as a buffer.

Simple enough for one product. Now multiply that across 200, 500, or 2,000 SKUs — each with different usage rates, different suppliers, and different lead times. This is why spreadsheets break down. The calculations aren’t hard. The volume of calculations is what makes it impossible to manage manually.

Safety Stock: Your Insurance Policy

Safety stock is the buffer that protects you against variability — both in demand (customers ordering more than expected) and supply (deliveries arriving later than promised).

Too little safety stock and you’ll have stockouts whenever demand spikes or a delivery is late. Too much and you’re paying to store inventory you don’t need.

The right amount depends on:

• Demand variability. Products with unpredictable sales need more safety stock than products with steady, consistent demand.
• Supplier reliability. If a supplier consistently delivers on time, you need less buffer. If they’re unreliable, you need more.
• Cost of a stockout. For a critical component that shuts down production, you want more safety stock. For a slow-moving accessory, less.

Good inventory systems calculate safety stock dynamically based on historical data, adjusting automatically as demand patterns and supplier performance change.

Automatic Purchase Order Generation

Once the system knows when to reorder, the next step is automating the order itself. When inventory hits the reorder point:

1. A purchase order is generated with the correct supplier, quantities, and pricing
2. The PO routes to the appropriate approver (if approval is required above a certain value)
3. Once approved, the PO is sent to the supplier electronically — via email, EDI, or supplier portal
4. The system records the expected delivery date and tracks the order status

No one has to notice the stock is low. No one has to remember to order. No one has to look up the supplier’s details or last agreed pricing. The system handles the entire cycle from detection to order.

Handling Seasonal Demand

This is where most basic inventory systems fall short, and where businesses that automate well gain a serious advantage.

If you sell air conditioners, your December demand is nothing like your June demand. If you supply building materials, your demand correlates with construction activity, which has its own seasonal pattern. If you sell retail goods, the lead-up to Christmas is a completely different animal.

Static reorder points — the same threshold all year — guarantee problems. You’ll overstock in the slow season and run out in the busy season.

Seasonal adjustment means your reorder points shift automatically based on historical demand patterns. The system looks at what happened in the same period last year (and the year before), calculates expected demand, and adjusts the reorder point and order quantities accordingly. This isn’t forecasting wizardry — it’s pattern recognition based on your own data.

Supplier Integration

The most sophisticated level of reorder automation extends beyond your four walls to include your suppliers directly.

Basic integration: POs are emailed automatically to suppliers in a structured format. This saves time but still requires manual confirmation from the supplier.

Intermediate integration: Suppliers can access a portal to view, confirm, and update delivery dates for incoming POs. You get real-time visibility into order status without phone calls or emails.

Advanced integration: For high-volume supplier relationships, EDI (Electronic Data Interchange) or API connections allow purchase orders, order confirmations, advance shipping notices, and invoices to flow between systems automatically. Your inventory system knows exactly when stock is arriving, adjusts available-to-promise inventory accordingly, and can even trigger reorders to alternative suppliers if the primary supplier can’t meet the delivery date.

When Basic Tools Aren’t Enough

Inventory management platforms like DEAR Inventory, Cin7, TradeGecko (now QuickBooks Commerce), and Unleashed handle automated reordering well for businesses with straightforward requirements — standard products, consistent lead times, and a manageable number of suppliers.

But the limits show up when:

• You manufacture or assemble products and reordering needs to account for bill-of-materials relationships — ordering components based on finished goods demand, not just individual stock levels.
• You operate across multiple locations and need to balance stock between warehouses based on regional demand, transfer costs, and consolidation opportunities.
• Your pricing is dynamic — supplier contracts with volume tiers, currency fluctuation clauses, or seasonal pricing that affects optimal order quantities.

These scenarios require inventory logic that’s specific to your business — not a generic platform’s interpretation of how inventory should work.

Your Next Steps

This week: Export your sales data for the last 12 months and identify your top 20 products by volume. For each one, calculate the average daily usage and note the typical supplier lead time. This gives you the raw data for your first reorder point calculations.

This month: Set up reorder alerts — even simple ones. Most inventory or accounting systems can trigger a notification when stock drops below a threshold. Set conservative reorder points for your top 20 items and refine from there.

This quarter: Connect your inventory monitoring to automated PO generation. When a reorder point is hit, the system should create the purchase order, route it for approval if needed, and send it to the supplier. Every manual step you remove from this chain is a stockout prevented and an hour saved.

The businesses that manage inventory well aren’t the ones with the best warehouse managers — they’re the ones that turned inventory management into a system instead of a skill. When reordering runs on data and rules rather than memory and gut feel, you stop choosing between stockouts and excess stock. You get the right amount, at the right time, from the right supplier. Automatically.