Reorder point calculator

A reorder point is a number for one product: when the stock on hand drops to this level, it is time to order more. Order any later and you risk running out before the delivery lands. Order any earlier and you tie up cash in stock that sits.

Without one, most shops reorder by feel. You glance at the shelf, it looks a bit thin, and you add it to the list. That works for a handful of products. It stops working when you have a hundred, when someone else does the ordering, or when your supplier takes a week.

The reorder point has two parts: the stock you will sell while you wait for delivery, plus a cushion.

• Average daily sales: how many units you sell on a normal day. Take a few weeks of sales and divide by the days you were open.
• Lead time: days from placing the order to having the goods ready to sell. Count the delivery and the time it takes to put them out.
• Safety stock: extra units kept for a busy week or a late delivery.

The first part is the stock you will sell while you wait. The second part is protection against the average being wrong, which it sometimes is.

Average daily sales

Look at the last four weeks. If you sold 150 packs of rice over 30 days, that is 5 a day. If you only open six days a week, divide by the days you actually opened, since closed days do not sell and do not count as waiting time either. Be careful with seasonal products. A number from a quiet month will under-order before a holiday.

Lead time

Write down the date you order and the date the goods are on the shelf, for your last few orders. Use the typical figure for the average, and the slowest one for the safety stock calculation below.

Safety stock

You have two ways to set it. Pick a number you are comfortable with, such as one extra day of sales. Or work it out from your worst case: highest daily sales × longest lead time - average daily sales × average lead time. This is the toggle in the calculator. It asks how much more stock you would need if your best sales day and your slowest delivery arrived together.

A shop sells a 1L cooking oil. Over the past month it averaged 12 bottles a day. The supplier delivers in 4 days. On its best day, the shop sold 20 bottles, and the slowest delivery ever took 6 days.

1. Stock sold while waiting

   12 bottles a day × 4 days = 48 bottles.

2. Safety stock from the worst case

   20 bottles × 6 days = 120. Subtract the 48 expected, and the cushion is 72 bottles.

3. Reorder point

   48 + 72 = 120 bottles. When the shelf and storeroom together show 120, order.

That is a very cautious setting. It protects you even if the best day and the slowest truck coincide, which almost never happens. Many shops settle for something in between. With a safety stock of 12 bottles, one extra day of sales, the reorder point is 48 + 12 = 60 bottles. The first setting keeps you safer from running out. The second keeps less money sitting in oil.

Choose by what a stock-out costs you. Running out of the product customers come in for costs far more than a fast-selling item that is occasionally tight. For a slow, easy-to-find item you can run a thin cushion.

1. Count stock on hand, including the storeroom, but not what is already on order.
2. Compare it with the reorder point. At or below it, place an order.
3. Decide how much to order. A simple rule is enough to cover the next gap between orders, plus the cushion again.
4. Review the number every few months, or whenever sales or delivery times change.

The reorder point says when to order, not how much. Order size depends on your cash, your storage space and any minimum your supplier sets. For a fuller walk-through, see how to set reorder points.

• Wrong stock counts. The reorder point is only as good as the quantity you compare it with. If your records have drifted, count your stock first.
• Changing demand. Promotions, school terms, weather and holidays all move sales. Recalculate before them.
• Unreliable suppliers. If lead times swing from 2 days to 10, use the longest and keep a larger cushion.
• Products you order together. If you order from one supplier on a fixed day each week, the schedule matters more than the number, and you can use the calculator to decide how far to stock up for the gap.

Shopkeepa is built so you can set a minimum for each product and be reminded when stock reaches it. See low-stock reminders. The calculator above gives you the number to put in.