What is a reorder point? (and how to set one for each product)
A reorder point is the stock level at which you place your next order, and it comes from how fast you sell and how long your supplier takes to deliver.
The simple idea
A reorder point is a number. When your stock of a product falls to that number, you order more. Not earlier, which ties up cash, and not later, which leaves shelves empty while you wait.
It answers the question every seller asks at some point: "When should I reorder?" Instead of waiting until the box looks empty, you decide the trigger in advance.
What goes into it
Two things matter.
- How many you sell in a period, like a week.
- How long it takes from placing the order to having the stock in hand, called lead time.
Multiply the two, and you get the stock you will use up while waiting for the new batch to arrive.
Worked example
Say you sell a cotton tote bag. On average you sell 5 a week. Your supplier takes 2 weeks to deliver after you order.
During those 2 weeks you will sell about 5 times 2, which is 10 bags. So if you place your order when you still have 10 bags, those 10 will last just until the new ones arrive.
That 10 is your basic reorder point. But life is not that neat. A reel might do well, or a delivery might slip by a few days. So most sellers add a small buffer. Say you add 4 extra bags. Your reorder point becomes 10 plus 4, which is 14.
So the rule for the tote bag is: when stock reaches 14, place the order.
The buffer is your own choice, based on how unpredictable your sales and your supplier are. A longer discussion of that cushion is in safety stock: a simple calculation, and what safety stock is explains the idea.
Do it for each product
Different products sell at different speeds and have different lead times, so each gets its own number.
- A fast seller with a long lead time needs a higher reorder point.
- A slow seller with a short lead time needs a much lower one.
- A product you make yourself in a day needs hardly any, because you can restock quickly.
Keep the numbers in a simple sheet with columns for product, weekly sales, lead time in weeks, buffer and reorder point. Update it every few months, or when sales change.
Where do you get your weekly sales number
Use real data. Look at the last four to eight weeks of orders for that product and take an average. Do not use your best week. If you track stock by variant, for example by size or colour, do it per variant, as described in how to track stock per variant in your catalogue. Exporting your orders can help, see exporting store orders to a spreadsheet.
What it will not handle
A reorder point works for steady products. It struggles with seasonal ones, like festive items, where sales jump. For those, plan the quantity ahead, as in how to plan festive stock without overbuying.
Counting matters
The number only helps if your stock count is right. If your record says 14 but the shelf holds 9, you are already late. A habit like doing a weekly stock count in 30 minutes keeps it honest.
Where to start
Pick your three best sellers. For each, write weekly sales, lead time and a buffer you are comfortable with, then compute the reorder point with the method above. For another walkthrough, see the reorder point formula, worked example.