Calculate when to reorder stock. Prevent stockouts with optimal safety stock and reorder points.
The reorder point is the stock level at which you should place a fresh order so you do not run out while waiting for delivery. Formula: reorder point = (average daily sales x lead time) + safety stock, where safety stock = (max daily sales x max lead time) - (average daily sales x lead time). Safety stock is the buffer that covers unexpected spikes in demand or delays from the supplier.
A grocery store sells on average 20 units a day of a product with a 7-day supplier lead time, but on peak days sells up to 35 units and delivery can take up to 10 days. Safety stock = (35x10) - (20x7) = 350 - 140 = 210 units; reorder point = 140 + 210 = 350 units. So when stock drops to 350 units, it is time to reorder.
Lead time is the number of days from when you place an order with your supplier to when the stock actually reaches your shelf and is ready to sell. For a local distributor it may be 2-3 days; for imported goods it can be weeks.
Because demand and delivery are never perfectly steady. Safety stock covers festival spikes, a sudden rush, or a delayed truck, so you avoid stockouts and lost sales during the wait.
Take total units sold of that item over a period, say 30 days, and divide by the number of days. Using a recent period keeps the figure realistic for current demand.
Yes. Demand and even supplier lead times rise around festivals, so increase your max daily sales and max lead time inputs before Diwali or wedding season to build a bigger buffer.
Demand forecasting, safety stock, and auto-reorder built into your inventory.
See Inventory Management
