Guide
How to Know When to Reorder Stock Before You Run Out
Work out the exact stock level at which to place your next supplier order, so you stop selling out of your best products and stop over-buying the slow ones.
Why "when it looks low" costs you sales
Most small sellers reorder when the shelf looks thin. The trouble is that your supplier needs time to make and ship the order. If it takes 10 days to arrive and you only notice at 5 days of stock, you will sell out for 5 days. A reorder point replaces the guess with one number per product.
The sum: three inputs
Reorder point = (average daily sales x lead time in days) + safety stock. - Average daily sales: units sold in a period divided by the days in that period. - Lead time: days from placing the order to having it ready to sell. - Safety stock: a cushion for slow deliveries or a sudden busy spell.
A worked example
A candle seller sold 180 jars of one scent over the last 30 days. Daily sales are 180 / 30 = 6 jars a day. The supplier usually delivers in 10 days, so demand during the wait is 6 x 10 = 60 jars.
The last two deliveries were each about 3 days late, so the seller keeps 3 days of extra stock: 6 x 3 = 18 jars. The reorder point is 60 + 18 = 78 jars. When stock falls to 78, place the order. If the delivery is on time, the seller receives it with about 18 jars left. If it is 3 days late, the cushion covers it.
How much safety stock is right? There is no perfect figure. A simple rule is to look at how late your worst recent delivery was and multiply those days by your daily sales. Products that are your best sellers, or that take a long time to replace, deserve a bigger cushion. Cheap items that are easy to restock can have a small one. The cost of a cushion is cash sitting on a shelf, so do not add it to every product by default.
Keep the number up to date
Daily sales change with the seasons. Recalculate each month using the latest 30 days. If the same candle now sells 9 a day, the demand during the 10-day wait is 90, and the cushion for 3 days is 27, so the new reorder point is 117. Using the old 78 would mean running out in about 9 days after the order is placed.
Put it in a sheet
Write the reorder point next to each product's current stock and flag any row where stock is at or below it. Our free reorder point calculator does the sum for one product. A workbook can do it for every product at once.
