When should I reorder stock so I never run out?
Multiply daily sales by supplier lead time, add a safety cushion, and you get the stock level at which it is time to place the next order.
Running out of your best seller is one of the most painful things in a small store. Customers leave, ads send people to a sold-out page, and you scramble. Over-ordering has its own cost, so you want the order to go in at the right moment, not too early and not too late.
The idea
You reorder when your stock drops to a level that will last just long enough for the new order to arrive. That level is called the reorder point.
Reorder point = daily sales times lead time in days, plus safety stock.
The three inputs
Daily sales. How many units of this product you sell on a normal day. Take the last month and divide the units sold by the number of days. Say it is 5 a day.
Lead time. The number of days between placing the order with your supplier and having the goods ready to ship from your place. Include production time, transport and the time to check the delivery. Say it is 12 days.
Safety stock. A cushion for the days when sales run higher or the supplier is late. Say you decide on 20 units.
The sum
5 units a day times 12 days is 60 units. This is the stock you will sell while waiting for the new batch.
Add the safety stock of 20 units. 60 plus 20 is 80.
Your reorder point is 80 units. The moment the count falls to 80, place the order. If everything goes to plan, the new stock arrives when you are down to about 20 units, and your cushion has not been touched.
Why you must count lead time honestly
Suppliers often quote a date that works when everything goes right. Look at the last three orders and note how long they really took from payment to the goods in your hands. If the promised time is 10 days and it was 14 days twice, use 14.
Lead time is also a reason to talk to your supplier about what they can do. A supplier who can deliver in 7 days lets you hold less stock than one who needs 20.
What to do with it
- Work this out for your top five products first.
- Write each reorder point on a card or in your catalogue sheet next to the stock count.
- Check the stock count when you pack each day. If it is at or below the reorder point and no order is placed, act the same day.
- Recalculate when your sales change. A product that goes from 5 a day to 8 a day needs a higher reorder point.
For selling in several colours or sizes, do the sum per variant, because the one that sells fastest runs out first. How to track stock per variant in your catalogue gets you started.
Where it can go wrong
Sales are never perfectly flat. A festival, a reel that does well, or a creator mention can double your daily sales. The safety stock is your protection, and the next post, a simple safety stock calculation, shows how to size it. Also keep an eye on cash. A higher reorder point means more money held in stock, so read what working capital is.
A reorder point is a rule that replaces worry with a number. Set one today for the product you can least afford to lose.