Setting a reorder point so you never run out
A reorder point is the stock level at which you place your next supplier order, and you can set one from how long restocking takes and how fast you usually sell.
Running out of your best seller on the weekend of an Instagram post is a very avoidable pain. A reorder point is a simple rule that says "when stock falls to this number, order more." It removes guesswork from restocking and stops you from reordering either too early, which locks up cash, or too late, which loses sales.
The two things you need to know
Two inputs drive the rule.
- Lead time, the number of days between placing an order with your supplier or workshop and having the stock in your hands, ready to sell. Include any delay in packing, transport and your own checking.
- Usual daily sales, roughly how many units you sell on a normal day or week. Look at your recent orders and take an honest typical figure, not your best week.
The basic idea is that while you wait for new stock, you keep selling. Your reorder point should cover that waiting period.
A worked example, with made-up numbers
These figures are purely illustrative. Say you sell a scented candle. Suppose you sell about 3 a day on a normal day, and suppose your maker needs 10 days to produce and deliver a new batch.
During those 10 days you would sell about 3 times 10, which is 30 candles. So if you place the order when you still have 30 left, the new batch should arrive just as you run out. That 30 is your basic reorder point.
Now add a cushion. Sales are uneven and suppliers are sometimes late. If you add 10 extra candles as a buffer, your reorder point becomes 40. When the count touches 40, you order. For more on sizing that cushion, see safety stock, a simple calculation.
Adjust for your reality
The numbers will differ for every product, which is why each item or at least each group deserves its own point.
- A product made to order from raw materials has a longer lead time than one you buy ready-made.
- Seasonal items may need a higher point as a festival approaches, because daily sales jump.
- Slow sellers can have a low point, or you can reorder only on demand.
- Items with several sizes or colours need a point per variant, since each sells at a different pace.
If your supplier has a minimum order, make sure the quantity you reorder is not far above what you can sell. The order size and the order trigger are two separate decisions.
Write it down where you will see it
A rule is useless if you forget it. Put the reorder point on your stock sheet next to each product, or on the bin label itself. When you do your regular count, compare the number to the point. If it is at or below, place the order that day. A habit such as a weekly stock count makes this check automatic.
Revisit it from time to time
Your point is only as good as the figures behind it. If a product suddenly sells faster after a reel, or your supplier starts taking longer, update the numbers. A reorder point from last year may be wrong today. The article on the reorder point formula with a worked example goes through the arithmetic in another style if you want a second look.
Watch your cash too
Ordering sooner or in bigger lots ties up money. Weigh the cost of a stock-out against the cost of holding extra. You can see how that balance works in inventory turnover for a small store.
Start with your three best sellers. Work out lead time, estimate daily sales, add a modest buffer, and write down the number. Next week, when you count, you will already know exactly when to reorder.