Suggested Order Quantity (SOQ)
SOQ is the recommended quantity for ordering, calculated based on usage data and current stock levels. It adjusts according to real-time consumption patterns, allowing for more precise inventory management.
Benefits of SOQ
- Optimizes ordering to match actual usage
- Reduces excess stock costs
- Minimizes the risk of stockouts
Factors Used in Calculating SOQ
SOQ is not a fixed quantity but a recommended amount that changes based on real-time product usage. It considers the following factors:
1.Average Daily Usage
2.Lead Time
3.Safety Stock
4.Current Stock
Basic SOQ Calculation Formula
• Average Daily Usage
Calculated from daily usage over a defined period.
Example: If 600 units are used over 30 days, Average Daily Usage = 600 ÷ 30 = 20 units/day.
• Lead Time
The time from ordering to stock arrival.
Example: If it takes 5 days for a supplier to deliver, Lead Time = 5 days.
• Safety Stock
Set to prevent shortages.
Example: If the maximum daily usage is 30 units and Lead Time is 7 days,
Safety Stock = (30 × 7) – (20 × 5) = 110 units.
• Current Stock
The current amount of stock available to adjust the order quantity to actual demand.
Example: Product A has a current stock of 60 units.
Example Calculation
For the current scenario, the recommended order quantity is 150 units.
Conclusion
Use a Back-of-House management application that helps analyze stock and purchasing in one place, reducing hidden costs in back-end work, saving business owners time.
